DOCSLIB.ORG

Incorporating the Fresh Start Into Sovereign Debt Restructuring Through Odious Debt

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Incorporating the Fresh Start Into Sovereign Debt Restructuring Through Odious Debt Cornell Law Review Volume 104 Issue 6 September 2019 Article 5 9-2019 Incorporating the Fresh Start into Sovereign Debt Restructuring through Odious Debt Matthew B. Masaro Cornell Law School Follow this and additional works at: https://scholarship.law.cornell.edu/clr Part of the Bankruptcy Law Commons Recommended Citation Matthew B. Masaro, Incorporating the Fresh Start into Sovereign Debt Restructuring through Odious Debt, 104 Cornell L. Rev. 1643 (2020) Available at: https://scholarship.law.cornell.edu/clr/vol104/iss6/5 This Note is brought to you for free and open access by the Journals at Scholarship@Cornell Law: A Digital Repository. It has been accepted for inclusion in Cornell Law Review by an authorized editor of Scholarship@Cornell Law: A Digital Repository. For more information, please contact [email protected]. NOTE INCORPORATING THE FRESH START INTO SOVEREIGN DEBT RESTRUCTURING THROUGH ODIOUS DEBT Matthew B. Masarot INTRODUCTION .......................................... 1644 1. THE FRESH START IN CONSUMER BANKRUPTCY ........ 1645 A. (Socio)Economic Policy Rationales ............ 1647 B. Morality-Based Policy Rationales ............. 1650 1. Debts Exempt from Discharge............ 1652 II. SOVEREIGN DEBT, INSOLVENCY, AND DEFAULT ........ 1653 A. What is Sovereign Debt? ..................... 1653 B. Sovereign Default and Recourse? ............ 1655 1. Sovereign Debt Dischargeability.......... 1658 III. THE FRESH START AS A POLICY OBJECTIVE FOR SOVEREIGNS ................................... 1659 A. Economic Policy Rationales for a Sovereign Fresh Start Policy .......................... 1660 B. Morality-Based Policy Rationales for a Sovereign Fresh Start Policy ................. 1664 1. InternationalLaw and Sovereign Debt..... 1665 IV. THE ODIOUS DEBT DOCTRINE ..................... 1667 A. The Odious Debt Doctrine as a Moral Obligation ................................... 1668 1. The U.S. Bankruptcy Code and Odious Debt..................................... 1669 B. The Odious Debt Doctrine as an Economic and Legal Obligation ............................. 1670 C. A Possible Solution Supported by a Fresh Start Policy ..................................... 1672 CONCLUSION ............................................ 1676 t B.S., University of Florida, Economics, 2014; M.S., University of Ottawa, 2016; J.D., Cornell Law School, 2019; Editor-in-Chief, Comell InternationalLaw Journal, Vol. 51. My sincerest thanks to Professor Odette Lienau for her insightful and helpful comments and for representing all that is great about Cornell Law School. I am also grateful to Connor O'Neill for his time and effort editing the first draft of this Note and to the rest of the Cornell Law Review for their fantastic edits and recommendations. 1643 1644 CORNELL LAW REVIEW [Vol. 104:1643 INTRODUCTION One of the glaring differences between personal bankrupt- cies and sovereign "bankruptcies" is the absence of a fresh start for sovereigns. This is largely because sovereigns cannot declare bankruptcy in the same way that individuals can de- clare bankruptcy.' A sovereign cannot enter into bankruptcy in the traditional sense-creditors and a sovereign cannot be forced to come together under an organized legal system to discharge and restructure the sovereign-debtor's obligations. 2 This obviates the sovereign's ability to declare bankruptcy in the "straightforward" manner an individual can. Without the ability to declare bankruptcy, sovereigns cur- rently lack the opportunity for a financial fresh start. No insti- tution (bankruptcy court or otherwise) has the power to force the creditors and the debtor to the bargaining table, and thus no institution has the power to provide the sovereign with a fresh start like a bankruptcyjudge can for an individual. While the judge's ability to provide an individual with a fresh start is well founded in American jurisprudence,3 it "appears only once in the actual text of the Bankruptcy Code [in § 1507(b)(5)]."4 All this begs the question, without an institution or a set of laws that can facilitate a sovereign's bankruptcy proceeding, is a fresh start ever possible? I argue that it is, at least in part. This Note will unfold as follows. Section I will begin by examin- ing how American bankruptcy law conceives of the fresh start concept. Section II will look at the problem of excessive sover- eign debt and how a sovereign's insolvency is handled when it cannot resort to bankruptcy. Section III will argue for incorpo- rating the fresh start policy into the current sovereign debt restructuring regime. And Section IV will explore how the prac- 1 Martin Guzman et al., Introduction to Too LITTLE, Too LATE: THE QUEST TO RESOLVE SOVEREIGN DEBT CRISES XIII, XIII (Martin Guzman, Jos6 Antonio Ocampo & Joseph E. Stiglitz eds., Columbia Univ. Press 2016) ("A fresh start for distressed debtors is a basic principle of a well-functioning market economy. .. But there is no international bankruptcy framework that similarly governs sovereign debts."). 