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At UN, 2d Sovereign Debt Restructuring Resolution Passes 128-16-34

By Matthew Russell Lee

UNITED NATIONS, December 5 -- The issue of sovereign debt restructuring was taken up against at the UN on December 5, with a resolution on modalities for negotiation sponsored by Bolivia for the Group of 77 and China put to a vote in the Second Committee of the UN General Assembly.

  The US spoke against the resolution and in favor of dealing with it through the International Monetary Fund -- note that the US is blocking IMF reform -- and was one of 16 countries to vote "no."  34 countries abstained and fully 128 countries voted yes.
  Afterward Bolovia's Permanent Representative Sacha Llorenti and his counterpart from Argentina Maria Cristina Perceval held a press conference in the UN Press Briefing Room.

  Inner City Press thanked the duo for the Free UN Coalition for Access -- tellingly, the old UN Correspondents Association wasn't there, though the UN Secretariat insists on setting aside question for what's become its UN Censorship Alliance -- and asked about the IMF, and a growing investors in Argentina's debt.

  Llorenti emphasized the greater legitimacy of the UN General Assembly -- one country, one vote -- over the pay to play environment of the IMF. He contrasted the 16 "no" voting countries as a percentage of those in the GA, versus their power in the IMF.

  Perceval joined and expanded in this comments, and declined to comment on the company Inner City Press had asked about, Highland Capital. She said this is not about Argentina's problem but the multilateral process. She said that Argentina took a lead on the issue of the disappeared, though it was too late to help Argentina.

  While understandable, there's nothing wrong with a particular country's problems being an engine for raising an issue of wider import. This is how things get changed, if they do, says the Free UN Coalition for Access. We'll have more on this.

On October 6 with the dispute between Argentina and hedge or vulture funds more and more discussed, the International Monetary Fund on released a paper and held an embargoed press call on the topic of "Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring."

  Inner City Press asked the IMF's Sean Hagan, General Counsel and Director of the IMF's Legal Department, how his "market based" approach relates to the vote take last month in the UN General Assembly and to respond to the critique that the lack of quota reform at the IMF undermines the legitimacy of its approach.

   Hagan said the UNGA's approach is "treaty based," and that

"There was insufficient support in our members to support that approach, there has been in no change in the attitude of our members when we discussed this last year.”

  But in essence the membership of the IMF is the same as the UN General Assembly -- it's just that in the IMF votes are weighed to wealth, measured in the past. The UN is controlled by five permanently veto-wielding Security Council members. At the IMF for now there is one veto: the US.

  Hagan made much of Kazakhstan including some of the IMF supported language in its most recent bond issuance. He mentioned copycat litigation, already pending in Grenada. He said it seems the issue will be discussed at the upcoming IMF and World Bank Annual Meetings in a session involving "civil society organizations." We'll have more on this.

 For now, the IMF on October 6 said "Directors acknowledged that the recent New York court decisions with respect to Argentina may exacerbate collective action problems, although most felt that the extent of their impact on the restructuring process is still unclear. Directors welcomed the recent modification of pari passu clauses in certain sovereign bond issuances to explicitly exclude the obligation to effect ratable payments."

 So beyond the cited Kakastan, how prevalent is this?

 The IMF also on October 6 discussed "the inclusion of an enhanced collective action clause (CAC) that includes a more robust 'aggregation' feature to address collective action problems more effectively."

  Back on September 11, two days after 124 nations in the UN General Assembly voted to start a process on sovereign debt restructuring, Inner City Press asked the International Monetary Fund, "What is the IMF's comment on the “sovereign debt restructuring” resolution adopted by the UN General Assembly on September 9? The resolution cites the IMF's work on the issues, in 2003."

  At the IMF's embargoed briefing that day, IMF spokesperson William Murray provided a long answer, including that the IMF is working on a "market based" solution, particularly on debt contractual terms to prevent "hold out" problems. He mentioned, as he had to, Argentina, which has had it own contentious relation with the IMF.

  Clearly, Argentina -- and Bolivia as chair of the Group of 77 -- were aware of these IMF efforts when they pursued the issue in the UN General Assembly. But it's a power game.

When Argentina's foreign minister Héctor Timerman held a press conference at the UN at 5:30 pm on September 9, he was flanked not only by Argentina's ambassador to the UN Maria Cristina Perceval but also the chair of the Group of 77, Sacha Llorenti of Bolivia.

  They spoke of 11 countries opposing their resolution on sovereign debt and vultures funds, or sovereign debt restructuring, including the United States. Timerman took the high road, saying that Argentina would present a project with the G77 and speak with all opponents.

  He asked how the UN General Assembly, which he called the most democratic forum, could be involved in so many fields but not this one. Why indeed.

   Back in June, Inner City Press thanked Timerman and his finance minister Axel Kicillof on behalf of the Free UN Coalition for Access, then asked if Elliott Management and Aurelius Capital hold stakes in other G77 members, and if the case shows the need for reform, that countries should have at least the same debt restructuring rights as corporations.

  Kicillof added, states and the people (pueblos) they represented. He said that in the G77 meeting, Peru had spoken. An attentive Inner City Press reader chimed in with a question about Ecuador, which sold bonds just this week.

  But in that case, new language tried to avoid the Argentina decision of the US Supreme Court, just as Belize and Armenia have also done on their debt. Watch this site.


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