The International Monetary Fund is “concerned about wider systemic implications” the ruling by the US Supreme Court could prompt following its decision not to consider Argentina’s appeal aimed at staving off a default.
According to an IMF spokesman that was quoted by Argentina’s state-run agency Telam, the credit organization is “carefully considering” Monday’s ruling. “As we have previously said, we are worried about possible wider systemic implications,” the official explained.
The IMF has long warned about potential risks, and the consequences, that a country restructuring its sovereign debt could face if a New York tribunal issues a final judgment on the case.
Last year, the IMF warned that if Argentina lost its case against creditors, the case could set a precedent that gives holdouts outsized power over nations struggling to pay back their debts.
That, the IMF warned, could undermine sovereign debt restructurings around the globe. Cutting the amount of debt owed to creditors is a last-chance emergency measure sometimes needed to prevent the collapse of entire economies.
“We now have a glimpse of the sovereign debt world after Argentina,” said sovereign debt expert and Georgetown University law professor Anna Gelpern. “This world is fraught with uncertainty, perhaps more so than it has been since the early 1990s.”
Ms. Gelpern said the IMF, the Group of Seven leading industrialized economies and others will have to rethink their reliance on sovereign immunity for getting restructurings done and courts around the globe will be forced to resolve conflicts between the Argentina legal case and their own law on sovereign debt.
Financial markets are being forced to write new contracts that avoid complicated fights that leave creditors and borrowers in legal limbo for years.
Traditionally if a country can’t pay its debts, the IMF has only considered forcing a debt restructuring as a condition for an emergency fund loan. Now, it is considering offering an alternative: extending bond maturities.
“While bail-in measures would be voluntary (ranging from rescheduling of loans to bond exchanges that result in long maturities), creditors would understand that the success of such measures would be a condition for continued Fund support for the adjustment measures,” the fund said in its 2013 paper on restructuring.