New York lawmakers have unveiled a new sovereign debt bill that will help defaulted nations such as Sri Lanka to embark on faster recoveries and prevent bondholders from causing delays in order to win better terms.
According to Bloomberg, lawmakers in Albany unveiled the Sovereign Debt Stability Act on Wednesday (13), a bill that stands to ramp up oversight on how debt from defaulted nations is restructured with creditors.
However, a cohort of trade organisations has come out strongly opposing the proposal where they disagree with the legislation that will seek to impose a new oversight mechanism or limit private bondholders’ recoveries when restructuring sovereign debt governed by New York law.
According to data compiled by Bloomberg, if passed, the new rules stand to impact roughly $ 800 billion of sovereign debt.
To New York state lawmakers, the aim is to help defaulted nations embark on faster recoveries–and prevent bondholders from causing delays to win better terms as setbacks in the restructuring of sovereign bonds have left nations including Zambia, Sri Lanka and Ghana cut off from international markets for years.
“This is an international issue that is destroying the people of other countries,” New York State Senate Finance Chair Liz Krueger told Bloomberg. “And too many of these storylines start and end with New York and New Yorkers.”
In a joint statement, the Institute of International Finance (IFC), Credit Roundtable and other groups urged legislators to pause consideration of the proposal, saying such changes warrant wide-ranging consultations.
“If the bill passes, they say, investors would need to be compensated with higher interest rates in order to offset the potential risk tied to new restructuring processes,” Investor trade organisations said in the statement.
“Developing countries that are already struggling with higher interest rates and tighter global financial conditions could be pushed toward debt distress,” according to the statement. “The proposed bill would also be a major blow to New York law’s position as the gold standard for large, global financing transactions.”