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Good faith in soverign debt restructuring: the evolution of an open norm in 'localised' contexts?

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Thomas, Dania and García Fronti, Javier I. (2007) Good faith in soverign debt restructuring: the evolution of an open norm in 'localised' contexts? Working Paper. Coventry: University of Warwick. Centre for the Study of Globalisation and Regionalisation. Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) (No.221).

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Abstract

Since the Argentine debt crisis in 2001 (and the settlement of 2005) the influence and credibility of the official sector especially the IMF is at a historical low. It is in this context that changes in sovereign bond contracts, for instance, the widespread adoption of collective action clauses raise questions about future debt restructurings. Market participants, especially creditors overwhelmingly believe that contract modification is important but only ‘at the margins’. If contractual change is marginal, what then are the mechanisms that will ensure fair and orderly debt workouts?
In the absence of a global, multilateral, regulatory framework for sovereign debt restructuring, our examination of changes in the period leading up to the Argentine settlement and after, reveals that market participants may instead be relying on good faith to do the job with the court recognising similar expectations. Good faith, though entrenched as a legal norm in several domestic jurisdictions, such as Germany and the U.S., is a relative newcomer to sovereign debt workouts. This evolving norm is not institutionally embedded and unlike the domestically entrenched version, is not a legal rule with specific requirements that needs to be fulfilled. We conclude by showing that good faith is an open norm ‘localised’ inter alia in formal and informal contexts in which market participants interact with each other and therefore conceptually similar to Treu und Glauben as recognised in section 242 BGB.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HJ Public Finance

Divisions:

Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation

Library of Congress Subject Headings (LCSH):

Debts, Public -- Argentina, Debt relief -- Argentina, Good faith (International law), Finance, Public -- Argentina, Argentina -- Economic conditions -- 1983-

Series Name:

Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)

Publisher:

University of Warwick. Centre for the Study of Globalisation and Regionalisation

Place of Publication:

Coventry

Official Date:

March 2007

Dates:

Date	Event
March 2007	Published

Number:

No.221

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Economic and Social Research Council (Great Britain) (ESRC)

Grant number:

RES-165-25-0006 (ERSC)

References:

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Cases cited
CIBC Bank and Trust Co (Cayman)Ltd v. Banco Central do Brasil 886 F.Supp.1105 (S.D.N.Y.1995)
NML Capital Ltd v. The Republic of Argentina (13 March 2005) (S.D.N.Y 2005)