2 LEE C. BUCHHEIT ET AL., COMM. ON INT'L EcON. POL'Y & REFORM, REVISITING SOVEREIGN BANKRUmcY IV (2013), https: //scholarship.law.duke.edu/cgi/viewcon tent.cgi?article=5904&context=faculty-scholarship [https://perma.cc/7JEG- 3ULN] ([TIhere is no legally and politically recognized procedure for restructuring the debt of bankrupt sovereigns."). 3 Jonathon S. Byington, The Fresh Start Canon. 69 FLA. L. REV. 115, 119 (2017) ("The Supreme Court began recognizing the fresh start policy by name as early as 1885."). 4 Id. at 118-19. The "fresh start" language appears in Chapter 15 of the Bankruptcy Code (the Code), which-ironically for this Note-is the section of the Code that deals with international bankruptcies. 20191 SOVEREIGN DEBT RESTRUCTURING 1645 tice of labelling governments illegitimate and their debts odious can serve as a mechanism for determining what debts are dis- chargeable, which will ultimately bring the sovereign closer to receiving a fresh start. I THE FRESH START IN CONSUMER BANKRUPTCY The fresh start represents a few things. It is a reward pro- vided to debtors for participating in an orderly restructuring of their debts. It is a unifying term for the set of legal mechanisms that provide debtors with this reward. And it is a policy objec- tive supported by (socio)economic and moral rationales that advocate for providing debtors with another unburdened start to their financial life. The United States has made the decision to provide indi- viduals who go through bankruptcy with a fresh start.5 The fresh start is just what it sounds like-a euphemism for provid- ing the debtor with another unburdened start to their financial life. 6 This is provided through discharging some of the debtor's debts and restructuring others.7 In short, this is the debtor's reward for working through an organized system that maxi- mizes the creditors' returns.8 Too, it is the principal (if not sole) reason that an individual goes into bankruptcy.9 In the United States' bankruptcy regime, the fresh start manifests as the right to an automatic stay and the opportunity to discharge and restructure certain debts.10 The fresh start is achieved when the debtor is released from personal liability for some or all unsecured prepetition debts,1" outside of a list of 5 See Charles G. Hallinan, The "FreshStart" Policy in Consumer Bankruptcy: A Historical Inventory and an Interpretative Theory, 21 U. RICH. L. REv. 49, 50 (1986). 6 See, e.g., Michael D. Sousa, The Principleof Consumer Utility: A Contempo- rary Theory of the Bankruptcy Discharge, 58 U. KAN. L. REv. 553, 562 (2010) ("This freedom from personal liability for pre-petition debt is known as the proverbial 'fresh start.'"). 7 Id. at 54-55. 8 Id.; see also Byington, supra note 3, at 122 (noting that "a historical pur- pose of the fresh start was to increase assets available for distribution to creditors by giving debtors a discharge to incentivize them to cooperate"). 9 See Nicholas L. Georgakopoulos, Bankruptcy Law for Productivity, 37 WAKE FOREST L. REV. 51, 58 (2002) ("[Tihe Supreme Court has elevated [the fresh start] into a fundamental policy of bankruptcy law with Local Loan Co. v. Hunt.") (citing Local Loan Co. v. Hunt, 292 U.S. 234 (1934)). 10 See Byington, supra note 3, at 119-20. 11 Id. This set of debt can range from strictly unsecured debt, such as credit card debt, to debt that becomes unsecured, such as debt left over from a lien- stripping. See Discharge in Bankruptcy, U.S. CouRTs, http://www.uscourts.gov/ 1646 CORNELL LAW REVIEW [Vol. 104:1643 enumerated exceptions.1 2 An automatic stay is the legal mech- anism that ensures creditors do not try to collect while the debtor is in bankruptcy, 1 3 and the discharge injunction makes it impermissible for creditors to collect discharged prepetition debts "after bankruptcy, the same way as the automatic stay enjoins creditor conduct during bankruptcy."' 4 The debtor receives their discharge and fresh start auto- matically but at different intervals, depending on the chapter of bankruptcy the debtor is filing under.' 5 If a debtor is seeking to liquidate their assets quickly under Chapter 7, then the discharge is usually ordered four months after filing the bank- ruptcy petition.1 6 If the debtor is seeking to restructure under Chapter 13, then the discharge is ordered much later, usually after the debtor's three-to-five year plan is satisfied. 17 Creditor-debtor relations involve two sets of competing rights-the creditors' right in getting repaid and debtors' right in ridding themselves
Load more

Recommended publications
  • Whither Latin American Capital Markets?
