As the ugly and often bizarre nature of Argentina’s debt default played out in public, Eric LeCompte pushed for a single solution: an international bankruptcy process for sovereign nations.

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leCompte’s meeting with Pope Francis

LeCompte, executive director of Jubilee USA Network, a religious group advocating for humane debt relief in an increasingly struggling global economy, had met with Pope Francis on the issue, noting the humanitarian issues the world would face without an organized method to deal with the growing problem.

LeCompte’s prayers were answered Friday, as new rules being developed by the International Capital Markets Association (ICMA), whose members include debt issuers, debt purchasers such as middlemen such as banks, is adopting strong measures to address the issue.

The new rules target the exact tactic that many of the “vulture hedge funds,” as critics characterize them, use to disrupt previous debt agreements such as that with Argentina.  In other words, if a majority of investors agree to a debt restructuring a minority of “holdouts” cannot overturn the previous agreement.

“The actions of ICMA are impressive,” LeCompte said. “It really shows there is a global consensus to stop this predatory behavior.”

Argentina – ICMAmay use contract clauses to bind all bond-holders

The ICMA’s plan would use contract clauses to bind all bond-holders to any debt restructuring agreement. Under the plan, the “pari passu” or parity clauses would require would-be hold-outs to accept restructured bonds approved by the majority of creditors. The ICMA plan states that all bondholders must accept a deal approved by 75% or more of a country’s creditors, a clause that would have prevented Argentina’s hold-outs from litigating for full repayment. The International Monetary Fund is set to propose similar guidelines in late September.

While approving, LeCompte noted one problem is time. “While this is another step in the right direction, it doesn’t solve the immediate problems. Without statutory approaches the behavior won’t be slowed down for 12 to 15 years,” he said.

As he has been warning, the issue is spreading beyond Argentina. The Argentina/NML precedent could have a global impact. Last month, two hedge funds succesfully sued the Democratic Republic of the Congo (DRC) for $68 million, including roughly $50 million in interest on loans dating back to the early 1980’s. According to United Nations figures, the DRC is the world’s second-poorest country. Meanwhile, the Caribbean island nation of Grenada is currently facing a pari passu lawsuit in US courts.