NEW YORK - New York State lawmakers return from a two-week break on Monday with a month left to decide the fate of a controversial bill that aims to streamline sovereign debt restructurings, with hundreds of billions of dollars in bond contracts on the line.WHY IS THIS IMPORTANT?
A stronger, yet simpler international architecture for restructurings is needed, proof of which are attempts put together over the past decades by various stakeholders, most recently the Group of 20's Common Framework for Debt Treatments. The International Monetary Fund recently endorsed a key reform to promote its own"capacity to support countries undertaking debt restructurings."
If enacted, it would empower countries eligible for debt relief initiatives to opt between a set mechanism for restructuring or a process that would limit bondholders' claims to those the United States would receive if it were a bilateral lender. "The intention behind the bill is not a bad one, but the implementation probably doesn't take into consideration the full ramifications," said Trang Nguyen, the London-based global head of emerging markets credit strategy at BNP Paribas. She said upending the sovereign debt architecture without the input of the IMF, the Paris Club and others could be"quite detrimental."