Friday, June 12, 2015

EU backs anti-‘vulture’ debt reform

European Council President Donald Tusk, right, speaks with Brazil''s President Dilma Rousseff during a round table meeting at an EU-CELAC summit in Brussels yesterday.

Supports Argentine-led efforts to amend global rules on sovereign restructuring

The European Union (EU) gave its strongest backing yet to efforts led by Argentina to change international rules regulating the restructuring of sovereign bonds, to prevent long drawn-out legal battles, such as the one currently being fought in New York against “vulture” funds.

The vote of confidence for a new set of rules came at the end of a second summit of the Community of Latin American and Caribbean States (CELAC) and the European Union, representing 61 countries, yesterday in Brussels.

Argentina has been one of the most prominent voices pushing for changes to the rules regulating sovereign bonds, to ensure that minority groups cannot obstruct broader restructuring processes.

Foreign Minister Héctor Timerman, speaking from Belgium, said the country’s delegation was satisfied with the final statement “because it included territorial integrity and also, the restructuring of sovereign debt.”

It marked the first time that the EU has signed off on this type of language, Timerman said.

Furthermore, Brazilian Foreign Minister Mauro Vieira indicated that the EU and the Mercosur trading bloc plan to exchange offers for a trade deal between the two bodies by the end of 2015. Latin American Foreign ministers met on the sidelines of the summit with European Commissioner for Trade Cecilia Malmström yesterday to move forward with the discussions, re-started in 2012 to limited effect thus far, but which have sparked internal tensions within Mercosur.

“We are not ready. No one is really ready to exchange offers. That’s the reason why we decided to increase technical meetings and hope to exchange offers before the end of the year,” Malmström said.

Mercosur has been waiting for signals from the EU about the exchange of offers and yesterday’s pencilling in of a tentative date was one of the objectives for diplomats from the Southern Cone at the summit.

Brussels Declaration

As is customary, the joint EU-CELAC summit featured a final declaration that reviewed guiding principles and statements of political intent. While much of the language contained in what will now be known as the “Brussels Declaration” is standard to international summits, the Argentine delegation was pleased with a paragraph that read that in “order to strengthen the orderliness and predictability of the sovereign debt restructuring process, we welcome the international work on strengthened collective action and pari passu clauses.”

US District Judge Thomas Griesa’s interpretation of the pari passu clause written into Argentine bonds defaulted in 2001 has been that holdout creditors be treated equally to restructured bondholders who had accepted steep discounts on the face value of their bonds was central to the rulings that went against Argentina and yesterday’s declaration made reference to that element.

As such, the joint EU and CELAC declaration welcomed the “international work on strengthened collective action and pari passu clauses. We call for their inclusion in international sovereign bonds and encourage the international community and private sector to actively promote their use. We take note of ongoing international discussions in relevant fora to build consensus on the sovereign debt restructuring process.” The CELAC often issues statements to this effect but having the EU tag gives it more global weight.

Timerman added that Argentina valued as positive “the need for greater predictability” for the restructuring of sovereign debt and ongoing work in various international summits.

In December of 2014 a United Nations General Assembly committee overwhelmingly approved a plan to develop a new legal framework to restructure national debts and avoid the kind of action that led Argentina to be declared in default in July.

The assembly’s Economic and Financial Committee adopted a resolution outlining the plan by a vote of 128-16 with 34 abstentions. The United States, Britain, Germany and Japan were among those voting “no” to an initiative spearheaded by Argentina and Bolivia.

That effort is further to modifications suggested by the International Capital Market Association (ICMA) — which represents 450 members such as banks, debt issuers and investors from 52 countries — published a revised framework in 2014 following the upheaval generated by the court battle. The crux of the debate centres around allowing a majority of investors holding sovereign bonds that have been defaulted to make changes to the terms, such as extending maturities or reducing the principal. These changes would then be made legally binding on all holders of the bonds, including those who vote against the restructuring and thus removing the threat of a veto from minority creditors.

However, changes to the international bond contracts in the short-term promises to be in a along time in the making. “You have a lot of sovereign bonds outstanding and they can’t be changed retroactively. It’s a bit like planting an oak tree. You are looking at a 10-year horizon when this will take hold,” the ICMA’s legal counsel Leland Goss said in August 2014.

Territorial integrity on the agenda

Timerman also underscored that the Brussels Declaration addressed the matter of “territorial integrity,” saying that “territorial integrity is fundamental because it includes the sovereignty conflict with the United Kingdom” over the Malvinas Islands.

“That territorial sovereignty be discussed, Argentina considers that a very important advance” said the foreign minister.

Timerman was making reference to a passage in the Declaration that urges states “to respect their territorial integrity and political independence, to refrain in our international relations from the threat or use of force in any manner inconsistent with the purposes and principles of the United Nations, to uphold the resolution of disputes by peaceful means and in conformity with the principles of justice and international law.”

Despite the language in the declaration, Timerman reprised his criticism of British Prime Minister David Cameron following an exchange on the first day of the summit concerning the Malvinas.

“The problem that Cameron has is that he doesn’t read the UN documents” concerning the islands said Timerman yesterday, after Cameron said that Timerman’s speech concerning the islands on Wednesday was “threatening.”

Herald staff with Télam