|
||
|
|
||
|
The triumph of perseverance Oscar Ugarteche reflects on the historic UN resolution to establish a legal framework for sovereign debt restructuring in the context of some earlier proposals for such reform. THE United Nations General Assembly on 9 September adopted a resolution backed by the G77 and China (made up of more than 130 countries) to work towards creating a multilateral framework for sovereign debt workouts. When all the G7 industrialised countries (Germany, Canada, the US, France, Italy, Japan and the UK) are highly indebted (using a World Bank definition of a debt-GDP ratio of over 100%), this framework might come in handy beyond only the emerging and developing economies. Under the resolution, the framework is to be constructed within a year. This is a Latin American triumph led by Argentina and proposed by Bolivia as chair of the G77. The resolution was supported by all Latin American countries bar Mexico. Costa Rica and Peru shifted their vote at the last moment. The vote was, however, bad news for European civil society organisations working on debt issues as most of their governments did not support the resolution. In Latin America, Professors Oscar Ugarteche and Alberto Acosta had proposed a UN-based International Board of Arbitration for Sovereign Debt (published in Spanish in Polis in 2006 and in English in the Finnish Journal of Latin American Studies in 2007). This feature differentiated their proposal from those put forward in Europe and by the International Monetary Fund (IMF). As of 2000, the world was heading towards a debt crisis and no new mechanisms were visible, as was evident in Argentina in 2001 and Uruguay in 2002. Professor
Anne Krueger, then at the IMF, proposed in 2001 a sovereign debt restructuring
mechanism (SDRM) with UN support, as an in-house mechanism. This was
killed by the US Treasury in 2002. The reason for the IMF proposal
was to prevent contagion of financial crises.The US Treasury was essentially
against this idea and John Taylor explains well how Treasury's intervention
in Uruguay in August 2002 facilitated their economic recovery (http://web.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/ Crisis_Five_Years_Later.pdf). That was the end of the SDRM initiative. Only after the NML Capital case against Argentina in 2014 - in which a US court ordered that Argentina's holdout creditors be paid in full - did the systemic problem of sovereign debt restructuring become once again the focus of attention. The response was quick to come from the International Capital Market Association (ICMA), the same day the G77 initiative was introduced into the General Assembly for a vote (29 August 2014). ICMA's proposed reform, backed by the US Treasury, essentially states that the US court ruling on Argentina is wrong. Under the ICMA proposal, 'the Issuer shall have no obligation to effect equal or rateable payment(s) at any time with respect to any such other External Indebtedness and, in particular, shall have no obligation to pay other External Indebtedness at the same time or as a condition of paying sums due on the Notes and vice versa' (http://www.icmagroup.org/resources/Sovereign-Debt-Information/). Secondly, the proposal lowers new limits for bondholders to enter a negotiation 'which is passed by a majority of:(A) at least 66 2/3% of the aggregate principal amount of the outstanding debt securities of affected series.; and (B) more than 50% of the aggregate principal amount of the outstanding debt securities in each affected series...'. These reforms go in the right direction but not far enough. The G77 and China have made an inroad into the internationalisation of the court, law and jurisdiction which will be resisted by those who voted against the resolution at the General Assembly: Germany, the UK, the US, Israel, Japan, Australia, Canada, Hungary, the Czech Republic, Ireland and Finland. Those whichvoted in favour were Brazil, Russia, India, China, South Africa (BRICS) plus Latin America en bloc, Africa en bloc, plus Asia.Abstentions came mainly from the European countries including, notably, France, Greece, Spain and Italy. The French abstention is significant as the Paris Club of official creditors is led by the French Treasury, while debt-ridden countries did not want to scare international financial markets by supporting the initiative. The votes of France, Greece, Spain and Italy could thus be read as France voting against and the other three voting in favour. The reaction of the US representative, Terri Robl, suggested that they were not expecting the proposal to be presented, least of all to have a majority vote. She said a mechanism (of debt restructuring) was being discussed at the IMF. (The last time, in 2002, the US Treasury blocked it in favour of the market mechanism via the international financial institutions, according to Robl.) The other point she made was that this was going to create economic uncertainty, a point that was not raised in 2002 with the SDRM nor in the recent ICMA debate. No uncertainty arose when the UN Commission on International Trade Law (UNCITRAL) - which looks at issues of insolvency law, among others - was launched. She also stated that in the past, market mechanisms had been preferred, reminding everyone who knew what had happened in 2002. The General Assembly resolution is a blow to the dominance by international financial capital of all legal mechanisms related to finance and is a wonderful first step towards a global mechanism for global finance. The US government will not be best pleased, but it does not matter - global problems require global solutions, whatever the US State Department and the International Capital Market Association believe. Another world is possible and we are getting there. Oscar Ugarteche, a Peruvian economist, works in Instituto de Investigaciones Economicas at the National Autonomous University of Mexico (UNAM). He is Coordinator of Observatorio Economico de America Latina (OBELA) and President of Agencia Latinoamericana de Informacion (ALAI). The above is an edited version of an article which first appeared on the ALAI website (www.alainet.org). |
||
|
|
||
