5 February 2014: UN Member States, international organizations and financial institutions recently took part in the first working session of the UN Ad Hoc Committee on sovereign debt restructuring processes. Discussions addressed gaps in the current restructuring system, the resolution of economic disputes in the current international system, and several options for moving forward. The Committee was established pursuant to UN General Assembly (UNGA) resolution 69/247 of 29 December 2014. It will convene three sessions in 2015 to work on a draft resolution for consideration by UNGA 69.
The Committee’s first meeting took place from 3-5 February 2015, in New York, US.
South Africa, for the Group of 77 and China, called for: full implementation of Resolution 69/247 on the establishment of a multilateral legal framework for sovereign debt restructuring processes; increased efficiency, stability and predictability of the international financial system, geared toward achieving sustained, inclusive and equitable economic growth and sustainable development, in accordance with national circumstances and priorities; enhancing international financial mechanisms for crisis prevention and resolution; and finding a viable way to prevent vulture funds from paralyzing the debt-restructuring efforts of developing countries. He said a multilateral debt restructuring mechanism should aim to prevent liquidity crises from turning into solvency crises.
Maldives, for the Alliance of Small Island States (AOSIS), stressed that debt sustainability remains an issue of concern for small island developing States (SIDS), and emphasized the need to address it systematically, especially to ensure smooth transition of SIDS that have recently graduated from Least Developed Country (LDCs) status. He expressed support for considering both traditional and innovative approaches to promote debt sustainability in highly indebted SIDS.
The Russian Federation called for equally ensuring the interests of sovereign debtors and creditors, and said many elements of a mechanism could be taken from existing practices. He identified three dimensions of such a mechanism: it will apply to all sovereign borrowers facing financial problems; it will focus on setting and/or restructuring of all categories of sovereign debt – legal, organizational and administrative; and it should contain recommendations and commitments associated with the responsibility of creditors, inter alia. He voiced support for a “rule-based” approach, rather than a contractual or statutory one, warning against limiting borrowers’ access to international debt markets because of political or other non-financial reasons.
Brazil called for better safeguarding the interests of debtor countries, and said it is the UN’s role to promote human rights, including economic, social and cultural rights. He added that the framework should provide low-income countries with the technological means to prevent crises. Argentina noted that the debt crisis does not discriminate, but affects the international community as a whole.
Singapore said institutions such as the International Monetary Fund (IMF) have the mandate and experience to deal with this issue, and since all UN Members States are also IMF members, discussions should take place there. Observing the absence of delegations from Australia, EU, Japan and US from the Ad Hoc Committee meeting, Singapore recalled that the Committee’s proposal must be adopted by consensus in the UNGA; their absence “will not go well for this exercise.”
China and Egypt said all UN Member States should participate, irrespective of their position on establishing a multilateral legal framework for sovereign debt restructuring processes. Brazil and others called for more outreach in this regard.
Closing the meeting, the Chair observed participants’ desire to have a forum “as inclusive as possible” and their recognition of the important role of the IMF. He announced: future collaborations with regional commissions; efforts to continue to incorporate civil society and the private sector in the discussions; and consultations with different sectors, starting with one organized with Columbia University in March 2015. He highlighted the launch of a trust fund and invited all Member States to contribute. He also noted that the Ad Hoc Committee’s Bureau will compile the inputs from all consultations and elaborate an elements paper, which will be distributed to the membership.
The Ad Hoc Committee on sovereign debt restructuring processes will hold its next session on 28-30 April 2015. The last session will be take place at the end of June or beginning of July. [UNCTAD Website on Ad Hoc Committee] [UNCTAD Sovereign Debt Portal] [Meeting Documents] [Meeting Webcast] [GA Resolution 69/247] [IISD RS Sources]