UNITED NATIONS, United States: The United Nations voted overwhelmingly Thursday in favor of a new global framework for sovereign debt restructuring aimed at avoiding cases like Argentina’s grinding legal battle with “vulture” creditors.
The non-binding resolution said countries should adopt principles that would protect sovereign governments from minority creditors which refuse to go along with the majority in mutually agreed debt restructurings.
It also said that restructuring deals should not be subject to disruption by foreign courts or other states, “who must respect the decisions adopted by the majority of the creditors.”
The South Africa-submitted resolution, “Basic Principles on Sovereign Debt Restructuring Processes”, garnered 136 votes in favor and six against with 41 countries abstaining. The United States was one of those opposing the resolution.
It came as Argentina nears its 10th year battling US hedge funds in US courts over their claim for full payment on their defaulted Argentine bonds, after having refused to join the vast majority of the country’s creditors in accepting a restructuring deal.
After Buenos Aires defaulted on some $100 billion in debt in 2001, the hedge funds, labelled “vultures” by the country, scooped up the bonds for a fraction of their face value and have since gained US court backing to claim full payment.
Argentina argues that if it pays the hedge funds the full amount, it would undermine the basis for the repayment deals the country struck in 2005 and 2010 with 93 percent of creditors.
But that would also create an incentive for creditors to stay out of restructuring deals that are crucial to help a defaulting country get back on its feet.
Groups such as the World Bank and International Monetary Fund have warned that the Argentina case highlights a challenge that could interfere with their efforts to restore the economic and financial viability of other countries.
Some Caribbean countries have faced the same problem as Argentina, and worries are that it could affect the debt restructuring being negotiated by Ukraine and its creditors.
The new resolution stresses creditors’ rights and restructuring of debt “as a last resort.”
But it says a country has “the right” to pursue such a path and “should not be frustrated or impeded by any abusive measures.” AFP