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Article | Harvard Business Law Review | Spring 2015

Sovereign Debt Restructuring: Evaluating the Impact of the Argentina Ruling

by Laura Alfaro

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Abstract

Recent rulings in the ongoing litigation over the pari passu clause in Argentinian sovereign debt instruments have generated considerable controversy. Some official-sector participants and academic articles have suggested that the rulings will disrupt or impede future sovereign debt restructurings by encouraging holdout creditors to litigate for full payment instead of participating in negotiated exchange offers. This paper critically examines this claim and argues that the incentives for holdout litigation are limited because of (1) significant constraints on creditor litigation, (2) substantial economic and reputational costs associated with such litigation, and (3) the availability of contractual provisions and negotiating strategies that mitigate the debtor's collective action problems. It also argues that the fact-specific equitable remedy in the Argentina case was narrowly tailored to Argentina's unprecedented disregard for court opinions and for international norms of negotiating sovereign debt restructurings and is therefore unlikely to be used in future debt restructurings.

Format: Print Read Now

Citation:

Alfaro, Laura. "Sovereign Debt Restructuring: Evaluating the Impact of the Argentina Ruling." Harvard Business Law Review 5, no. 1 (Spring 2015): 47–71.

About the Author

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Laura Alfaro
Warren Alpert Professor of Business Administration
General Management

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More from the Author

  • Teaching Note | HBS Case Collection | May 2006 (Revised November 2019)

    To Float or Not to Float? In Pursuit of the Chinese Dream

    Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

    Keywords: China;

    Citation:

    Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "To Float or Not to Float? In Pursuit of the Chinese Dream." Harvard Business School Teaching Note 706-060, May 2006. (Revised November 2019.)  View Details
    CiteView DetailsPurchase Related
  • Case | HBS Case Collection | November 2019

    Floating the Exchange Rate: In Pursuit of the Chinese Dream

    Laura Alfaro and Sarah Jeong

    In the decades following 2005, China faced significant financial challenges. Inflation spiraled upwards and China’s economy stagnated in the wake of the Global Financial Crisis. The country’s leaders took an interventionist approach to weather the storm, controlling capital and exchange rates. These actions raised criticism from other nations, and in 2017 the U.S. initiated the U.S.-China Trade Wars, which enforced tariffs and requirements for increased transparency. As implications of the trade wars remained uncertain, many wondered whether the central bank would introduce further discreet steps to change the yuan. Would China’s currency appreciate as substantially against the U.S. dollar as predicted by economists? And when would further change occur? The stakes were high; a freer yuan float would impact groups within and outside of China very differently. Would China’s currency then be allowed to depreciate or appreciate if fundamentals required it?

    Keywords: exchange rate; inflation; debt; Currency Exchange Rate; Inflation and Deflation; Borrowing and Debt; China;

    Citation:

    Alfaro, Laura, and Sarah Jeong. "Floating the Exchange Rate: In Pursuit of the Chinese Dream." Harvard Business School Case 320-039, November 2019.  View Details
    CiteView DetailsEducators Related
  • Case | HBS Case Collection | November 2019

    Chile: Unrest in the Copper Nation

    Laura Alfaro and Sarah Jeong

    For decades, Chile was heralded as South America’s pillar of stable economic growth. Chile was the world’s largest producer of copper and enjoyed a long period of over 30 years of world demand for its resources. In 2013, the commodity boom ended and was replaced by a slow period of economic activity. By 2019, a culmination of factors had contributed to widespread protests. Major streets in Santiago were shut down due to demonstrations by workers across 20 ports. Mining unions urged the government to lift the state of emergency and end curfews. It was unclear how these stoppages would affect copper production and prices in a country that produced a third of the world’s supply.

    Keywords: copper production; protests; Economic Slowdown and Stagnation; Metals and Minerals; Production; Price; Mining Industry; Chile;

    Citation:

    Alfaro, Laura, and Sarah Jeong. "Chile: Unrest in the Copper Nation." Harvard Business School Case 320-051, November 2019.  View Details
    CiteView DetailsEducators Related
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