Research On The Legal System Of Sovereign Bond Default Resolution

Governments around the world commonly raise large amounts of funds for infrastructure constructions,public services and other sectors by borrowing sovereign debts.Sovereign debts consist of sovereign bonds and sovereign loans.Sovereign bonds and sovereign loans have different features which make them have major differences with respect to default resolution.Sovereign loan creditors have a limited number and relatively simple structure,sovereign loan default resolution is relatively in order.However sovereign bond creditors have a very large number,widespread dispersion,diversified make-up and great heterogeneity,so that sovereign bond default resolution is more difficult and sophisticated.Nowadays sovereign debts are mainly in the form of sovereign bonds.Sovereign bond default resolution is not only related to the orderly operation of sovereign bond market but also related the financial stability of sovereign bond issuing country,its neighboring countries and region.Since few current researches involve this subject,it's necessary to conduct systematic research on sovereign bond default resolution from legal aspect.Over a long period of practice,sovereign bond market has developed relatively fix and definite sovereign bond default resolution mechanisms.Sovereign bond restructuring,sovereign bond default litigation and international official bailout for sovereign bond default all together constitute the major sovereign bond default resolution mechanisms among which sovereign bond restructuring plays the most important basic role whereas sovereign bond default litigation and international official bailout for sovereign bond default play supplementary roles.Because the legal system in sovereign bond area is not so well-developed,the abovementioned sovereign bond default resolution mechanisms sometimes could not completely resolved the sovereign bond default problems in the event of default by sovereign bond issuing country.Firstly,the contractual approach has been widely adopted to regulate sovereign bond restructuring and has achieved good effects,but it also has problems.Especially highlighted by the European sovereign debt crisis,demands for applying statutory approach to regulate sovereign bond restructuring have begun to increase.Secondly,litigation has increasing impacts on sovereign bond default resolution,sometimes even disrupts the sovereign bond restructuring process.Creditors' right to litigate has long been limited by sovereign immunity.However vulture funds with abundant capital and great litigation skills have initiated litigation attacks to defaulted debtor countries in recent year which have gradually increased the feasibility of sovereign bond default litigation and the number of sovereign bond default litigation case.Lastly,international organizations represented by IMF and some sovereign countries have effectively assist debtor countries in resolving sovereign bond default.But international community also has criticized international official bailout system for having too much discretion,lacking of independence and consistency and breeding moral hazard of debtor country and creditors.Overall the legal system of sovereign bond default resolution is in the process of formation and development in which many legal issues are involved and worth intensive research.International community shall engage in establishing a more improved and systemic legal system of sovereign bond default resolution.This dissertation is made up of seven chapters.Followed the way of identifying issues,analyzing issues and solving issues,this dissertation conducts research on the legal system of sovereign bond default resolution by dividing the thesis into several specific issues:Chapter One-Introduction.The introduction part sets up the framework of the whole paper,elaborates the research background and significance of the dissertation,reviews relevant domestic and international research achievements,presents research way of thinking and methods and explains the innovations of the dissertation.Chapter Two – Theoretical summary of sovereign bond default resolution.This chapter reviews the basic theoretical issues of sovereign bond default resolution,differentiates relevant concepts,analyzes the current major mechanisms of sovereign bond default resolution and discusses the unconventional mechanisms of sovereign bond default resolution which had been applied in the past but now have been rarely used or even abandoned for various reasons.This chapter provides subsequent chapters with theoretical basis,finds breakthrough point for researching the specific issues of the sovereign bond default resolution legal system and lays a solid foundation for next step research.Chapter Three-The contractual approach of sovereign bond restructuring.At present,the most important way of sovereign bond default resolution is sovereign bond restructuring between sovereign debtor country and its creditors.And the contractual approach of sovereign bond restructuring has been adopted broadly to regulate sovereign bond restructuring at the present stage.This chapter first researches the contractual approach of sovereign bond restructuring generally,next thoroughly analyzes the most important contractual approach-collective action clauses,then studies Greece sovereign debt restructuring in 2012 and Ecudor sovereign bond restructuring in 2000,finally puts forward advices on the contractual approach of sovereign bond restructuring from a legal perspective.Chapter Four-The statutory approach of sovereign bond restructuring.Besides the contractual approach which has been applied in practice,the statutory approach of sovereign bond restructuring,in theory,is also an alternative way of adjust and regulate sovereign bond restructuring.Although the statutory approach has not been put into practice now,relevant theoretical studies on the statutory approach have been steadily intensified.Especially after the occurrence of European sovereign debt crisis,the problems in connection with the contractual approach have led to the discussions of the contractual approach and the statutory approach again.The international community began to review the disadvantages of the contractual approach and review the possibility of using the statutory approach to regulate sovereign bond restructuring.This chapter conducts research on the statutory approach of sovereign bond restructuring with an emphasis analysis on Sovereign Debt Restructuring Mechanism(SDRM),forecasts the latest development prospects of the statutory approach of sovereign bond restructuring and finally makes suggestions on the statutory approach of sovereign bond restructuring from a legal perspective.Chapter Five-Sovereign bond default litigation system.Typically,creditors have two options after the occurrence of sovereign bond default: one option is to negotiate with sovereign debt country about sovereign bond restructuring which means that the debt amount need to be reduced,the other option is to initiate sovereign bond default litigation with competent court of law against the debtor country to repay the full amount of principal and interests.In theory,creditors may refuse to restructuring and file law suit to recover amounts owed by sovereign debtors pursuant to dispute resolution clause in the sovereign bond contract.However,unlike corporate entities,sovereign states are not subject to bankruptcy.And it is much more difficult and professional to bring legal actions against sovereign states.So over a long time,restructuring is the optimized choice for most of the creditors,and litigation is just an alternative way of resolution.Form the 1980 s,the sovereign bond default litigation cases have increased obviously which gradually has great impacts on sovereign bond restructuring.Taking sovereign bond default litigation as thesis,this chapter elaborates the feasibility of sovereign bond default litigation,enforceablity of court's judgement and development trend of sovereign bond default litigation,analyzes the well-known litigatioin case happened during the Argentina sovereign bond restructurings,then makes comprehensive comments on sovereign bond default litigation,finally,based on the preceding research,presents advices on how to make sovereign bond default litigation produce effect.Chapter Six-International official bailout system of sovereign bond default.Sometimes the effective resolution of sovereign bond default needs the injection of new funds to assist the sovereign debtor country to fundamentally change its financial status,adjust economic structure and recover debt sustainability.However it's hard for the sovereign debtor country to raise funds in capital market after the occurrence of default.Even it's possible to obtain new funds,the sovereign debtor country has to bear extremely high financing costs.The feasible external financing resources at this moment are international official bailout from relevant international organization and other sovereign states.International Monetary Fund(IMF)is always taking the leading role in international official bailout area.So this chapter's research of international official bailout system is combined with the most representative international official bailout-IMF bailout regime.This chapter first conducts research on IMF bailout regime,then analyzes the primary legal issues with international official bailout,and finally proposes advices on the international official bailout of sovereign bond default from a legal perspective.Chapter Seven-Conclusion.Based on the summary of the preceding chapters,the conclusion part puts forward the main conclusions of the research,especially from the perspective of national interests,sets out the proposal for China's policy towards the sovereign bond default resolution.