    WhitherWhither LatinLatin AmericanAmerican CapitalCapital Markets?Markets? Regional study led by Augusto de la Torre and Sergio Schmukler October 2004 Office of the Chief Economist Latin America and the Caribbean Region The World Bank Whither Latin American Capital Markets? Augusto de la Torre and Sergio Schmukler With Norbert Fiess, Juan Carlos Gozzi Valdez, and Marina Halac Acknowledgements This LAC regional study was led by Augusto de la Torre and Sergio Schmukler. The main report contains four chapters. Norbert Fiess, Juan Carlos Gozzi Valdez, and Marina Halac are the leading authors of Chapters 2 and 3. Jurgen Janssens and Leonor Coutinho also participated in Chapters 2 and 3. Many authors wrote the background papers, used as input for the chapters and listed in the project’s website, which can be found at www.worldbank.org/laceconomist. We are grateful to Arturo Galindo, Tom Glaessner, and Anjali Kumar (the study’s peer reviewers), who provided detailed and very useful comments, and Guillermo Perry, who has supported this study from the beginning. We would also like to thank Jerry Caprio, Yambeon Kim, Leora Klapper, Jeppe Ladekarl, Danny Leipziger, Giovanni Majnoni, Micheal Pomerleano, Luis Serven, Dimitri Vittas, and Sara Zervos for their useful comments and suggestions. We have also benefited from feedback received at presentations held at the Banco de Mexico (Mexico), the Capital Markets Symposium (Medellin), the GDN Annual Conference (New Delhi), the European Science Foundation Exploratory Workshop (Oxford), Séptimo Congreso de Tesorería (Cartagena de Indias), the UBS Roundtable (Lima), and the World Bank Finance Forum (Washington, DC ). 1 Chapter 1 Summary of the Regional Study 1.
    [Show full text]
  • Database of Sovereign Defaults, 2017 by David Beers and Jamshid Mavalwalla
    Technical Report No. 101 / Rapport technique no 101 Database of Sovereign Defaults, 2017 by David Beers and Jamshid Mavalwalla June 2017 (An earlier version of this technical report was published in June 2016.) Database of Sovereign Defaults, 2017 David Beers1 and Jamshid Mavalwalla2 1Special Advisor, International Directorate Bank of England London, United Kingdom EC2R 8AH [email protected] 2Funds Management and Banking Department Bank of Canada Ottawa, Ontario, Canada K1A 0G9 [email protected] The views expressed in this report are solely those of the authors. No responsibility for them should be attributed to the Bank of Canada. ISSN 1919-689X © 2017 Bank of Canada Acknowledgements We are grateful to Allan Crawford, Grahame Johnson, Philippe Muller, Peter Youngman, Carolyn A. Wilkins, John Chambers, Stuart Culverhouse, Archil Imnaishvili, Marc Joffe, Mark Joy and James McCormack for their helpful comments and suggestions, to Christian Suter for sharing with us previously unpublished data he compiled with Volker Bornschier and Ulrich Pfister in 1986, and to Jean-Sébastien Nadeau for his many contributions to this and earlier versions of the technical report and the database. We thank Norman Yeung and Isabelle Brazeau for their able technical assistance, and Glen Keenleyside, Meredith Fraser-Ohman and Carole Hubbard for their excellent editorial assistance. Any remaining errors are the sole responsibility of the authors. i Abstract Until recently, there have been few efforts to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada’s Credit Rating Assessment Group (CRAG) has developed a comprehensive database of sovereign defaults posted on the Bank of Canada’s website.
