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Sovereign Damage Control

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  • Anna Gelpern

    (Peterson Institute for International Economics)

Abstract

Italy changed its debt contracts, Belize passed new debt legislation, and Taiwan sued Grenada this year, all in response to a string of court rulings in New York that tried to make Argentina pay its debts from its financial crisis in 2001. The court rulings have gone to unprecedented lengths to isolate Argentina but are unlikely to make the country pay. The rulings, however, do threaten collateral damage to other countries and parts of the financial system. The lawsuit—NML Capital Ltd. et al. v. Republic of Argentina—promises to shift the balance of power from sovereign debtors to their creditors. The shift would come courtesy of one obscure debt contract term, the pari passu clause, that has gained destructive power in a case where the government and its creditors are uniquely willing to test the limits of the law. The impact may be magnified because of possible effects on the public debt distress in Europe, new emerging-market restructurings, and the recent regulatory focus on clearing and payment systems.

Suggested Citation

  • Anna Gelpern, 2013. "Sovereign Damage Control," Policy Briefs PB13-12, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb13-12
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    File URL: https://www.piie.com/publications/policy-briefs/sovereign-damage-control
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    References listed on IDEAS

    as
    1. Arturo C. Porzecanski, 2005. "From Rogue Creditors to Rogue Debtors: Implications of Argentina's Default," International Finance 0510010, University Library of Munich, Germany.
    2. Marc Flandreau, 2013. "Collective Action Clauses before they had Airplanes: Bondholder Committees and the London Stock Exchange in the 19th Century (1827-1868)," IHEID Working Papers 01-2013, Economics Section, The Graduate Institute of International Studies.
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    Cited by:

    1. Brooks Skylar & Lombardi Domenico, 2015. "Governing Sovereign Debt Restructuring Through Regulatory Standards," Journal of Globalization and Development, De Gruyter, vol. 6(2), pages 287-318, December.

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