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José Antonio Ocampo on Argentina's debt holdouts

José Antonio Ocampo, now from Columbia University, Aldo Caliari, from the Rethinking Bretton Woods Project, argue that a global framework for dealing with debt restructuring is needed in light of the risks posed by the vulture funds in the Argentine case.

From their FT article:
"A framework for sovereign debt restructuring is required. Late last month the Argentine government filed a writ at the US Supreme Court to have claims in its continuing legal battle with Elliott Management, a hedge fund, and other creditors heard by that higher tribunal.
Every day the lack of a predictable set of rules for timely, orderly, fair and economically efficient resolutions of sovereign debt problems becomes harder to hide. Think of it as the absence of the bankruptcy procedures that exist at national level. Without them there is no speedy restitution to disputes, funding dries up and crisis costs rise.
The holdouts have demanded their claims be paid in full, plus interest. But the one factor that sovereign debtors have in their favour for nudging creditors towards a voluntary debt restructuring is that bondholders may fear that, should they not join on it, they may be left out of any deal altogether. If creditors had reason to believe that litigation will allow them to recover the whole amount of their claims, why would they settle for less?
Indeed, we do not know whether a ruling in favour of Argentina will necessarily stop holdouts from continuing to take their chances in litigation. But we do know that a ruling in favour of the holdouts will make voluntary debt restructurings almost impossible in the future, thus putting further pressure to establish a statutory framework for sovereign debt restructuring mechanisms, and making the position of those who are against it, such as the US, harder to justify. 
We believe that a formal international framework for debt restructuring is needed. A decision against Argentina will make the negotiation of such a mechanism inevitable. If only for these reasons, this should have been a case for the US Supreme Court all along."

Read the full article here.


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