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UN votes on Sovereign Debt Restructuring

The UN General Assembly on 9 september 2015 adopted the resolution on sovereign debt restructuring that would establish an intergovernmental negotiation process aimed at increasing the efficiency, stability and predictability of the international financial system.

With 124 votes in favour, 11 votes against and 41 abstentions, the Assembly adopted “Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes” (document A/68/L.57/Rev.1).

Introducing the draft resolution, Sacha Sergio Llorentty Solíz (Bolivia), speaking for the “Group of 77” developing countries and China, said the text stressed the importance of timely, effective, understandable and lasting debt restructuring solutions for developing countries that would promote growth in an inclusive manner.

However, Terri Robl ( United States), speaking in explanation of vote, stressed that she could not support a statutory mechanism for sovereign debt restructuring as such a mechanism was likely to create economic uncertainty.  That uncertainty could impact upon the provision of financing to developing countries.  In the past, market-oriented approaches had been preferred and work was ongoing in the International Monetary Fund (IMF) and elsewhere.  Furthermore, not only had the resolution presupposed a final outcome, which inhibited proper discussion, it had been snuck onto the docket at the very end of the session, establishing a costly mandate and asking Member States “to write a blank cheque”.

Hector Timerman, Minister for Foreign Affairs of Argentina, expressing pride that so many countries supported the resolution, stated that as a “democratic forum par excellence”, the General Assembly was the right place for discussions aiming at embarking on an ethical political and legal pathway to end unbridled speculation.  The clear majority agreed it was time to establish a legal framework for restructuring that respected creditors while allowing debtors to emerge from debt safely.  The profits currently made by vulture funds were scandalous and were funnelled into campaigning and lobbying to prevent changes to the situation.

Addressing those who had not voted in favour of the resolution, he noted that those delegates generally represented centres of finance.  Yet, a legal restructuring framework would benefit developed, as well as developing, countries.  Sovereign debt held development back and the establishment of a better system could improve global economic security.  The Assembly’s democratic decision to support the creation of a mechanism would give the peoples of the world what they deserved, saving them from the “sinister masters of opulence” who ran vulture funds.

Rodolfo Reyes Rodríguez ( Cuba) pointed out that vulture funds did not deserve the name “vulture”.  Vultures contributed positively to ecosystems; vulture funds were parasitic.  Developing countries had paid many times the amounts originally received as loans and that ate resources essential to development.  He wondered how much progress on the Millennium Development Goals had been missed through such denial of resources.

Shorna-Kay Marie Richards (Jamaica), noting how recent events brought urgency to addressing sovereign debt and establishing a multilateral mechanism for restructuring, said that the United Nations dealt with States’ sustainable development objectives.  Therefore, the General Assembly was an appropriate forum in which to consider those issues.  The private market could not fully address problems of unsustainable sovereign debt.  That had been particularly apparent in speculation by specialized investment funds that purchased distressed and deeply discounted sovereign debt on secondary markets for the sole purpose of recouping full value through litigation.

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