The United Nations General Assembly approved nine guiding principals for sovereign debt restructuring processes to improve the global financial system -- a proposal inspired by Argentina's debt crisis.
The resolution asserts that countries should protect foreign governments from minority creditors who refuse to go along with the majority of creditors who have mutually approved a restructuring plan, according to BBC News.
The proposal, submitted by South Africa, was approved by a landslide 135 votes in favor -- with the opposition of six countries including the United States, the United Kingdom, and Germany. Forty-two countries abstained from the vote, including most European nations.
The General Assembly's resolutions are not legally binding, but carry political weight. The resolution urges debtors and creditors "to act in good faith and with a cooperative spirit to reach a consensual rearrangement" of sovereign debt. It adds that states should be immune from domestic court decisions related to sovereign debt restructuring, adding that any exceptions should be limited, reports Reuters.
The resolution includes nine principles that should be respected when restructuring sovereign debt: sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring.
The result offers a starting point for discussion within the international body regarding an international bankruptcy law for states, that would protect good faith creditors, explains Página 12.
Sovereign debt restructuring has been fairly regular for the past two hundred years, reports Página 12 in a separate piece. Since 1950 there have been more than 600 around the world. But -- unlike corporate bankruptcy, for example -- the process takes place in a legal vacuum, and there are no global rules to protect countries that default and their creditors.
Argentina's proposal to create international legal framework for the restructuring of sovereign debts was backed last year by the 134 countries of the G77. However it met with opposition from the U.S., which rejects the concept that countries have a right to restructure their sovereign debt.
Opposition nations favored taking the discussion to the IMF, saying it is a more appropriate venue for the debate. However, proponents of the resolution note that those are less democratic organizations, where the Global South has less of an influence, reports La Nación.
But Página 12 notes that the initiative joins efforts of the private sector, the IMF and other countries to limit the sovereign debt restructuring problem by modifying clauses on bonds.
The representative of South Africa, speaking on behalf of the Group of 77 developing countries and China said the text provided a good basis for future discussions. The principles seek a "win-win" situation for debtors and creditors, reports Página 12.
A letter in The Guardian earlier this week from leading economists, including James Galbraith and Thomas Picketty urged European countries to vote in favor of the resolution, noting that that such a framework would have permitted Greece to avoid many of the pitfalls of its current crisis, "in which political representatives gave in to creditor demands despite their lack of economic sense and their disastrous social impact."
The proposal was inspired by Argentina's travails with so-called "vulture funds," hedge-fund creditors who purchase debt at bankruptcy prices and then litigate for years seeking to obtain full repayment on the defaulted bonds. The proposal cannot help Argentina's current judicial dispute with hedge funds seeking to prevent the payment of the country's renegotiated debt, but could benefit countries seeking to restructure their debts, such as Greece, Puerto Rico, Portugal and the Ukraine.
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