    [Show full text]
  • The Conundrum of Public and Private Interests in Sovereign Debt: the Who, What, When, Where, and How of the Sovereign Loan from Russia to Ukraine
    IRYNA ZAVERUKHA 3.24.20 FINAL (DO NOT DELETE) 3/24/2020 12:31 PM THE CONUNDRUM OF PUBLIC AND PRIVATE INTERESTS IN SOVEREIGN DEBT: THE WHO, WHAT, WHEN, WHERE, AND HOW OF THE SOVEREIGN LOAN FROM RUSSIA TO UKRAINE Iryna Zaverukha “Neither a borrower nor a lender be; for loan doth oft lose both itself and friend.” - William Shakespeare I. THE INVISIBLE PARTY IN SOVEREIGN LOAN AGREEMENTS ..................... 86 II. THE PARTIES, THE DECISION-MAKERS, AND INTERESTED SUBJECTS ..... 87 III. THE SOVEREIGN BORROWER ................................................................. 87 IV. CREDITORS OF SOVEREIGN BORROWERS .............................................. 91 V. THE CONUNDRUM OF PUBLIC AND PRIVATE INTERESTS ........................ 94 VI. THE FIDUCIARY SOVEREIGN, JUS COGENS, AND WHAT WENT WRONG IN UKRAINE .......................................................................................... 96 Professor of Law, Ukrainian Catholic University, L’viv, Ukraine, and Professor of Law, Kujawy and Pomorze University in Bydgoszcz, Poland; B.S., L’viv Banking College; J.D., Ivan Franko L’viv National University; LL.M., University of Southern California School of Law; Ph.D. Taras Shevchenko Kyiv National University; S.J.D., The Institute of Legislation of the Verkhovna Rada of Ukraine. The author thanks Professor Mitu Gulati, who introduced her to the concept of a fiduciary theory of jus cogens, as developed by Evan J. Criddle and Evan Fox- Decent, while she was an LL.M. student at the University of Southern California. 85 IRYNA ZAVERUKHA 3.24.20 FINAL (DO NOT DELETE) 3/24/2020 12:31 PM 86 Gonzaga Journal of International Law Vol. 22:2 I. THE INVISIBLE PARTY IN SOVEREIGN LOAN AGREEMENTS While a government loan is considered to be on behalf of the people and for their welfare, sovereign debt, the ultimate result of it, has tremendous potential to compromise the constitutional and international rights of the people.
    [Show full text]
  • Sovereigns in Distress: Do They Need Bankruptcy?
    MICHELLE J. WHITE University of California, San Diego Sovereigns in Distress: Do They Need Bankruptcy? SHOULD THERE BE a sovereign bankruptcy procedure for countries in financial distress? This paper explores the use of U.S. bankruptcy law as a model for a sovereign bankruptcy procedure and asks whether adoption of such a procedure would lead to a more orderly process of sovereign debt restructuring. It assumes that a quick and orderly debt restructuring process is more efficient than a prolonged and disorderly one, because a lengthy process of debt restructuring takes a high toll on debtor countries’ economies as well as harming creditors in general. I concentrate on three goals for a sovereign bankruptcy procedure: preventing individual credi- tors or groups of creditors from suing the debtor for repayment, prevent- ing groups of creditors from strategically delaying negotiations or acting as holdouts, and increasing the likelihood that private creditors will pro- vide new loans to sovereign debtors in financial distress, thus reducing the pressure on the International Monetary Fund (IMF) to fund bailouts. I conclude that nonbankruptcy alternatives are less likely to accomplish these goals than a sovereign bankruptcy procedure. U.S. Bankruptcy Law and Important Trade-offs in Bankruptcy Three sections of the U.S. Bankruptcy Code are of possible relevance for a future international bankruptcy procedure: Chapter 7 (bankruptcy I am grateful to Edwin Truman and Marcus Miller for helpful comments and discussion. 1 2 Brookings Papers on Economic Activity, 1:2002 liquidation), Chapter 11 (corporate reorganization), and Chapter 9 (munic- ipal bankruptcy). Chapter 7 Chapter 7 is the U.S.
