UN sets principles for new debt framework [View all]

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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

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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.