Another friendly Sri Lankan intervention

Last month the US government signalled that it wanted to share some thoughts on the mysterious St Kitts bank suing Sri Lanka over its default. It turns out that France and the UK also have some thoughts.

Last week the two countries filed a joint “amicus curiae” to the Southern District of New York judge hearing the case, arguing in favour of Sri Lanka’s request for a six month freeze on any litigation.

Amicus briefs are filed by people, organisations or countries that aren’t themselves party to any legal case, but have a strong opinion on how it should go. France is naturally interested in the Sri Lanka lawsuit as it hosts the so-called Paris Club, where government-to-government debts are restructured.

The UK is part of the Paris Club, but presumably cosigned the amicus brief because it historically oversaw the London Club, the less formal group for private creditors to negotiate with sovereign borrowers.

The co-signatories want the judge to grant Sri Lanka the six month stay it has requested, because they worry that the lawsuit by Hamilton Reserve Bank/Benjamin Wey could wreck the ongoing restructuring talks: A judgment in favour of the plaintiff before the completion of the debt restructuring process would risk disrupting the ongoing negotiations by creating an incentive for holdout creditors, thereby jeopardising the comparability of treatment between different categories of creditors . . .

This principle is at the core of all sovereign debt restructuring processes, as it is key to secure the consent of all creditors. A disruption would lead to delays in the negotiations, delaying the cash disbursement by the IMF to the debtor country and resulting in significant costs for Sri Lanka and the official creditors’ taxpayers. Etc.

You can read the full-fat filing here. Which is all well and good, and fairly uncontroversial. But Alphaville wonders if the signalled US government intervention — via Damian Williams, the US Attorney for the Southern District of New York — will end up being a bit more incendiary?

The Financial Times.

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