Wednesday, June 25, 2014

UN Issues Statement of Concern over Argentina Debt ruling

We felt like this was probably an important story when we first mentioned it. Now we are certain it is. Today a UN agency issues a statement of concern over this ruling.

Below are some key quotes from this new article and then some followup comments:

"(Reuters) - The United Nations trade agency UNCTAD said on Wednesday that the recent U.S. court ruling on Argentina's debt erodes sovereign immunity and does not comply with the country's own U.S. Foreign Sovereign Immunities Act."

"... those rulings "set legal precedents which could have profound consequences for the international financial system", UNCTAD said in an unusual online commentary here.
"The rulings could open floodgates to other similar cases depending on interpretations given by courts under New York law, British law or other laws," UNCTAD said.

"Copycats will abound."
"UNCTAD said the court rulings could have far-reaching future consequences."
"The rulings have made future debt restructuring much more difficult as debtors are left with only moral suasion and foreign relations as weapons to encourage creditor coordination," the agency said.
"They have also strengthened the hand of creditors even though their behavior can be among the underlying causes of debt crises."
The U.N. agency said the "chaotic context" - in which it was questionable "whether the IMF is best positioned to give timely and fair judgments" reinforced the need for a globally agreed sovereign debt workout mechanism."
Added comments: Please read both the statements from the IMF and the UN here. They both are clearly concerned that this ruling could "have profound consequences for the international financial system". Also note that the UN agency calls for "a globally agreed sovereign debt workout mechanism". The UN paper issued today expresses much concern about this situation.

Refer now to our last post on this where we discuss the SDRM (Sovereign Debt Restructuring Mechanism) proposal that still sits quietly at the IMF. The US opposed this along with the 2010 IMF reforms and holds veto power at the IMF.
Recall that Jim Rickards and other credible voices are predicting that we will have another global financial crisis at some point. Rickards says that this time it will be too big for the US FED and the IMF will have the only "clean balance sheet" left in the world to try and resolve a crisis. This implies that some sovereign debt will be in trouble.
Now think about this SDRM proposal lying in wait at the IMF. We can logically expect that this proposal will move front and center if there is such a new global crisis. We can expect some sovereign debt will default in a crisis that big. That is why we are posting this information here and encourage readers to research this and learn as much as they can about it
This Supreme Court ruling will now call into question how effective the SDRM could be if the IMF attempted to use it in a future crisis as we understand this story. That makes it potentially a very important story.

Update 11:02 pm: Tonight  USA Today runs a story on this and includes the UN comments.

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