The UN General Assembly has passed a resolution supporting a nation’s right to restructure its debt without interference from foreign courts. The move strengthens Argentina’s hand in a debt dispute with US hedge funds.
During a vote on Thursday, the UN General Assembly adopted a new global framework for sovereign debt restructuring, voting overwhelmingly in favor of nations’ right to seek protection from creditors.
The non-binding resolution said countries should adopt principles that would protect sovereign governments from minority creditors which refuse to go along with the majority in mutually agreed debt restructurings.
It also said that restructuring deals should not be subject to disruption by foreign courts or other states, “who must respect the decisions adopted by the majority of the creditors” and should refrain from “any abusive measures.”
The resolution was drafted by the Group of 77, a coalition of developing countries within the United Nations, and submitted by South Africa. It garnered 136 votes in favor, while the United States, Canada, Israel, Germany, Japan and Britain voted “no.” Another 41 countries abstained, including many from the European Union.
Luxembourg’s ambassador to the UN, Sylvie Lucas said she could not support the text and would prefer to discuss the issue within the International Monetary Fund (IMF) rather than the UN.
Speaking on behalf of the EU member states she said: “The resolution contains a number of statements which do not faithfully reflect international law or practices.” A US representative called the resolution “problematic,” noting that it contained “language that could be construed as acknowledging a certain right to restructure debt, which doe not exist.”
Argentina case strengthened
The resolution is mainly intended to avoid cases like Argentina’s grinding battle with US hedge funds, which have refused to accept discounted payment on the country’s sovereign debt, after restructuring deals in 2005 and 2010. At the time, 93 percent of Argentina’s creditors agreed to forgive Buenos Aires a huge bulk of its debt.
But a group of US hedge funds, labeled by Argentina as “vultures,” scooped up the bonds for a fraction of their face value and have since gained US court backing to claim full repayment.
Argentina argues that if it pays the hedge funds the full amount, it would undermine the basis for the restructuring deals with its creditors, creating an incentive in future for creditors to stay out of other restructuring deals that are crucial to help a defaulting country get back on its feet.
Argentinean Foreign Minister, Hector Marcos Timermann, therefore, welcomed the resolution, saying it would promote “countries’ economic stability, development and well-being.”
“Today, debt is the cause of violence, inequality, of situations whereby the powerful take advantage of less developed countries needing funds,” he said after the vote in New York, adding that “the pirates of this century, the vulture funds” must be stopped.
uhe/nz (dpa, AFP)