Sovereign debt’s statutory solution

Author: | Published: 9 Dec 2014

A multilateral legal framework for restructuring sovereign debt has been put back on the table. But despite objections, it could be the best suggestion yet

In a landmark vote earlier this year, the UN General Assembly overwhelmingly decided to begin work on a multilateral legal framework for sovereign debt restructuring. The intention of the framework – effectively a treaty, convention, or model law – is to improve the global financial system. The resolution was introduced by Bolivia on behalf of the Group of 77 (G77) developing nations and China. In part, it was sparked by recent litigation in which the US Supreme Court let stand a lower court ruling that, to comply with a pari passu clause, Argentina could not pay holders of exchanged bonds without also paying holdouts who retained the original bonds. That decision was all the more dramatic because the holdouts included hedge funds – sometimes characterized...