U.S. aid cuts make New York legal reforms "essential", Stiglitz says

By Duncan Miriri and Rodrigo Campos

The U.S. move to freeze billions in financial aid boosts the need for New York State to alter a law in support of countries struggling to pay back debt, Nobel Prize laureate Joseph Stiglitz told Reuters.

Stiglitz and other academics have long supported controversial proposals to change the New York State law that governs roughly half of sovereign debt contracts globally, including from the poorest nations.

Some investors, alarmed by plans they say could make emerging nations' bonds too risky for investors or too expensive for borrowers, have added clauses to bond deals that would allow them to switch jurisdictions to avoid any changes.

But Stiglitz said the aid pullback made the legal alterations "absolutely essential," as countries would now need every dollar even more.

"It's really becoming imperative" that the law be changed, Stiglitz said. "We have to show that we are humane, that we are cooperative, that we are not exploitive, and that we will regulate our financial institutions and our financial markets in ways that serve the interest of everybody."

U.S. President Donald Trump has said he thinks he will wind down the U.S. Agency for International Development (USAID), an office that administers some 60% of U.S. foreign assistance and disbursed $44 billion in fiscal 2023. The U.S. provided 42% of all humanitarian aid tracked by the United Nations in 2024.

The bill reintroduced in Albany last month includes proposals that have failed to become law in previous sessions.

It aims to free more money for struggling countries by lowering interest accrued by a debt during litigation and creating a sovereign debt restructuring mechanism that would treat private lenders in the same way as official bilateral lenders - potentially forcing private lenders to take more debt haircuts.

Backers believe it is key to helping poor countries manage debt burdens. Ghana, Zambia and Chad have restructured following debt defaults in recent years, while Ethiopia is in the midst of its own restructuring.