UN Preparing For Global Sovereign Debt Restructuring

An open letter to all pension funds 

The United Nations (UN) is preparing a Multilateral Legal Framework for Debt Restructuring Processes. At the highest level an orderly sovereign debt restructuring for developed countries is designed.

As I’ve stated before on these pages, effectively the only thing Quantitative Easing (QE) can buy is time. Since 2008 our monetary wizards have merely been able to keep the can on the road, perpetually kicking it further into the abyss through QE. Solutions are still debated between policy makers behind closed doors, as our current fragile international monetary system does not allow public debate on significant changes or it will risk implosion.

If sustainable monetary solutions can be implemented at all from the top of governing bodies within a society waiving the flag of capitalism remains to be seen. In my opinion our system, which is still presented as capitalism, can only survive from the essential input of the economic agents operating at the bottom of the market, producing goods with labor, setting prices, taking risk and creating real wealth. Denying these fundamentals is what brought us into this crisis.

Please read below a few snippets from resolution 68/304 drafted by the United Nations (UN) in September 2014 on global sovereign debt restructuring. Reading between the lines the UN admits our current system is unsustainable and because of “systemic fragilities reform to strengthen the international financial system" is needed; a monetary reset.

Resolution adopted by the General Assembly on 9 September 2014

68/304. Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes

107th plenary meeting

Recalling further the International Conference on Financing for Development and its outcome document, in which sustainable debt financing is recognized as an important element for mobilizing resources for public and private investment, and the Follow-up International Conference on Financing for Development to Review the Implementation of the Monterrey Consensus and its outcome document, the Doha Declaration on Financing for Development, as well as General Assembly resolution 68/204 of 20 December 2013,

…Noting that sovereign debt crises are a recurring problem that involves very serious political, economic and social consequences and that the restructuring processes of sovereign debt are a frequent phenomenon in the international financial system,

Stressing the importance for developing countries, on a case-by-case basis, of debt relief, including debt cancellation, as appropriate, and debt restructuring as debt crisis prevention and management tools,

Stressing also the need to work towards the establishment of responsible and preventive financial crisis policies to enhance transparent and sustainable national financial systems,

Recognizing the sovereign right of any State to restructure its sovereign debt, which should not be frustrated or impeded by any measure emanating from another State,

Recognizing also that the efforts of a State to restructure its sovereign debt should not be frustrated or impeded by commercial creditors, including specialized investor funds such as hedge funds, which seek to undertake speculative purchases of its distressed debt at deeply discounted rates on secondary markets in order to pursue full payment via litigation,

…Noting also the concern expressed in the declaration of the Summit of Heads of State and Government of the Group of 77 and China on the theme “For a New World Order for Living Well”, held in Santa Cruz de la Sierra, Plurinational State of Bolivia, on 14 and 15 June 2014, concerning the so-called “vulture funds” and their actions of a highly speculative nature, which pose a risk to all future debt restructuring processes, for both developing and developed countries,

…Recalling, among other things, the work carried out by the International Monetary Fund in 2003, with the support of the International Monetary and Financial Committee, to formulate a proposal for a sovereign debt restructuring mechanism,

…Stressing also the need to continue to address systemic fragilities and imbalances and the need for continuing efforts to reform and strengthen the international financial system,

Noting with concern that the international financial system does not have a sound legal framework for the orderly and predictable restructuring of sovereign debt, which further increases the cost of non-compliance,

Recognizing the need to create a legal framework that facilitates the orderly restructuring of sovereign debts, allows the re-establishment of viability and growth without creating incentives that inadvertently increase the risk of non-compliance and acts as a deterrent to disruptive litigation that creditors could engage in during negotiations to restructure sovereign debts,

Stressing, in this context, the importance of establishing a clear set of principles for the management and resolution of financial crises that take into account the obligation of sovereign creditors to act in good faith and with a cooperative spirit to reach a consensual rearrangement of the debt of sovereign States, 

1. Emphasizes the special importance of a timely, effective, comprehensive and durable solution to the debt problems of developing countries in order to promote their inclusive economic growth and development;

2. Calls for the intensification of efforts to prevent debt crises by enhancing international financial mechanisms for crisis prevention and resolution, in cooperation with the private sector, with a view to finding solutions acceptable to all;

3. Calls upon all Member States and the United Nations system, and invites the Bretton Woods institutions and the private sector, to take appropriate measures and actions for the implementation of the commitments, agreements and decisions of the major United Nations conferences and summits, in particular those related to the question of the external debt sustainability of developing countries;

4. Recognizes the roles of the United Nations and the international financial institutions in accordance with their respective mandates, and encourages them to continue to support global efforts towards sustainable development and a durable solution to the problem of the debt of developing countries;

5. Decides to elaborate and adopt through a process of intergovernmental negotiations, as a matter of priority during its sixty-ninth session, a multilateral legal framework for sovereign debt restructuring processes with a view, inter alia, to increasing the efficiency, stability and predictability of the international financial system and achieving sustained, inclusive and equitable economic growth and sustainable development, in accordance with national circumstances and priorities;

6. Also decides to define the modalities for the intergovernmental negotiations and the adoption of the text of the multilateral legal framework at the main part of its sixty-ninth session, before the end of 2014.

Additional ad hoc meetings on a Multilateral Legal Framework for Debt Restructuring Processes, open to all Member States and observers of the United Nations, were held in February this year and will continue through March, May and June in New York.

h/t Matt McBride