[..]
If even a small group of unpaid creditors were to find an effective legal strategy in
the United States that resulted in seizures of Venezuelan oil or the cash proceeds
from the sale of that oil, the economy of the entire country could be strangled. Any
restructuring of Venezuela’s debt will therefore need to be intolerant of holdout
creditors of any type because even a marginal holdout community could pose a lethal
threat to the prospects for the recovery of the economy.
[..]
IRAQ:
The Iraq debt restructuring was both particularly harsh on the
creditors and particularly successful. The terms called for a write-off of 80% of
outstanding principal and accrued interest with a significant stretch-out of the
repayment period for the balance. In net present value terms, Iraq inflicted an
89.75% loss on holders of Saddam-era claims.3 By the time Iraq’s debt restructuring
was winding down in 2008, the Iraqi authorities had settled 13,164 separate claims
tendered by 576 commercial creditors from 50 countries4 -- a commercial creditor
participation rate exceeding 96% (by value of claims).5
Like Venezuela, Iraq is an oil-rich country. Iraq sits on the third
largest oil reserves in the world (Venezuela has the largest oil reserves) and, like
Venezuela, Iraq derives virtually all of its foreign currency earnings from the sale of
oil. How then was Iraq able to impose such a savage debt restructuring on such a
disparate group of creditors without facing a significant holdout creditor problem?
Iraq benefited in restructuring its Saddam-era debt stock from a legal
advantage that no other debtor country, before or since, has ever enjoyed -- complete
legal immunity for its principal external assets from creditor judicial remedies. Iraq
conducted its debt restructuring under the cover of a U.N. Security Council
resolution -- Resolution 1483 of May 22, 2003 -- that effectively immunized Iraqi
assets from seizure by Saddam-era creditors to satisfy their claims against Iraq.6
After noting “the desirability of prompt completion of the
restructuring of Iraq’s debt”, Resolution 1483 went on to immunize Iraq’s sales of
petroleum and related products, as well as the cash proceeds from the sale of Iraqi
oil, from “any form of attachment, garnishment, or execution.” Resolution 1483 was
passed by the Security Council under Chapter VII of the U.N. Charter. It was thus
legally binding on all members of the United Nations. All members were enjoined to
enact into their domestic laws the legal immunities for Iraqi assets set out in
Resolution 1483.
The implication of Resolution 1483 for the creditors was clear.
Although holders of Saddam-era claims against Iraq retained their legal rights under
their respective contracts, their legal remedies had been significantly curtailed by the
operation of Resolution 1483. Creditors were free to stay out of the debt
restructuring, but they could not count on their ability to seize Iraqi assets to satisfy
any court judgments they might obtain. The objective of the Resolution 1483 legal
immunities was not just to encourage Iraq and its creditors to reach a consensual
resolution of Saddam-era claims, the objective was to encourage such a debt
restructuring in order to safeguard Iraq’s economic and political recovery by
neutralizing the threat posed by legacy (Saddam-era) creditors.
ANCHE SENZA RISOLUZIONE ONU:
As later described by the U.S. Congressional Research Service:
The Iraq case thus illustrates that the United States and
the international community are willing to shield a
debtor from its creditors on an ad-hoc basis, without a
formal international bankruptcy regime. This can be
accomplished multilaterally through U.N. Security
Council Resolutions or bilaterally, on a case-by-case
basis, through executive orders. Since these measures
were not taken in other recent financial crisis-afflicted
countries, such as Argentina or Brazil, it appears that
policymakers are only willing to use such measures
selectively, and for countries that exhibit a perceived
threat to U.S. and international security.
REGIME CHANGE:
Venezuela as an example of a country for which
conventional debt restructuring techniques may not produce an orderly and efficient
debt workout. One thing is clear: a debt restructuring in Venezuela must await
either a change in the regime currently in power in that country (led by President
Nicolás Maduro) or a radical change in policy by that regime. The United States
Government imposed sanctions on Venezuela in August 2017 that effectively
prevent U.S. persons from participating in a debt restructuring without a license from
the U.S. Treasury. Accordingly, all that follows in this article assumes a change of
regime in Venezuela and the seating of a new administration in the country
acceptable to the United States and the international community.
The options
We see at least four ways in which the Executive Branch of the U.S.
Government could act to facilitate a debt restructuring by a new administration in
Venezuela.
1)
U.N. Security Council Resolution.
One approach would follow closely the Iraq precedent.
[..]
This proposal raises two obvious questions. First, would the Security
Council concur that the situation in Venezuela threatens international peace and
security to the point that it warrants the extraordinary step of action under Chapter
VII? Second, would Russia and China support such an action? As permanent
members of the Security Council, their support would be essential.
As to the first question, there is little doubt that the situation in
Venezuela has become a major humanitarian and political crisis.
[..]
As to the second question -- the position of Russia and China -- this
will be both a political and a financial decision. China and Russia each have
significant, but hardly life-threatening, credit exposure in Venezuela. In the event of
an ouster of the Maduro regime both countries should wish to foster a friendly
relationship with the new administration. In addition, both countries should realize
that the recovery of their own loans to Venezuela will depend in large measure on a
successful restructuring of all other claims against the country. A U.N. Security
Council resolution that promotes such a restructuring ought logically to be something
that Russia and China would support.
2)
Executive Order immunizing assets.
Even in the absence of a Security Council Resolution, the President of the United States could shield Venezuelan assets in the United States from seizure by creditors through an
Executive Order.
3)
Presidential settlement.
The Executive Branch of the U.S. Government has very broad authority to settle claims of U.S. nationals against foreign sovereigns.42 Such claims may be settled without the consent of the U.S. citizens involved and sometimes even in the absence of consultation with those
citizens. The Executive Branch could therefore take upon itself the responsibility for negotiating a settlement of all claims of U.S. nationals against Venezuelan public sector entities, including claims arising from nationalizations and expropriations. We believe that the likelihood of this is remote.
4)
Executive Order creating a collective action mechanism.
On the assumption that the Executive Branch will not itself wish to negotiate a settlement of
claims by U.S. persons against Venezuela and Venezuelan public sector entities,
there is a less dramatic alternative. [..]
We believe that it would be within the President’s power to issue an Executive Order --
• declaring the situation in a post-Maduro
Venezuela to be a national emergency and a
matter of concern for the national security and
foreign policy of the United States,
• encouraging Venezuela and its creditors to reach a
consensual settlement of all Chavez/Maduro-era
monetary claims against the sovereign and public
sector entities,
• immunizing Venezuelan assets in the United
States from judicial restraint,
• allowing all U.S. creditors to vote on a negotiated
restructuring proposal as a single class, with an
affirmative vote of a specified supermajority of
those creditors binding the entire class to the
terms of the restructuring, and
• suspending access to U.S. courts for litigants --
including non-U.S. parties -- seeking a recovery
inconsistent with the restructuring terms accepted
by the supermajority of creditors.
