NEW YORK (dpa) – The UN General Assembly passed a resolution Tuesday calling for the creation of an international legal framework to regulate the restructuring of sovereign debt to protect countries from speculative commercial creditors.
The resolution received 124 votes in favour and 11 votes against, including Japan, the United States and several European Union countries. Forty-one countries abstained.
Against the recent background of Argentina’s battle with bond holders in US courts over its restructured debt, the resolution was drafted by the Group of 77, a coalition of developing nations within the United Nations, and China.
The proposed new framework would aim to protect countries from creditors “which seek to undertake speculative purchases” of their distressed debt, refuse debt restructuring deals and pursue litigation for full payment.
Argentina, which gave a major push for the UN move, says that’s exactly what happened to it.
The South American country is considered in default, a situation dating back to its historic default in 2001. While some creditors have agreed to accept less money against the debt, others have rejected the restructuring deals offered by Buenos Aires in 2005 and 2010.
A US federal court earlier this year ruled in favour of a group of creditors, led by the New York hedge fund NML Capital, who are insisting they be paid in full measure of 1.5 billion dollars before the discounted debts be paid.
Argentina argues that paying off at that rate runs the risk that bond holders who accepted the restructured rate could come back and demand full value at the ruinous cost of 120 billion dollars.
Argentine Foreign Minister Hector Timerman said after the vote that the lack of an international legal framework for debt restructuring leaves countries unprotected from the “use and abuse of speculators.”
“Billions of dollars are going into the pockets of the owners of vulture funds because of this legal vacuum,” Timerman said.
“We have decided that the time has come to give a legal framework to the financial system for restructuring sovereign debt that respects the majority of creditors and which allows countries to come out of crises in a sustainable manner.”
The United States, which voted against the resolution, said such new regulations could lead to uncertainty on the international financial markets. The European Union representative opposed the measure.
Maria Cristina Perceval, Argentina’s ambassador to the UN, said that the vote shows the will of sovereign countries and entire regions, adding that she considered the 41 abstentions as a show of solidarity with the initiative.
“Eleven countries, who will later join us, today with that negative vote sent a message to the economy of speculation,” Perceval said.
“But 165 sovereign states … sent a clear message – we want a world with rules to play with fairness and justice.”
Under the resolution, the UN General Assembly is to create and adopt “a multilateral legal framework for sovereign debt restructuring processes with a view … to increasing the efficiency, stability and predictability of the international financial system.”
Argentina is to send a proposal for a possible legal framework to the Group of 77 in the coming months, Timerman said at a press conference after the vote.