unctad.org | UNCTAD Side Event at 71st General Assembly, 2nd Committee: Sovereign Debt Restructurings
UNCTAD Side Event at 71st General Assembly, 2nd Committee: Sovereign Debt Restructurings
26 October 2016
10:00-13:00 hrs., Conference Room 2, UN Headquarters
New York

Key Issues

Sovereign Debt Restructurings: Lessons learned from legislative steps taken by certain countries and other appropriate action to reduce the vulnerability of sovereigns to holdout creditors

The contemporary system of sovereign debt restructuring is highly fragmented and based on a number of ad hoc arrangements. This fragmentation has given rise to numerous inefficiencies.

First, sovereign external debt problems tend to be addressed “too late” with “too little”. Debtor governments have been reluctant to recognize solvency problems for fear of triggering capital outflows, financial distress and economic crisis, while private creditors have an obvious interest in delaying explicit recognition of a solvency crisis, likely to entail haircuts.

Second, the current system predominantly places the burden of adjustment on the debtor economies, through austerity policies and structural reforms, with a strong recessionary bias.

And finally, the fast growing promotion of creditor rights as well as the rapid rise of bond financing in external debt markets has rendered sovereign debt restructuring enormously complex. In addition to the involvement of often thousands of bondholders with diverging interests as well as a range of jurisdictions, this has also facilitated the emergence of highly speculative funds, run by non-cooperative or holdout bondholders, including the so-called vulture funds.

The side event will take the form of a three-hour expert panel presentation and interactive discussion. Presenters will be drawn from government, academia, civil society, and the United Nations system.

Suggested questions for discussion:

  • What, so far, can we reliably say about the social and economic impacts of creditor co- ordination failure and of vulture fund activities?

  • How applicable are efficiency arguments for and against 'vulture' investment strategies in markets for corporate re -structuring to those for sovereign debt?

  • What role can or should the international principle of national sovereignty play in weighing the pros and cons of vulture fund activities in sovereign debt markets?

  • How effective, so far, is national legislation, relative to contractual approaches and international regulatory frameworks?

  • How, and to what extent, can and must such regulation also safeguard the principle of the equal treatment of creditors?


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