    [Show full text]
  • Duration of Sovereign Debt Renegotiation☆
    Journal of International Economics 86 (2012) 252–268 Contents lists available at SciVerse ScienceDirect Journal of International Economics journal homepage: www.elsevier.com/locate/jie Duration of sovereign debt renegotiation☆ Yan Bai a,⁎, Jing Zhang b,⁎ a Arizona State University, United States b University of Michigan, United States article info abstract Article history: In the period since 1990, sovereign debt renegotiations take an average of five years for bank loans but only Received 7 January 2010 one year for bonds. We provide an explanation for this finding by highlighting one key difference between Received in revised form 13 August 2011 bank loans and bonds: bank loans are rarely traded, while bonds are heavily traded on the secondary market. Accepted 15 August 2011 In our theory, the secondary market plays a crucial information revelation role in shortening renegotiations. Available online 1 September 2011 Consider a dynamic bargaining game with incomplete information between a government and creditors. The creditors' reservation value is private information, and the government knows only its distribution. Delays in JEL classification: F02 reaching agreements arise in equilibrium because the government uses costly delays to screen the creditors' F34 reservation value. When the creditors trade on the secondary market, the market price conveys information F51 about their reservation value, which lessens the information friction and reduces the renegotiation duration. We find that the secondary market tends to increase the renegotiation payoff of the government but decrease Keywords: that of the creditors while increasing the total payoff. We then embed these renegotiation outcomes in a sim- Sovereign debt restructuring ple sovereign debt model to analyze the ex ante welfare implications.
    [Show full text]
  • Avoiding Sovereign Default Contagion: a Normative Analysis De Ferra, Sergio and Enrico Mallucci
    K.7 Avoiding Sovereign Default Contagion: A Normative Analysis de Ferra, Sergio and Enrico Mallucci Please cite paper as: de Ferra, Sergio and Enrico Mallucci (2020). Avoiding Sovereign Default Contagion: A Normative Analysis International Finance Discussion Papers 1275. https://doi.org/10.17016/IFDP.2020.1275 International Finance Discussion Papers Board of Governors of the Federal Reserve System Number 1275 February 2020 Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 1275 February 2020 Avoiding Sovereign Default Contagion: A Normative Analysis Sergio de Ferra and Enrico Mallucci NOTE: International Finance Discussion Papers (IFDPs) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the International Finance Discussion Papers Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Recent IFDPs are available on the Web at www.federalreserve.gov/pubs/ifdp/. This paper can be downloaded without charge from the Social Science Research Network electronic library at www.ssrn.com. Avoiding Sovereign Default Contagion: A Normative Analysis∗ Sergio de Ferray Enrico Mallucciz Abstract Should debtor countries support each other during sovereign debt crises? We answer this question through the lens of a two-country sovereign-default model that we calibrate to the euro-area periphery. First, we look at cross-country bailouts. We find that whenever agents anticipate their existence, bailouts induce moral hazard an reduce welfare.
    [Show full text]
  • Who Cares for the Future
    WHO CARES FOR THE FUTURE: FINANCE GENDER RESPONSIVE PUBLIC SERVICES! FULL REPORT There is an expanded 24 page summary with the key findings of this report available on ActionAid’s website – which you can access HERE. You can also find on our website the key country data we collated from IMF documents and a detailed methodological note for our research on progressive tax. Cover Photograph: Nurse Margaret Kasolo, 57, at Kawala Health Center IV in Kampala, Uganda. Sexual and reproductive health facilities are overstretched and under-resourced. Esther Mbabazi/ActionAid CONTENTS ACKNOWLEDGMENTS 2 1 WHY UNPAID CARE AND DOMESTIC WORK MATTERS 3 1.1 Making injustice visible 3 1.2 Understanding unpaid care and domestic work 6 1.3 Reframing the economy 8 2 HOW GENDER RESPONSIVE PUBLIC SERVICES REDUCE 10 UNPAID CARE AND DOMESTIC WORK BURDENS 2.1 Introduction 10 2.2 Education and Early Childcare 11 2.3 Health and SRHR 17 2.4 Water and sanitation 22 2.5 How to achieve gender responsive public services: towards a common framework 26 3 THE IMPACT OF THE NEW DEBT CRISIS ON PUBLIC SERVICES 31 3.1 A look back 31 3.2 Why are we back in crisis mode? 33 3.3 The magnitude of the new crisis 35 3.4 The impact on public services 42 3.5 What can be done? 43 3.6 What action on debt could pay for in public services 47 4 THE IMPACT OF THE IMF ON PUBLIC SERVICES 49 4.1 The IMF’s history and functions 49 4.2 Our research methodology on IMF policy advice 51 4.3 The nature of IMF conditionality today 52 4.4 The IMF adjusting to the 21st century 54 4.5 Findings from our
