Washington, DC - The International Capital Market Association (ICMA), a group of banks and investors, released a new debt framework this morning aimed at reducing the ability of predatory funds and hold-out investors to undermine debt restructurings. The plan was created after meetings convened by the US Treasury Department in the wake of Greece's debt restructuring and comes in the aftermath of the landmark debt case between Argentina and NML Capital.
"The actions of ICMA are impressive," said Eric LeCompte, Executive Director of the religious anti-poverty group, Jubilee USA. "It really shows there is a global consensus to stop this predatory behavior."
The ICMA's plan would use contract clauses to bind all bond-holders to any debt restructuring agreement. Under the plan, the "pari passu" or parity clauses would require would-be hold-outs to accept restructured bonds approved by the majority of creditors. The ICMA plan states that all bondholders must accept a deal approved by 75% or more of a country's creditors, a clause that would have prevented Argentina's hold-outs from litigating for full repayment. The International Monetary Fund is set to propose similar guidelines in late September.
"While this is another step in the right direction, it doesn't solve the immediate problems. Without statutory approaches the behavior won't be slowed down for 12 to 15 years," noted LeCompte.
The Argentina/NML precedent could have a global impact. Last month, two hedge funds successfully sued the Democratic Republic of the Congo (DRC) for $68 million, including roughly $50 million in interest on loans dating back to the early 1980's. According to United Nations figures, the DRC is the world's second-poorest country. Meanwhile, the Caribbean island nation of Grenada is currently facing a pari passu lawsuit in US courts.
"Poor people and legitimate investors will continue to be harmed by this behavior for the foreseeable future," said LeCompte.
Read the ICMA's new guidelines.
Read a history and timeline of the Argentina case.
Read Jubilee's USA's filing that urged the Supreme Court to take the case. The court declined to hear the case and a lower court ruling stood in favor of predatory funds and hold-outs.
Jubilee USA Network is an alliance of more than 75 US organizations, 400 faith communities and 50 Jubilee global partners. Jubilee's mission is to build an economy that serves, protects and promotes participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. www.jubileeusa.org