Argentina gains IMF support for sovereign debt restructuring measures

By Caroline Salls

Pittsburgh, Oct. 10 – Argentina economic minister Axel Kicillof and Central Bank of Argentina president Alejandro Vanoli brought their fight against vulture funds’ roles in sovereign debt restructurings to a meeting of the ministers of the G24 as part of an annual meeting of the International Monetary Fund (IMF) and World Bank Friday, according to a news release.

At the end of the meeting, the G24 stressed the importance of more effective mechanisms to resolve the sovereign debt crisis.

As previously reported, the Assembly of the United Nations plans to establish an effective multilateral mechanism for sovereign debt restructuring. The IMF said it supports measures to reform related clauses and reinforce the clauses of collective action in sovereign bonds.

IMF reforms

According to an Oct. 6 IMF release, the IMF wrote a paper entitled “Strengthening the Contractual Framework to Address Collective Action Problems in Solving Debt Restructuring.”

The IMF said the reforms outlined in the paper are designed to ensure that, once a restructuring is initiated, it’s actually concluded in an orderly manner.

The underlying problem addressed by the paper is collective action problems, which the IMF said there is greater urgency in addressing as a result of the decisions that have been reached by New York courts in the context of Argentina’s restructuring.

The IMF said there are concerns that those decisions may make the holdout strategy a more viable one, which will increase the number of holdouts, and that creditors that would otherwise be willing to cooperate may be nervous about doing so because they may find that restructuring instrument payments could be interrupted.

The IMF said it is trying to facilitate agreement on the design of the clauses that would address these issues. Specifically, the IMF said it is looking at a “pari passu provision” and a new collective action clause that includes as a new “single-limb voting procedure,” under which “everyone is either in or nobody is in.”

Meanwhile, the IMF said the collective action clauses shift legal leverage from individual creditors to creditors as a group, giving the group greater control over the process.

UN framework

The framework for the restructuring of sovereign debt is set to be discussed by the UN in the coming months and should be ready to be evaluated by the UN General Assembly when it convenes next year.

Kicillof said the IMF’s recommendations were issued to change the “way of majorities” in sovereign debt restructuring so creditors can meet and make decisions “to pull vulture funds from the board.”

Kicillof also said there is a consensus related to the weakness of the worldwide economic recovery, leading to “inequality among countries.”

“It has been shown that monetary measures may be insufficient and that fiscal policy plays a fundamental role to end the crisis,” Kicillof said.

“The state can shore up the weakness in private demand,” especially in connection with infrastructure investment.

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