UNITED NATIONS (Reuters) - The United Nations General Assembly on Thursday approved what it described as global “basic principles” for sovereign debt restructuring processes to improve the global financial system, an initiative that was inspired by Argentina’s debt crisis.
There were 136 votes in favour, six against and 41 abstentions in the vote on the resolution, which was submitted to the 193-nation General Assembly by South Africa.
Unlike the Security Council, which has the power to issue legally binding resolutions, General Assembly resolutions are non-binding. But they carry political weight.
The resolution urges debtors and creditors “to act in good faith and with a cooperative spirit to reach a consensual rearrangement” of sovereign debt.
“A sovereign state has the right ... to design its macroeconomic policy, including restructuring its sovereign debt, which should not be frustrated or impeded by any abusive measures,” it added.
The vote came one year and a day after the General Assembly agreed to negotiate and adopt a multilateral legal framework for sovereign debt restructuring processes.
It added that states should be immune from domestic court decisions related to sovereign debt restructuring, adding that any exceptions should be limited.
The resolution also says that debt restructuring should lead to a stable debt situation that preserves creditors’ rights while supporting economic growth.
Argentina welcomed the adoption of the resolution.
“It is a resolution in favour of economic stability, social peace and development,” Argentina Foreign Minister Hector Timerman told the Assembly. “Today, debt is a cause of violence, of inequality, of situations whereby the powerful take advantage of less developed countries needing funds.”
Countries like the United States, which voted against the resolution, say a statutory mechanism for debt restructurings would sow uncertainty in financial markets.
A U.S. delegate told the assembly the resolution’s language was “problematic” and that countries do not have any “sovereign right” to debt restructuring. The delegate added that the United Nations was not the appropriate venue for such issues.
Argentina has long supported U.N. action on debt restructuring principles. It defaulted on $100 billion in bonds in a 2002 crisis that thrust millions of middle-class Argentines into poverty.
That crisis is still plaguing the country’s finances. Top Argentine officials regularly blast bondholders who have sued the country over the debt it failed to pay 13 years ago.
Argentina defaulted again last year when a U.S. judge barred it from honoring its restructured debt without reaching a deal with the funds, which the president denounces as “vultures.”
Reporting by Louis Charbonneau; Editing by David Gregorio