UN v. #Griefault

Majority restructuring implies that sovereign debt restructuring agreements that are approved by a qualified majority of the creditors of a State are not to be affected, jeopardized or otherwise impeded by other States or a non-representative minority of creditors, who must respect the decisions adopted by the majority of the creditors. States should be encouraged to include collective action clauses in their sovereign debt to be issued…

This first paragraph makes clear that debt restructuring is a part of standard macroeconomic policy, not some unusual policy tool. The second paragraph is an attempt to rein in the US courts that have pushed Argentina into default, in violation of the spirit if not letter of foreign sovereign immunity law. The final paragraph is a jab at vulture funds, which buy up a minority of bonds and attempt to get much more of the face value that creditors who agreed to restructuring.

The vote passed by a recorded vote of 136 in favor to 6 against (Canada, Germany, Israel, Japan, United Kingdom, United States), with 41 abstentions.

According to the minutes of the debate, the US objected to what it saw as “the implication of a right to debt restructuring and the threat to contractual obligations”. (Editorial note: the Obama administration has publicly objected to US courts’ interpretation on these questions, but now appears to have closed ranks.) The EU wanted to punt this to the International Monetary Fund (which, editorial note, has failed to produce a bankruptcy court for decades).

But, as the vote count makes clear, the US and EU were in the minority, with some developed countries (like Australia) abstaining and others siding openly with the bloc of developing nations:

The representative of the Russian Federation said the conflict between debtors and creditors was becoming a greater threat to global financial stability.  The Russian Federation had always supported improvement in the sovereign debt restructuring process within the United Nations.  The principles adopted today provided the basis for a fair, balanced and effective process for sovereign debt restructuring through a universal legal mechanism that could apply to all forms of external debt.  In that context, his delegation had voted in favour of the text…

Iceland’s delegate said that ad hoc [debt] arrangements had created incoherence and unpredictability…

The speaker from Argentina stated that the adopted resolution was a text in favour of stability.  Debt was responsible for inequality and took advantage of less developed countries.  As a democratic forum where all sovereign countries had a voice, the United Nations was the only body that had passed resolutions that changed the course of history.  Therefore it was wrong to say that the Assembly was not the right forum.  Countries had a right to restructure debt and it was crucial to put an end to the power of vulture funds that fed on the lack of global legislation to take advantage of many poor countries.