Body faces obstacles
"The reality is it's incredibly complicated to come up with a body to deal with these things," he said. "Every situation is going to be dramatically different."
He said that existing processes offered the advantage of speed. "The issue is that the markets want to move very quickly," he said, while public policy tends to move slowly.
Cline shared his worries. "The likelihood is that there are much simpler solutions to the rogue creditor problem involving less overkill with lower side effects," he said.
When left to their own devices, creditors can, in theory, try to force repayment by suing a country, interrupting its trade or seizing its assets. But these measures are not always effective.
"When Ecuador defaulted, it was the general view that even state enterprise oil shipments on the high seas could not be seized at ports," Sachs said.
French court officers highlighted these difficulties when they tried, unsuccessfully, to seize a Russian fighter jet at an air show near Paris last June. A judge had ruled that the jet constituted collateral for defaulted Russian debt held by a Swiss financial company. But the French authorities permitted the jet to fly back to Russia.
Argentina might have defaulted sooner and more peacefully were it not for the threat of legal action, Miller asserted. "They said, `We can't, because we're scared of the New York lawyers.'"
"If anything, the case of Argentina is one that demonstrates the power of foreign creditors," he added. "The country fell over backwards" to avoid offending bondholders abroad.
Michael P. Richman, a partner at Mayer, Brown & Platt who represents the Argentine Bondholder Committee, said a lawsuit in New York was an option. For the bulk of its bonds, he said, Argentina waived its immunity from lawsuits brought in the United States or Britain.
But Humes said those lawsuits might not be so fruitful. "If you litigate under these bond documents, you can get a judgment in the UK or in New York," he said, but countries can hide assets from the courts.
He said the IMF could improve its proposal by ensuring a full accounting of a country's sources of income, like tax revenue, tariff collections and proceeds from national industries. "We'd have to formalize it in writing," he said. "The way that we've seen this thing pitched seems to be very heavily weighted in favor of the borrowers."
RSS