By Steven T. Kargman (Kargman Associates/International Restructuring Advisors)
As part of the overall global economic slowdown in the wake of the COVID-19 pandemic, many emerging market economies around the globe have suffered sharp economic downturns, particularly in light of the lockdowns of economies that were imposed in many of these countries. With the economic fallout from the COVID-19 pandemic in emerging economies, a number of these economies have been faced with a veritable perfect storm.
Specifically, many of these economies have been adversely affected by, among other things, a sharp drop in prices for commodities such as oil and various metals, the drying up of foreign tourism revenues in view of the disruption of international air travel and the closing of national borders, and the major decrease in remittances due to layoffs of overseas foreign workers. In addition, many major emerging market currencies have experienced significant depreciation vis-à-vis hard currencies such as the US dollar.
Moreover, emerging economies as a whole have also faced what economists term a “sudden stop”—i.e., a sudden outflow of foreign investment capital that had previously been flowing into these economies. Furthermore, the public finances of governments in the emerging markets have become strained as such governments have been forced to make expenditures on economic recovery programs as well as public health responses to the pandemic.
The article discusses the implications of the global economic slowdown associated with COVID-19 for restructuring activity in the emerging markets around the globe. In particular, the article examines how the economic slowdown may give rise to several different types of emerging market restructurings, namely, sovereign debt restructurings, corporate debt restructurings, and infrastructure project restructurings. It also examines how the economic slowdown in the emerging markets might affect restructuring-related matters involving state-owned enterprises (SOEs) and non-performing loans (NPLs) in national banking systems.
The article also considers special issues associated with China’s newly prominent role as the largest official creditor to the emerging markets and developing countries and China’s sponsorship of Belt and Road Initiative (BRI) projects around the world. Further, the article discusses other legal and policy issues that have become more salient in recent years in the context of emerging market restructurings, such as the role of holdouts in sovereign debt restructurings as well as the relevance in corporate debt restructurings in these jurisdictions of any potential gap that may exist between insolvency/restructuring law and practice.
The full article can be found here.