A law close to approval in the state of New York would force commercial creditors including bondholders to give the same relief as lender governments when developing countries restructure sovereign debts.
Its backers say it would streamline debt workouts — agreements between lenders and borrowers to renegotiate terms following a default — that have dragged on for months or years in countries such as Zambia and Sri Lanka.
It would also stop “holdout” or “vulture” creditors from bringing protracted lawsuits to get a better deal than other lenders.
But its opponents say the bill, which supporters hope will be passed into law before the state assembly term ends on June 8, is misguided and will have the opposite of its intended effect.
They say it will make it more expensive for developing countries to raise finance on international capital markets and open the door to a flood of legal challenges.