UNITED NATIONS — The U.N. General Assembly voted overwhelmingly Tuesday in favor of a resolution that calls for adoption of a new legal framework to restructure national debts and avoid the kind of speculative action that led Argentina to a second default.
The resolution, proposed by developing countries, was approved by a vote of 124-11 with 41 abstentions. The United States voted against it, saying such a legal framework would create uncertainty in financial markets.
Argentina's Foreign Minister Hector Timerman hailed the resolution, saying it will create a new system "that respects the majority of creditors and permits countries to emerge from a crisis in a sustainable way."
General Assembly resolutions reflect world opinion but they are not legally binding.
Timerman and Bolivia's U.N. Ambassador Sacha Llorenti Soliz, who heads the Group of 77 which represents 132 mainly developing countries, said members will talk to countries that voted against the resolution in hopes of reaching an agreement with them on a framework. It will then return to the General Assembly next year with a new resolution on debt restructuring.
Argentina was forced into a second default on July 30 following a decade-long legal battle with U.S. investors including hedge funds who refused to accept lower payments for bonds that the South American country defaulted on in 2001.
The investors obtained a U.S. court order, upheld by the Supreme Court, preventing Argentina from making a $539 million interest payment on July 30, triggering the second default. Analysts have warned that the default could derail an already weak Argentine economy.
The resolution adopted Tuesday notes that sovereign debt crises "are a recurring problem that involves very serious political, economic and social consequences."
It states that the right of any country to restructure its debt "should not be frustrated or impeded by any measure emanating from another state" or by commercial creditors, including hedge funds "which seek to undertake speculative purchases of its distressed debt at deeply discounted rates on secondary markets in order to pursue full payment via litigation."
The resolution notes that private creditors of sovereign debt "are increasingly numerous, anonymous and difficult to coordinate," making restructuring complicated.
It said that since the international financial system doesn't have "a sound legal framework for the orderly and predictable restructuring of sovereign debt," there is a need to create one.
The General Assembly therefore "decides to elaborate and adopt through a process of intergovernmental negotiations ... a multilateral legal framework for sovereign debt restructuring processes." The resolution said the framework should increase "the efficiency, stability and predictability of the international financial system" and promote economic growth.