    [Show full text]
  • Boc-Boe Sovereign Default Database: What's New in 2021
    BoC–BoE Sovereign Default Database: What’s new in 2021? by David Beers1, 1 Elliot Jones2, Zacharie Quiviger and John Fraser Walsh3 The views expressed this report are solely those of the authors. No responsibility for them should be attributed to the Bank of Canada or the Bank of England. 1 [email protected], Center for Financial Stability, New York, NY 10036, USA 2 [email protected], Financial Markets Department, Reserve Bank of New Zealand, Auckland 1010, New Zealand 3 [email protected], [email protected] Financial and Enterprise Risk Department Bank of Canada, Ottawa, Ontario, Canada K1A 0G9 1 Acknowledgements We are grateful to Mark Joy, James McCormack, Carol Ann Northcott, Alexandre Ruest, Jean- François Tremblay and Tim Willems for their helpful comments and suggestions. We thank Banu Cartmell, Marie Cavanaugh, John Chambers, James Chapman, Stuart Culverhouse, Patrisha de Leon-Manlagnit, Archil Imnaishvili, Marc Joffe, Grahame Johnson, Jamshid Mavalwalla, Philippe Muller, Papa N’Diaye, Jean-Sébastien Nadeau, Carolyn A. Wilkins and Peter Youngman for their contributions to earlier research papers on the database, Christian Suter for sharing previously unpublished data he compiled with Volker Bornschier and Ulrich Pfister in 1986, Carole Hubbard for her excellent editorial assistance, and Michael Dalziel and Natalie Brule, and Sandra Newton, Sally Srinivasan and Rebecca Mari, respectively, for their help designing the Bank of Canada and Bank of England web pages and Miranda Wang for her efforts updating the database. Any remaining errors are the sole responsibility of the authors. 2 Introduction Since 2014, the Bank of Canada (BoC) has maintained a comprehensive database of sovereign defaults to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default.
    [Show full text]
  • Sovereign Default: Which Shocks Matter?
    Sovereign default: which shocks matter? Bernardo Guimaraes∗ April 2010 Abstract This paper analyses a small open economy that wants to borrow from abroad, cannot commit to repay debt but faces costs if it decides to default. The model generates analytical expressions for theimpactofshocksontheincentivecompatiblelevel of debt. Debt reduction generated by severe output shocks is no more than a couple of percentage points. In contrast, shocks to world interest rates can substantially affect the incentive compatible level of debt. Keywords: sovereign debt; default; world interest rates; output shocks. Jel Classification: F34. 1Introduction What generates sovereign default? Which shocks are behind the episodes of debt crises we observe? The answer to the question is crucial to policy design. If we want to write contingent contracts,1 build and operate a sovereign debt restructuring mechanism,2 or an international lender of last resort,3 we need to know which economic variables are subject to shocks that significantly increase incentives for default or could take a country to “bankruptcy”. I investigate this question by studying a small open economy that wants to borrow from abroad, cannot commit to repay debt but faces costs if it decides to default. There is an incentive compatible level of sovereign debt – beyond which greater debt triggers default –anditfluctuates with economic conditions. The renegotiation process is costless and restores debt to its incentive compatible level. The model yields analytical expressions ∗London School of Economics, Department of Economics, and Escola de Economia de Sao Paulo, FGV-SP; [email protected]. I thank Giancarlo Corsetti, Nicola Gennaioli, Alberto Martin, Silvana Tenreyro, Alwyn Young and, especially, Francesco Caselli for helpful comments, several seminar participants for their inputs and ZsofiaBaranyand Nathan Foley-Fisher for excellent research assistance financed by STICERD.
