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University of Pennsylvania Journal of International Law

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The recent triumph of holdout bondholders over Argentina in U.S. court litigation arising out of Argentina's 2001 default on its sovereign bonds has renewed calls for the creation of an internationallyadministered sovereign debt restructuring mechanism (SDRM). Such a "sovereign bankruptcy" mechanism is needed, supporters have argued, because future Argentina-style holdout litigation could undermine the ability of sovereigns to reach equitable restructurings. This Article argues that the danger of future disruptive sovereign debt litigation in U.S. courts is overstated. A close analysis of the legal basis for U.S. court decisions in the Argentina litigation suggests that it will be difficult for future holdout creditors to replicate this strategy against other foreign sovereigns. U.S. law still grants foreign sovereigns enormous and nearly insurmountable legal advantages in U.S. courts over private creditors. While there may be good reasons to create an SDRM, the fear of future Argentina-style U.S. litigation is not one of those reasons.

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