New York state lawmakers are renewing the push to overhaul the protracted and painful process of solving sovereign debt crises, Bloomberg News reported. Senator Gustavo Rivera is sponsoring amended legislation that stands to ramp up oversight on how defaulted government debt is restructured with creditors. It could also potentially limit how much investors are allowed to recoup when countries restructure their debts — a concept that’s riled up Wall Street in the past. If passed, the new rules stand to impact nearly half of all emerging-market government bonds, or some $870 billion, that are governed by New York law. The revamped bill marks a renewed effort by New York lawmakers, activists, labor unions and charities to bring greater legal oversight to negotiations between insolvent nations and their creditors. The process has been plagued with setbacks, leaving nations including Zambia, Sri Lanka and Ghana stuck in default for years, cut off from international financing markets. The latest legislation pulls inspiration from bills that failed to go to a vote in 2023. While similar proposals have failed to gain traction in the past, the latest iteration is a testament to the need for faster, smoother agreements between creditors and defaulted countries. Under the amended terms, a defaulted nation’s government officials would choose from two avenues as they embark on a debt restructuring. In one option, government officials would negotiate with creditors under the eye of an independent monitor, which is appointed by the New York governor. In the other, officials would opt for an existing mechanism for debt restructuring, such as the Group of 20’s Common Framework. The legislation would ensure that private bondholders get no better treatment than the U.S., or other government-based or multilateral lenders such as the International Monetary Fund.