    [Show full text]
  • Sovereign Default and Crisis Resolution
    Sovereign Default and Crisis Resolution Inaugural-Dissertation zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaft (Dr. rer. pol.) Eingereicht am Fachbereich Wirtschaftswissenschaft der Freien Universität Berlin von: Diplom-Volkswirt Christoph Trebesch Geburtsort: Uccle (Brüssel), Belgien Juni 2011 Datum der Disputation: 07.01.2011 Erstgutachter: Prof. Dr. Helge Berger Lehrstuhl Geldtheorie und Geldpolitik Freie Universität Berlin Zweitgutachter: Prof. Dr. Henrik Enderlein Professor of Political Economy Hertie School of Governance ii Für meine Eltern iii Table of Contents 1. Introduction ................................................................................................................ 1 2. Sovereign Debt Disputes .......................................................................................... 11 2.1. Introduction .............................................................................................. 12 2.2. Analyzing Debt Crises: Previous Approaches ......................................... 14 2.3. The Index of Government Coerciveness .................................................. 15 2.4. Coding and Resulting Datasets ................................................................ 22 2.5. Results and Stylised Facts ........................................................................ 26 2.6. Explaining Government Coerciveness ..................................................... 30 2.7. Conclusion ..............................................................................................
    [Show full text]
  • To Rank Pari Passu Or Not to Rank : That Is the Question in Sovereign Bonds After the Latest Episode of the Argentine Saga
    Law and Business Review of the Americas Volume 15 Number 4 Article 3 2009 To Rank Pari Passu or Not to Rank : That Is the Question in Sovereign Bonds after the Latest Episode of the Argentine Saga Rodrigo Olivares-Caminal Follow this and additional works at: https://scholar.smu.edu/lbra Recommended Citation Rodrigo Olivares-Caminal, To Rank Pari Passu or Not to Rank : That Is the Question in Sovereign Bonds after the Latest Episode of the Argentine Saga, 15 LAW & BUS. REV. AM. 745 (2009) https://scholar.smu.edu/lbra/vol15/iss4/3 This Article is brought to you for free and open access by the Law Journals at SMU Scholar. It has been accepted for inclusion in Law and Business Review of the Americas by an authorized administrator of SMU Scholar. For more information, please visit http://digitalrepository.smu.edu. To RANK PARI PASSU OR NOT TO RANK PARI PASSU. THAT IS THE QUESTION IN SOVEREIGN BONDS AFTER THE LATEST EPISODE OF THE ARGENTINE SAGA Dr. Rodrigo Olivares-Caminal "Justice is the crowning glory of the virtues." CICERO (106-43 BC) "And maybe people who might consider lending money to the Repub- lic of Argentina in the future might realize what difficulties they're go- ing to run into if they are naive enough to rely on what the Republic offers." HON. THOMAS P. GRIESA 1 I. INTRODUCTION T can be said that the pari passu clause mistakenly migrated from secured private lending to unsecured sovereign lending.2 Once rooted in unsecured sovereign lending instruments, it faced certain provisions similar to those in Spain or the Philippines, which allowed a creditor to better position itself vis-d-vis other creditors, 3 and become a 1.Hon.
    [Show full text]
  • Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It’S All Hebrew (And Aramaic) to Me
    Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It’s All Hebrew (and Aramaic) to Me Mark L. J. Wright May 2014 Federal Reserve Bank of Chicago Reserve Federal WP 2014-06 May 4, 2014 Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It’sAll Hebrew (and Aramaic) to Me Mark L. J. Wright Federal Reserve Bank of Chicago, and National Bureau of Economic Research ABSTRACT In this comment, we take a helicopter tour of the history of notions of “equality” and “justice” in sovereign debt restructuring in particular, and in the division of property more generally, and show that these concerns have existed for centuries, if not millennia. We argue that the issue at stake in the interpretation of the pari passu clause is not so much the treatment of holders of identical claims– it is now customary to treat them identically– but whether the holders of different claims should be treated differently. We show that exists a customary “principle of differentiation” that allows creditors with claims that differ in specific ways to be treated preferentially. One of these specific differences concerns debts that have been reduced in value during a previous debt restructuring or default, and based on this principle we conclude that the New York court has, if not completely misinterpreted the meaning of the pari passu clause, then at least misapplied it. Keywords: Sovereign debt restructuring, pari passu, Argentina, inter-creditor equity. JEL Codes: D63, F34, K12 To appear in the Capital Markets Law Journal. Senior Economist and Research Advisor, Federal Reserve Bank of Chicago, and Faculty Research Fellow at the National Bureau of Economic Research.
    [Show full text]