STOCK MARKET WATCH -- Friday, 31 July 2015

[Demeter]

9. UN sets principles for new debt framework (HOPE THIS SPIKES TPP AND CO)

http://buenosairesherald.com/article/195111/un-sets-principles-for-new-debt-framework

The General Assembly will now vote on legislation that seeks to stop ‘vulture’ funds

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 document will now be put to a vote in the General Assembly in September, according to Bolivia’s Ambassador to the UN and chair of the committee Sacha Llorenti.

“Many countries still did not attend the committee meetings but then call and ask for the records. They care about the issue but they don’t want to discuss it,” the 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 resolution also notes that transparency should be promoted to enhance the accountability of the actors involved in the negotiation, which could be achieved by sharing data related to the debt workouts. Meanwhile, states should treat their creditors equally, unless a different treatment is justified under law. The committee also concluded that sovereign debt restructuring agreements approved by a majority of a state’s creditors can’t be affected by other states or a non-representative minority of the creditors such as the “vulture” funds, who must respect the decisions adopted by the majority, according to the last principle. States should also be encouraged to include collective action clauses in their sovereign debt to be issued in the future.

“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.”

A long debate

The UN’s General Assembly voted in September 2014 overwhelmingly in favour of a proposal to create the framework, a move that was sparked by Argentina’s debt battle with its holdout creditors. The resolution was approved by 124 countries, while only 11 voted against it and 41 abstained. The draft was presented by Bolivia on behalf of the Group of 77 (G-77) developing nations and China. The United States accompanied by the United Kingdom, Japan, Canada, Australia and Germany voted against the measure. The 41 abstentions were mostly drawn from European countries and included the South Korea, New Zealand and perhaps surprisingly, Iceland. Iceland is often cited as an example of rebellion in the face of international finance as it voted in a 2010 referendum to reject the terms of debt deal after a severe banking crisis.

In voting against the resolution, the United States said a statutory mechanism for debt restructurings would sow uncertainty in financial markets, and several states said the International Monetary Fund (IMF) was the more appropriate venue for discussing the issue over the United Nations.

Argentina refused last year to heed Griesa’s orders to pay the holdout hedge funds, led by NML and Aurelius, at the same time as it pays bondholders who participated in the debt exchanges following the country’s historic 2001 default. That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere. The move led US credit rating agencies to declare Argentina was in partial default...



BASED ON WHO OBJECTED, GOLDMAN SACHS IS NOT PLEASED WITH THE NOTION...