When Argentine sovereign default in December 2001 led to a collapse of the peso, the burden of dollar debt became demonstrably unsustainable. But it was not clear what restructuring was feasible, nor when. Eventually, in 2005 after a delay of more than three years, a super-majority of creditors accepted a swap that essentially involved the 'pesification' of dollar liabilities. With the IMF not playing its customary role in arranging a swap, we consider whether a bilateral bargaining approach can help explain the final settlement and the delay in achieving it. We find that the swap broadly corresponds to a bargaining outcome where substantial delay occurred for both political and economic reasons. Even after political legitimacy was assured by general elections, negotiators seeking a sustainable outcome - at a time of deep recession, profound currency under-valuation and high sovereign spreads - realised it was better to wait before settling. Other factors discussed include the definition of sustainability criteria, the effect of inter-creditor conflict and the role of third parties in promoting 'good faith' bargaining. We suggest that, while these issues need further investigation, there are institutional changes that could make them less problematic. Copyright 2006 The Authors Journal compilation 2006 Blackwell Publishing Ltd .
Our examination of changes in the period leading up to the Argentine debt exchange and after, reveals that with Collective Action Clauses (CACs), the sovereign debt market is increasingly reliant on good faith as a standard of fair dealing to ensure fair and orderly debt restructurings in the future. Unlike the entrenched, enforceable, doctrinal good faith in domestic jurisdictions such as the U.S., the norm relied on in the sovereign debt market is a contextual open norm similar to the notion of Treu und Glauben, section 242 BGB of the German civil code. It is not a legal rule with specific requirements that need to be fulfilled. This paper reveals that reliance on a contextual, open norm is evidence of a shift in the framework that regulates sovereign debt restructurings: a shift from enforcement to voluntary compliance. Further, we argue that in the absence of a multilateral, regulatory, framework that embeds good faith as a specific standard of fair dealing, this reliance will exacerbate not solve the problem of sovereign debt restructurings.
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