Advice for New York State and International Policymakers Regarding Sovereign Debt Reforms at the State Level

Abstract

The possibility of sovereign debt legislation at the state level has been an underexplored area in sovereign debt policy—that is until the New York State Legislature became the center of serious contention over three proposed bills during the last two legislative sessions. The bills pitted social activists seeking to help relieve sovereign debts against bond-market organizations claiming that the bills would drive business out of New York State and raise the cost of financing for developing countries. Rhetoric flew and lobbying was intense. Yet a constructive outcome was achieved: two of the bills were dropped while the New York Senate passed the third bill after incorporating significant changes required by the market. The purpose of this working paper is to recount the legislative history of these three bills and to use their differing features—and outcomes—to draw policy rules regarding the appropriate scope of sovereign debt reforms carried out at the state level.