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Fri Jul 31, 2015, 12:37 AM

UN sets principles for new debt framework

Source: Buenos Aires Herald

The establishment of a new legal framework for sovereign debt restructuring is now a step closer to becoming a reality as the United Nations Ad Hoc Committee on Sovereign Debt Restructuring Processes approved yesterday a set of principles that seek to limit the actions of “vulture” funds worldwide.

After six months of meetings and summits, the UN committee agreed on nine principles that sum up the main points to be included in the framework. The points agreed upon by the body are:

- The sovereign right of states to restructure their debts.
- Sovereign immunity.
- Respect for majority decision in restructuring processes.
- Equal treatment.
- Good faith.
- Transparency.
- Impartiality.
- Legitimacy.
- Sustainability.

The document will now be put to a vote in the General Assembly in September.

“Many countries still did not attend the committee meetings, but then called to ask for the records. They care about the issue but they don’t want to discuss it,” the Argentine Foreign Ministry’s International Economic Relations Secretary Carlos Bianco said after the meeting. “We believe the best solution can be reached at the UN but that doesn’t mean we reject other alternatives. Even the IMF said there’s a loophole regarding the vultures.”

Sovereign immunity from jurisdiction and execution regarding sovereign debt restructurings is a right of states before foreign domestic courts and exceptions should be restrictively interpreted, according to the committee. Argentina has long argued that stance during its legal battle with holdout creditors and in response to the United States District Judge Thomas Griesa’s rulings.

According to the principles that were signed off on yesterday by the Ad hoc committee, sovereigns also have the right to design their macroeconomic policy, including restructuring its sovereign debt. That principle extends to restructurings, which should not be frustrated or impeded by any abusive measures, and that should take place as a last resort for the country. At the same time, there must be “good faith” by the country and by all its creditors to engage in “constructive” debt restructuring negotiations, according to the committee, with the goal of a “prompt and durable reestablishment of debt sustainability and debt servicing” as well as achieving the support of a critical mass of creditors through a constructive dialogue regarding the restructuring terms.

“The current international debt restructuring system suffers from problems of fragmentation, inefficiencies and protracted negotiations, which lead to a lack of growth oriented solutions to the debt problems of developing countries and challenges to developed countries,” the committee concluded. “The activities of non-cooperative litigating creditors continue to add to the uncertainty of post-debt restructuring outcomes.”

Read more: http://buenosairesherald.com/article/195111/un-sets-principles-for-new-debt-framework



The only real problem: vulture funds make their money by cashing in on Credit Default Swaps - which, as the name implies, only pay out if the targeted bond issuer is pushed into default, be it by hook or crook (or a bribed judge).

Mind you, this scam isn't limited to far-away countries; CDS can -and have- be used against corporate bonds right here in the U.S. (Delphi Automotive and Caesar's Entertainment went under this way). It's only a matter of time until vulture fund pirates like GOP-megadonor Paul Singer (the chief litigant in the Argentine case) use the Griesa rulings as precedent to go after municipal bonds - and ultimately U.S. bonds.

From his Cayman Islands perch, of course.

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Reply UN sets principles for new debt framework (Original post)
forest444 Jul 2015 OP
Demeter Jul 2015 #1
forest444 Aug 2015 #4
Demeter Aug 2015 #5
forest444 Aug 2015 #6
annabanana Jul 2015 #2
branford Jul 2015 #3
Amishman Aug 2015 #7

Response to forest444 (Original post)

Fri Jul 31, 2015, 05:21 AM

1. How VERY interesting! Thanks for post

 

I'm stealing it for SMW, of course...

I didn't know the UN did economic issues. Although, this is more like piracy, or economic warfare...

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Response to Demeter (Reply #1)

Sat Aug 1, 2015, 12:50 PM

4. Thank you for that, Demeter.

While it is worth noting - as someone pointed out below - that these General Assembly resolutions can't be enforced (this being Winston Churchill's most significant real legacy), the fact that the UN recognizes vulture fund extortion as a threat to global well-being really is a meaningful milestone.

Before I forget, what's SMW?

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Response to forest444 (Reply #4)

Sat Aug 1, 2015, 06:32 PM

5. The daily Stock Market Watch thread

 

featured in the Economics Group

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Response to Demeter (Reply #5)

Sat Aug 1, 2015, 06:39 PM

6. Much obliged.

Just goes to show there's so much more to DU than the Latest Breaking News wall.

Thanks again!

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Response to forest444 (Original post)

Fri Jul 31, 2015, 09:09 AM

2. kicking because

there's a lot here I don't "get"

But it might be really important, and I'm hoping that there are DUer's here that know what's what in this djepartment.

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Response to forest444 (Original post)

Fri Jul 31, 2015, 03:35 PM

3. The General Assembly, no less a GA committee, is meaningless.

 

The proposals would need to adopted by treaty for any country to be bound, and as indicated in the article, the United States, United Kingdom, Japan, Canada, Australia and Germany voted against the measure, and 41 countries abstained, mostly from European countries and including South Korea, New Zealand, and even Iceland.

Within this context, it should also be noted that most sovereign debt is issued with explicit choice of law and forum selection clauses that denote major western countries such as the USA or Britain as the country who's laws apply to the bonds. This is necessary to ensure consistent, open, and transparent means to collect on such bonds. Without these clauses, the inherent risks and high interest rates would make such sovereign debt untenable for most issuing countries. For instance, Argentinian bonds controlled by Argentinian law and enforced by Argentinian courts wouldn't be totally unmarketable without ridiculously high rates.

Unless and until major western powers agree to the proposals set forth in the article, a very unlikely prospect, particularly in the USA where it would require two-thirds Senate approval, this is little more the United Nations paper pushing and posturing.

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Response to branford (Reply #3)

Mon Aug 3, 2015, 07:48 AM

7. well said, this agreement sounds good on paper but is as toothless as the rest of the UN

No independent enforcement power makes the agreement nothing more than a starting point to get a more binding agreement setup. Its way too early to celebrate.

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