Thursday, 2 October 2014
More on the Argentine debt saga
On 26 September US District Judge Thomas Griesa issued a ruling enabling Citibank to process a one-off payment on US dollar-denominated bonds issued under Argentine law to creditors that had agreed to the restructuring. This reversed a July decision by the same judge to the effect that no payment could be made without at the same time paying the full face value of the bonds held by the vulture funds. The ground for the decision is the uncertainty as to whether the bonds to be paid are subject to New York or Argentine law.
The sudden reversal confirms the doubts about Judge Griesa’ s erratic behaviour and the fears that he has lost a grip on the case that I referred to in a previous blog. More seriously, though, it also confirms the inappropriateness of handling complex multi-jurisdictional commitments and negotiations as if they were domestic cases to be tried in national courts. That this approach could have dangerous systemic consequences is by now well recognised; even the vulture funds themselves acknowledged that it would be reckless to continue preventing any payments, and supported the reversal.(1)
The way forward is therefore to set up a new, multilateral mechanism for debt restructuring. And this is precisely what the second recent development is about. As is by now fairly well known, on 9 September the United Nations General Assembly (UNGA) adopted Resolution A/68/L.57/Rev.1 entitled “Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes”. The Resolution contains a decision to ”elaborate and adopt through a process of intergovernmental negotiations, as a matter of priority during its sixty-ninth session, a multilateral legal framework for sovereign debt restructuring processes with a view, inter alia, to increasing the efficiency, stability and predictability of the international financial system and achieving sustained, inclusive and equitable economic growth and sustainable development, in accordance with national circumstances and priorities.”
This is clearly progress; however, the follow up to the Resolution is by no means straightforward. The text calls for a prior process “to define the modalities for the intergovernmental negotiations and the adoption of the text of the multilateral legal framework”; this will be difficult, given the fact that the main creditor countries either voted against the resolution (11 of them, including the US, the UK, Germany and Japan) or abstained (41 countries, including most of the EU). The end result could be a significant dilution of the original aim of adopting an international convention on debt restructuring.
The UNGA Resolution is without a doubt a major first step; but the road ahead is still long and hard.
(1) Alexandra Stevenson, “Judge Grants Temporary Stay in Argentina Default Case”, The New York Times, 26 September 2014.
By Carlos Fortin, Research Associate, Institute of Development Studies