By Sonia E. Rolland*
In the shadow of headlines about the Greek debt
tribulations, a little-noticed, but potentially ambitious, initiative was
launched at the United Nations to explore sovereign
debt issues. The Ad Hoc
Committee on Sovereign Debt Restructuration Processes was launched by a
General Assembly resolution
in December 2014 and just completed its first round of discussions in February.
The General Assembly vote, with 52 abstentions or oppositions, reveals the
shaky political beginnings of this venture. The initiative originated from the G77 but most developed countries ultimately withdrew
support from the resolution (as illustrated by the EU explanation
of its vote). The same split could
be observed in delegates’ attendance of the February session.
The current landscape for sovereign debt relief involves a
mix of private and public forums, hard and soft law. At the intergovernmental,
institutionalized end of the spectrum lies the International Monetary Fund,
where the United States and Europe retain a dominant voice despite recent
reforms. The IMF works directly with countries in difficulty to issue loans and
help restructure public finance domestically. More informally, the Paris Club gathers major creditor
countries (a dozen European countries, Israel, Russia, the United States,
Canada, Japan and Australia) for small group debt alleviation negotiations. China
is not a member. Another informal but more diverse club is the G20 bringing together finance ministers and central
bankers. At the other end of the spectrum, private creditors became
increasingly important players with the advent of Brady deals in the 1990s
that turned foreign sovereign debt instruments into tradable securities. While
commercial banks made up the bulk of private creditors at the time, they now mostly
act as brokers for investment funds, insurance companies and family offices holding
sovereign debt. Private debt holders tend to take their disputes to domestic
courts and investor-state international arbitration proceedings under bilateral
investment treaties.
With public and private creditors leveraging multiple forums
and different sets of rules, debtors find themselves active on several fronts
to renegotiate their debt with little guarantee of finality when they strike a
deal with some stakeholders and wide variations in the conditions of the deal. Georgetown’s
Anna Gelpern, in her remarks
to the Ad Hoc Committee, identifies four main gaps in this fragmented approach:
shortcomings on enforcement, no fresh start for debtor countries, failed
inter-creditor equity and legitimacy deficit.
In theory, then, a single forum for addressing sovereign
debt restructuration makes good sense. But even if a political consensus were
to emerge around this basic premise, the design of such an institution would
require significant legal creativity.
As I suggested in my own presentation to the Ad Hoc
Committee, such a forum would need to consider legal standing for all relevant
parties (governmental and private). It would have to articulate a position
vis-à-vis other available venues. It would require a carefully balanced
enforcement mechanism vis-à-vis other state parties as well as with respect to
domestic institutions within the debtor countries. It would have to account for
the capacity constraints of many debtor countries. And those are but a few of
the main procedural issues to consider.
The 2002 summit culminating with the Monterrey
Consensus of the International Conference on Financing Development was
perhaps the last major UN attempt to re-envision international financial
regulation and it included a total of four paragraphs on external debt. The Ad
Hoc Committee, with the support of the United Nations Conference on Trade and
Development, holds the promise of another push towards policy coordination
across intergovernmental agencies and inclusiveness of stakeholders. The Asian
and Russian crises of the 1990s, the 2008 global financial crisis and the
ongoing difficulties of several European countries have amply demonstrated that
sovereign debt restructuration is not solely a developing country matter. Yet
current institutions and political dynamics alike remain largely divided along
the lines of global South and global North in a way that does a disservice to both
public and private interests. Whether the Ad Hoc Committee will succeed in
transcending these positions in favor of a coherent, legitimate and durable
framework remains to be seen.
* Sonia E. Rolland is a Visiting Professor at Georgetown
University Law Center and a Professor of Law at Northeastern University School
of Law. She is the author of Development at the
WTO (Oxford University Press, 2012, 2013).
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