The COVID-19 pandemic has negatively affected developing countries sovereign debt situation and there has been an increase in countries in debt distress or with high risk of debt distress . 0000003309 00000 n 1 https://www.spglobal.com/ratings/en/research/articles/210624-economic-outlook-latin-america-q3-2021-despite-a-stronger-2021-long-term-growth-obstacles-abound-12013558, A disruptive era portends a new wave of disputes using well-established frameworks for commercial and investment arbitration, Sovereign debt restructuring solutions developed in Latin America during 2020 and 2021 create a new paradigm for sovereign debt restructurings in the region and globally, GSS bonds and other forms of sustainable finance have become a mainstream feature of Latin American debt capital markets, COVID-19 has created strong incentives for investment in digital infrastructure in Latin America, especially in 5G, private networks, data centers and fiberoptic cables, Strong pandemic-era performance and a look around the corner, Established trends driving M&A globally are also reflected in Latin American deal flow, Download PDF of 'Latin America Focus Fall 2021'. If the COVID-19 pandemic leads to a significant wave of sovereign debt distress, this role will be closely scrutinized. 0000000016 00000 n Tamon Asonuma, Marcos Chamon, Aitor Erce, and Akira Sasahara have examined the consequences of debt restructurings in an IMF Working Paper, " Costs of Sovereign Defaults: Restructuring Strategies . The CACs drafted and endorsed by the International Capital Markets Association (ICMA) in 2014 represent the latest and most widely accepted iteration of the clauses. After the unruly debt restructuring episodes of the past, the evolution of the contractual architecture, the increased appetite for strong creditor coordination early in the restructuring process, and the willingness of debtors and creditors alike to engage in good-faith negotiations have proven to be catalysts for (relatively) orderly and consensual restructuring outcomes. Higher prices for commodities, particularly energy and food, will increase inflation rates and widen trade deficits for those nations that import those items. The experience of Latin American sovereigns and sub-sovereigns in COVID-19-era debt restructurings bodes well for the future of sovereign restructurings. 9f9G"j1S"[? After using the increased cash flow to pay off obligations to the IMF, Argentina, through two debt restructurings, one in 2005 and one in 2010, struck deals with 93% of the bondholders for payments adding up to around 30% of . Over the past 50 years, the Latin American and Caribbean region has experienced at least 50 sovereign debt crises and sovereign debt restructurings. Finally, the first half of 2020 saw a sharp contraction in M&A in Latin America, but deal flow has rebounded strongly in 2021. 3.3 The dataset: sovereign debt litigation 1976-2010. seize considerably. Because certain of PBA's bonds issued under its "old" 2006 indenture contained higher CAC thresholds than bonds issued under its more recent 2015 indenture (which contained ICMA CACs), PBA incorporated additional exit consents in the restructuring proposal for those series to disincentivize holdout behavior. The proposed modified terms removed the cross-default clause, the negative pledge clause and the requirement to list the bonds on the Luxembourg Stock Exchange. The Restructuring of Sovereign Debt The economic repercussions of Russia's invasion of Ukraine will be devastating for many countries that have yet to recover from the pandemic. 0000004350 00000 n These vulnerabilities have been worsened by the aftershocks of the ongoing Russia-Ukraine war and the COVID-19 pandemic. Ultimately, PBA reached a deal with its largest creditor and committee member in July 2021 and subsequently launched an amended offer. Download Citation | American States and Sovereign Debt Restructuring | When States Go Broke collects insights and analysis from leading academics and practitioners that discuss the ongoing fiscal . Ecuador in 2000, for example, was the first sovereign to use an "exit consent" technique to restructure its debt. At that time, Argentina's outstanding bonds did not include collective action clauses that would allow payment terms to be amended with supermajority support, and because creditors had allegedly amassed more than 50 percent in some individual series, a comprehensive exit consent strategy was not an option. In the absence of an alternative, sovereigns conducted debt restructurings by way of voluntary exchange offers, inviting creditors to exchange their existing bonds for new bonds with reduced payment terms that included lower principal, lower coupons, an extension of maturities, or all three. 190 0 obj <> endobj Following months of failed negotiations and a series of rejected offers, Argentina agreed to the terms of a debt restructuring with its largest creditor groups. 0000010073 00000 n Among the reforms proposed are new bail-in procedures for private and official lenders, new measures against vulture funds and a revitalised proposal for a sovereign debt restructuring mechanism. The most recent installment of these usually long-brewing crises played out as COVID-19 partly disabled the region, involving Ecuador, Argentina, Belize and Suriname. The establishment of representative creditor (particularly bondholder) committees provides an answer to the creditor coordination problem. This publication is provided for your convenience and does not constitute legal advice. The views expressed in IMF Working Papers are those of the author (s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. In the absence of a sovereign bankruptcy regime, the resolution of debt crises is ultimately a matter of ad hoc negotiation between a sovereign and its creditors. Browse; Countries Asia and the Pacific Europe Middle East Sub-Saharan Africa Western Hemisphere. Rising interest rates in the US soon led borrowers such as Mexico, Brazil, Venezuela and Argentina to conclude that their debt burdens had become unsustainable. American Samoa Australia Bangladesh Bhutan British Indian Ocean Territory Brunei Darussalam Cambodia China Cook Islands Cyprus Fiji French Polynesia Hong Kong India Indonesia Israel Japan Kiribati Korea, Democratic People's . Years of economic mismanagement combined with the Covid-19 pandemic have left Sri Lanka in its worst economic crisis since independence from Britain in 1948, causing it to default on its. In this article, we provide an overview of the resolution of sovereign debt crises in Latin America in the COVID-19 era. Ultimately, Ecuador reached a comprehensive restructuring agreement with its bondholder committee in September 2020, while Suriname remains in debt restructuring talks with its bondholder committee. For example, inflation rose to 33.9% in August 2022 from 9.7% a year . Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter, mailto:?subject=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter&body=, https://www.linkedin.com/shareArticle?mini=true&url=&title=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter&source=www.whitecase.com, https://twitter.com/intent/tweet?text=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter&url=&via=WhiteCase, https://www.facebook.com/share.php?u=&t=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter, http://news.whitecase.com/5/38/forms/subscribe.asp, mailto:?subject=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter&body=https://www.whitecase.com/insight-our-thinking/sovereign-debt-restructurings-latin-america-new-chapter, https://www.linkedin.com/shareArticle?mini=true&url=https://www.whitecase.com/insight-our-thinking/sovereign-debt-restructurings-latin-america-new-chapter&title=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter&source=www.whitecase.com, https://twitter.com/intent/tweet?text=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter&url=https://www.whitecase.com/insight-our-thinking/sovereign-debt-restructurings-latin-america-new-chapter&via=WhiteCase, https://www.facebook.com/share.php?u=https://www.whitecase.com/insight-our-thinking/sovereign-debt-restructurings-latin-america-new-chapter&t=Sovereign%20debt%20restructurings%20in%20Latin%20America%3A%20A%20new%20chapter, Sovereign debt restructurings in Latin America: A new chapter, https://www.spglobal.com/ratings/en/research/articles/210624-economic-outlook-latin-america-q3-2021-despite-a-stronger-2021-long-term-growth-obstacles-abound-12013558. The large-scale Brady bond restructurings of the 1980s and 1990s led to the widespread replacement of syndicated loans by tradable bonds as the primary source of sovereign borrowing and financing in Latin America. Bank lenders, often with decades of on-the-ground experience and a profound understanding of local political and economic trends, were replaced by anonymous and dispersed holders of interests in global bonds lodged in the international clearing systems. Feb 2006 - Jul 201711 years 6 months. Borrowing from these facilities does not require the adoption of a full-fledged program or strict conditionality, unlike when the IMF extends balance-of-payment support (although it does require an assessment of debt sustainability as discussed above). Instead, sovereign debtors faced the risk of disruption posed by individual bondholders seeking to capitalize on the sacrifices made by other creditors. IMF BOOKSTORE. Nowhere is this complexity more evident than in the ongoing case of Venezuela's debt restructuring, where the perimeter of an external debt restructuring, if and when that becomes politically feasible, may include debt of the sovereign, debt of the state-owned oil company PDVSA, various promissory notes, arbitral awards and other liabilities. GO. Our widely recognized specialists on international economics bring their expertise to bear on a vast and diverse range of topics and regions. Regional Economic Outlooks. Fiscal Monitor. However the subsequent (and unanticipated) fall in Argentine bond prices, which many market participants attributed to the absence of an IMF-supported adjustment program and policy framework, may be seen as a cautionary tale by investors in future regional restructurings. In this edition of Latin America Focus, partners in our Latin America Interest Group have written articles based on their personal experiences in the trenches and market research that go to the very heart of both the latest sequel in the Latin American saga of transitions, and the current global forces of growth, the interplay of which will likely shape what is to come in post-COVID-19 Latin America. Download PDF (1.3 MB) Download Epub Abstract/Excerpt Statement by the European Commission and the IMF on Cyprus. 216 0 obj <>stream Similarly to the Argentine sovereign, the province of Buenos Aires launched a unilateral offer in 2020 that was repeatedly extended for over a year due to lack of participation. 2021 White & Case LLP. studies at Harvard Law School, I worked as a . While New York law-governed bonds required unanimity to amend payment terms, they only required a simple majority to amend various non-payment terms of each bond series. ICMA CACs provide three options for modifying the payment and other key terms of sovereign bonds: (1) a single-series option, which requires a 75 percent supermajority of each relevant series; (2) a "two-limb" option, which requires a 66 2/3 percent supermajority across all series of bonds voting in a designated pool and a 50 percent majority of each bond series within the pool; and (3) a "single-limb" option, which requires a 75 percent supermajority across all series of bonds voting in a designated pool as long as all holders are offered the same instrument or a choice from the same menu of instruments. sovereign debt restructuring, Greek debt crisis, economic and monetary union, German bondholder litigation, sovereign immunity, Brussels I Regulation . During this time, Argentina was shut off from the international capital markets. Such factors are said to result in the sovereign's inability or unwillingness to honour its financial obligations, leading to defaults. 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