March 16th to August 3rd, 2015
INVITATION TO AN ESSAY COMPETITION ON INTERNATIONAL REFORM OF SOVEREIGN DEBT RESTRUCTURING
The Initiative for Policy Dialogue at Columbia University, The Observatory on Latin America at the New School, Jubilee USA Network and the Embassy of Argentina in the United States Invite Students in the United States to Submit Essays on:“Building a fair and orderly framework for sovereign debt restructuring processes”
The lack of a multilateral framework for sovereign debt restructurings remains an important lacuna of the international financial architecture. As a matter of fact, the U.N. General Assembly recently adopted, with the support of 124 countries, a Resolution designed to “elaborate and adopt, as a matter of priority…a multilateral legal framework for sovereign debt restructuring processes.” Previously, the International Monetary Fund in 2001 and the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System in 2008 had already recognized the need for such a framework.
Recent events have reminded the world of the risks of not having a framework that facilitates orderly, fair and rapid sovereign debt restructurings. The legal decisions in the case of Argentina evidence the current deficient market-based approach for resolving sovereign debt crises. Argentina restructured 92.4% of its debt in 2005 and 2010, which it has faithfully serviced ever since. However, a small minority of holdouts, led by so-called “vulture funds,” bought defaulted debt for pennies on the dollar and sued Argentina before US courts litigating for its full value, plus interest. The US court rulings validated their claim by accepting the vulture funds’ unusual interpretation of a boilerplate clause (the paripassu clause) and granting the plaintiffs an unprecedented remedy that has allowed vulture funds to block the collection of payments by the bondholders who accepted the restructuring. Hence, by dramatically increasing the incentives in favor of holding out during a debt restructuring, these rulings have made future sovereign restructurings extremely more difficult and uncertain.
The recent rulings in the case of Argentina have thus been a game-changer for sovereign debt markets. Vulture funds, like the litigants in the Argentine case, have targeted numerous sovereigns in the past, and are likely to continue to do so in the future unless firm action is taken. The international community has shown profound concern about these predatory tactics, reflected on numerous statements by heads of state, members of congress around the globe, experts, and regional and international organizations.
The case has also sparked a renewed global debate about how to organize sovereign debt restructurings. In many cases, restructurings are not sufficiently deep and rapid as to restore the conditions for sustained economic growth. The recent Greek restructuring illustrates this phenomenon. Efforts to find a solution that can ensure fair, equitable, orderly, and more predictable sovereign debt restructurings are under discussion not only at the United Nations but also at the International Monetary Fund and the International Capital Markets Association (ICMA). The G20 has also referred to the issue of litigation as a risk to orderly and predictable sovereign debt restructuring processes in the Leaders’ Communiqué during the 2014 Brisbane Summit. New sovereign debt bonds are starting to incorporate the so called “vulture-proof clauses” in an attempt to protect their debt from the predatory behavior of these funds, but most of the outstanding bonds do not have this feature. The systemic implications of the recent judicial decisions require a coordinated effort to find a definitive global solution.
A deeper and systematic reflection is needed. The academic community is intensifying efforts in this direction. However, there is still much to learn in order to make international debt markets more efficient and equitable. The present writing competition is designed as an invitation to the community of young scholars in the United States to contribute to this debate.
In light of the challenges described above the essays should aim at answering one or more of the following questions:
- How should an effective international legal framework for sovereign debt restructuring processes be designed? Which are the main challenges?
- Which should be the basic tenets of a debt restructuring process? How might the principle of a “fresh start” which applies in corporate insolvency workouts be applied in sovereign cases? Which role should “growth resumption” play? How should “repayment capacity” be defined in a restructuring?
- How does a ruling that makes ability to complete restructurings very uncertain affect the debtor and creditors’ expected welfare? How does such a ruling affect efficiency in international debt markets?
- What policies would help overcome vulture funds’ behavior as a major hurdle for future sovereign debt restructurings?
- Are the recommendations proposed by the International Capital Markets Association (ICMA) a sufficient solution for the variety of coordination problems faced in sovereign debt restructuring processes? How can the market-based approach be improved? Is there a market-based approach that can fully solve the inter-creditor equity and inter-debtor coordination problems?
- What changes in domestic legislation can improve efficiency in sovereign debt restructurings?
- Which roles should the International Financial Institutions play? Which should be the framework and conditions for financing debt restructurings?
All students enrolled in U.S. universities at the undergraduate, graduate, or post-doctoral levels are eligible to participate. Papers must be between 6,000 and 8,000 words, double-spaced and including footnotes. Submissions must be original works and must not have been previously published.
- Professor Barry Herman, Visiting Senior Fellow, New School.
- Eric LeCompte, Executive Director of Jubilee USA Network.
- Cecilia Nahón, Ambassador of Argentina to the United States of America.
- Professor Jose Antonio Ocampo, Co-President of the Initiative for Policy Dialogue at Columbia University.
- Professor Joseph Stiglitz, University Professor, Columbia University. 2001 Nobel Laureate in Economic Sciences.
Essays will be assessed based on analytical academic rigor, contribution to current research and public policy, and originality.
- There will be two categories: Undergraduate and Graduate/Post-doctoral.
- Publication of the winning essays as IPD Working Paper at the Initiative for Policy Dialogue at Columbia University.
- The winner for each category will receive a Scholarship for participating on an International Workshop on Macroeconomic Policy Issues to be held in Argentina. Travel expenses will be covered.
- The Graduate/Post Graduate winner will also receive US$2,000 cash prize award.
March 16th, 2015: Launch and call for papers
August 3rd, 2015: Submission deadline for all papers
September 3rd, 2015: Notification of winners
Essays should be sent to:
Undergraduate students: Undergradessay@embassyofargentina.us
Graduate/ Post-doctoral: Gradessay@embassyofargentina.us
Please include full name, contact details and institution in which you are enrolled.