Wednesday, November 25, 2015

A Step Forward for Sovereign Debt

In this recent article on Project Syndicate by Joseph Stiglitz and Martin Guzman (Columbia University), we see that the problem of sovereign debt is still out there. This article argues that the rules should be implemented that would make it easier for nations with unsustainable debt to default. Below are some quotes from the article.

"Every advanced country has a bankruptcy law, but there is no equivalent framework for sovereign borrowers. That legal vacuum matters, because, as we now see in Greece and Puerto Rico, it can suck the life out of economies."

"In September, the United Nations took a big step toward filling the void, approving a set of principles for sovereign-debt restructuring. The nine precepts – namely, a sovereign’s right to initiate a debt restructuring, sovereign immunity, equitable treatment of creditors, (super) majority restructuring, transparency, impartiality, legitimacy, sustainability, and good faith in negotiations – form the rudiments of an effective international rule of law."

"The overwhelming support for these principles, with 136 UN members voting in favor and only six against (led by the United States), shows the extent of global consensus on the need to resolve debt crises in a timely manner. But the next step – an international treaty establishing a global bankruptcy regime to which all countries are bound – may prove more difficult."

. . . . . 

"The irony is that countries like the US object to an international legal framework because it interferes with their national sovereignty. Yet the most important principle to which the international community has given its assent is respect for sovereign immunity: There are limits beyond which markets – and governments – cannot go."

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