The 193-member United Nations General Assembly agreed on Tuesday to negotiate and adopt a multilateral legal framework for sovereign debt restructuring processes to improve the global financial system, spurred by Argentina's debt crisis.
A resolution, drafted by Bolivia on behalf of the Group of 77 developing nations and China, was adopted with 124 in favor and 11 against. The United States voted against the measure, saying it would create uncertainty in financial markets, and there were 41 abstentions.
U.N. General Assembly resolutions are non-binding but carry a symbolic international political weight.
“The peoples of the world have spoken and we have decided that the time has come to embark on an ethical, political and legal path together that can put an end to this unbridled speculation,” Argentine Foreign Minister Hector Timerman told the U.N. General Assembly after the vote.
“The time has come to give a legal framework to the financial system for restructuring sovereign debt that respects the majority of creditors and which allows countries to come out of crises in a sustainable manner,” he said.
Argentina defaulted in July after a New York court that governs some of its original bond contracts blocked a coupon payment. Argentina, in a battle with hedge funds, has since proposed swapping into local law bonds as a way of trying to get around the U.S. court orders.
The U.N. resolution “decides to elaborate and adopt through a process of intergovernmental negotiations, as a matter of priority during its 69th session, a multilateral legal framework for sovereign debt restructuring processes.”
The purpose of this would be to increase “the efficiency, stability and predictability of the international financial system and achieving sustained, inclusive and equitable economic growth and sustainable development, in accordance with national circumstances and priorities.”
The 69th session of the U.N. General Assembly is due to convene next week. The resolution decided to define the modalities for the intergovernmental negotiations on a multilateral legal framework before the end of 2014.
In voting against the resolution, the United States said a statutory mechanism for debt restructurings would sow uncertainty in financial markets, and several states said the International Monetary Fund was the more appropriate venue for discussing the issue than the United Nations.
“If lenders face higher uncertainty regarding repayment they may be less likely to provide financing and will likely charge higher risk premiums, potentially stifling financing to developing countries,” said U.S. Deputy Representative to the U.N. Economic and Social Council Terri Robl.
“Access to functioning debt markets enables developing countries to make the infrastructure investments essential to diversify economies and expand productive capacity,” she said.