INTRODUCTION

Italian debt exchanges are regulated by two pieces of legislation: the Measure for the Stabilisation of Public Finance (law 499/1977) and the Measure to Reduce External Debt of Lower Income and Highly Indebted Countries (law 209/2000).

For a country to be eligible for debt exchange under law 209/2000, the debtor nation must:

1. (i) have reached a ‘multilateral understanding’ with an organisation such as the Paris Club;

2. (ii) have made a commitment to respect human rights;

3. (iii) have renounced war as a means of solving controversy; and

4. (iv) be pursuing measures for social and human development, particularly the reduction of poverty.

Under this law, funds liberated by a debt conversion can be utilised in four specified sectors: agriculture, health, education and infrastructure. Within 90 days of entering into an agreement, the Italian Minister of Treasury, Budget and Economic Programs, in concert with the Minister of International Affairs, must issue criteria stipulating how the agreement will be carried out. Agreements may be suspended if funds are not being used for the purposes outlined in the agreement. A report must be made annually to the Italian Parliament for each debt-for-development exchange agreement, detailing, among other things, the costs, timing and progress of projects being implemented.

Under article 5 of law 209/2000, the Italian government can authorise a debt exchange in cases of natural disasters and grave humanitarian crises to assist the people and nations affected by such events. Pursuant to this provision, Italy undertook a debt exchange with Indonesia in 2005.