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

Preview

PDF WRAP_Thomas_wp22107.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (126Kb)

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
Date:	March 2007
Number:	No.221
Number of Pages:	27
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:	Barry, Christian & Lydia Tomitova (2006) ‘Fairness in Sovereign Debt’ Social Research, 73 (2):649-694. Blustein, Paul (2005) And the Money Kept Rolling In (and Out):Wall Street, the IMF and the Bankrupting of Argentina, New York: Public Affairs. Borchard, Edwin (1951) State Insolvency and Foreign Bondholders, Yale University Press. Buccheit, Lee, & Mitu Gulati (2002) ‘Sovereign Bonds and the Collective Will’ Working paper No. 34, Washington: Georgetown University Law Center. Bratton, Villiam & Mitu Gulati (2003) ‘Sovereign Debt Restructuring and the Best Interest of Creditors’, Georgetown University Law Center, Business, Economics and Regulatory Law Working Paper No. 387880. Brownsword, Roger, Norma Hird & Geraint Howells (1999) Good Faith in Contract: Concept and Context, Ashgate. Chung, Joanna (2007) ‘Premiums on Emerging Debt Approach Lows’, Financial Times London Edition, 7 February, p.39. Chung Joanna & Richard Beales (2007) ‘Belize Blaze a Trail With Sovereign Debt Central American Nation Has Taken Advantage of a Collective Action Clause to Speed Up Debt Restructuring’, Financial Times London Edition, 13 February, p.39. Dhillon, Amrita, Javier García-Fronti, Sayantan Ghosal & Marcus Miller (2006) ‘Bargaining and Sustainability: The Argentine Debt Swap of 2005’, The World Economy , 29 (4): 377-398. Dixon, Liz & David Wall (2000) ‘Collective Action Problems and Collective Action Clauses.’ Financial Stability Review Bank of England 8:142–51. Finnemore, Martha & Kathryn Sikkink (2005): ‘International Norm Dynamics and Political Change’, International Organization, 52: 887-917. García-Fronti, Javier & María Teresa Casparri (2002) ‘A currency crisis model with a policymaker who is completely committed to a fixed exchange regime’, Foro Económico 12:35-50. GCAB (2004) ‘About GCAB’ available online at http://www.gcab.org/pages/1/index.htm. Gelpern, Anna (2005) ‘After Argentina’. Institute for International Economics Working Paper No. 2005-PB05-2, Washington: IIE. Gelpern, Anna & Gulati, G. Mitu, (2007) ‘Public Symbol in Private Contract: A Case Study’, Washington University Law Quarterly forthcoming. Helleiner, Eric (2006) ‘The Long and Winding Road towards a Sovereign Debt Restructuring Mechanism’, mimeo, University of Waterloo. IIF (2005) ‘Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets’, Brochure published by the Institute of International Finance, Inc. Washington: IIF, available online at http://www.iff.com. IMF (2002) ‘IMF Board Discusses the Good-Faith Criterion Under the Fund Policy on Lending into Arrears to Private Creditors’, Public Information Notice No. 02/107. September 24, Washington: IMF. IMF (2005) ‘Progress Report to the International Monetary and Financial Committee on Crisis Resolution’ Sept. 21, Washington: IMF. Jorgensen, E. and Sachs, J. (1989) ‘Default and Renegotiation of Latin American Foreign Debts in the Interwar Period’, In Eichengreen & Lindert (eds), The International Debt Crises in Historical Perspective, p.48–85. Krueger, Anne (2002a) ‘A New Approach to Sovereign Debt Restructuring’, Washington, DC: IMF. Krueger, Anne (2002b) ‘Transcript of a Teleconference on Sovereign Debt Restructuring Mechanism with Washington-based Journalists and First Deputy Managing Director, Anne Krueger’, April 1, Washington, DC: IMF, available online at: http://www.imf.org/external/np/tr/2002/tr020401.htm Krugman, Paul (1999). The return of depression economics. New York; London : W.W. Norton. Lerrick, Adam (2004) ‘Argentina: An Object Lesson for International Economic Policymakers’, Statement Presented to the Subcommittee on International Trade and Finance of the Committee on Banking, Housing and Urban Affairs of the United States Senate, March, available online at http://banking.senate.gov/_files/lerrick.pdf Mander, Benedict (2007) ‘Argentina’, Financial Times London Edition, 9 February, p. 13 Miller, Marcus & Dania Thomas (2007) ‘Sovereign Debt Restructuring: Judge Griesa, the vultures and creditor rights’, The World Economy, forthcoming. Ministry of Economics (2005) ‘Prospectus Supplement’, Argentina Ministry of Economics, available online at: http://www.mecon.gov.ar/finanzas/download/us_prospectus_and_prospectus_supplement.pdf Porzecanski, Arturo (2005) ‘From Rogue Creditors to Rogue Debtors: Implications of Argentina’s Default’, Chicago Journal of International Law, 6(1):311-26. Raszewski, Eliana (2005) ‘U.S. Judge Delays Argentina Bond Ruling for Appeal’ Bloomberg.com, March 29, available online at: http://quote.bloomberg.com/apps/news?pid=10000086&sid=ajs.Tfdx7Eco&refer=news_index Sgard (2005) ‘Argentina’s Debt and the Decline of the IMF’, La Lettre Du Cepii No 241, Paris: Centre d'etudes Prospectives et d'informations Internationales. Taylor, John (2002) ‘Using clauses to reform the process for sovereign debt workouts: Progress and Next Steps’, prepared remarks at the EMTA Annual meeting John B. Taylor Under Secretary of Treasury for International Affairs, December 5, available online at http://www.treas.gov/press/releases/po3672.htm Teubner, Gunther (1998) ‘Legal Irritants: Good Faith in British Law or How Unifying Law Ends up in New Divergences’, Modern Law Review, 61 (1):11-32. Wightman, John (1999) ‘Good Faith and Pluralism in the Law of Contract’ in Brownsword, Roger, Norma Hird & Geraint Howells (eds) Good Faith in Contract: Concept and Context, Ashgate. Zimmermann, Reinhard & Whittaker, Simon (2000) Good Faith in European Contract Law, Cambridge University Press New York. 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)
URI:	http://wrap.warwick.ac.uk/id/eprint/1886

Request changes to a record

Actions (login required)

View Item