Sovereign Debt

A private debt story: Republic of Turkey (un-)hires McKinsey

Turkey and Argentina are non-identical twins; both countries suffered from almost simultaneous financial crises both in 2001 and 2018. Both are currently suffering from currency crises with potential spill-over to the rest of the emerging markets, and there are those who argue that these twins may have triggered a crisis in the emerging markets in 2018.

But this time Turkey, resisting too many internal and external calls for asking for help from the IMF, hired McKinsey & Company instead.

Argentina: US courts' failure shows need for international debt restructure mechanism

The Financial Times today (13 April) published this letter from PRIME’s Ann Pettifor and Jeremy Smith on the unjust role played by the US courts in the Argentina pari passu saga, notably the extra-territorial financial boycott of that country, and on the ever-more pressing need for a “supranational debt restructuring mechanism” to replace the failed private law system. 

Should Argentina now pay the ransom to its hostage-takers?

When it comes to dealing with hostage-taking and ransom-paying, governments always say publicly “we will never negotiate” with terrorists and criminals, because it sets a bad precedent, and encourages other bad guys to do yet more hostage-taking and ransom-demanding.

But this logic does not seem to apply in the field of sovereign debt and vulture funds.  The advice, in this field, is always “do the deal, pay up, however unfair the situation and however usurious the amount”. 

So with Argentina and the ransom demanded from its people by the US vulture funds (which themselves, let us recall, never lent a single dollar to Argentina).

Argentina: beware of Blitzer bearing best practices

FT’s Alphaville blog has over the last few years done a great job (the pari passu saga series) in following the complex meanderings of the dispute between Argentina (under Cristina Kirchner’s Presidency) and Paul Singer’s Vulture Funds.  

But on 22nd January, Alphaville gave a guest slot to a piece by Charles Blitzer, ex-IMFer and now a sovereign debt consultant, entitled "Best practices to resolve Argentina’s debt dispute"  without disclosing that Blitzer is no neutral expert observer here.  He has form - he is on record siding against Argentina and with the vulture funds in their dispute.

Financial Repression: Satyajit Das re-invokes the pejorative metaphor

Satyajit Das is a former banker and author of two very readable and insightful books, ‘Extreme Money’ and ‘Traders, Guns & Money’.  Alas, in a recent article in The Independent he has joined the ranks of those who see any almost any management of the finance sector as damaging. In this, he is profoundly wrong. 

Greece’s debt: so just what joint advice did the IMF and European Commission give?

The mystery grows as to precisely what advice on debt sustainability was given to the Eurogroup and Euro Summit for their meetings on 11th and 12th July. This evening (15th July) the FT has run a story by Shawn Donnan and Peter Spiegel entitled “Latest IMF debt relief push baffles eurozone creditors” which casts new doubt on  the affair.  

The Euro Summit - farewell to ordoliberalism and the rule of law

We have read a lot in recent years about the German economic philosophy of Ordoliberalism, which – as a reaction to the illegalities of the Nazi period – emphasizes (as the Economist put it) that “capitalism requires a strong government to create a framework of rules which provide the order (ordo in Latin) that free markets need to function most efficiently.”  But at the Euro Summit yesterday, the EU and Eurozone legal processes were tossed out of the window by the assembled heads of state – raw politics and power triumphed over ordoliberal principle.

ESM support and debt sustainability

On 8th July Greece applied to the European Stability Mechanism (ESM) for financial support in the form of a loan, for a 3 year period to 2018, “to meet Greece’s debt obligations and to ensure stability of the financial system.”  On the same day, Jeroen Dijsselbloem, Chairperson of the ESM Board of Governors, wrote to the Governor of the ECB and the EU Commissioner for Economic and Financial Affairs.  Greece’s fate as member of the Eurozone would appear to hang on the outcome.

Greek Default?

Two things I have written recently stand out as I contemplate what will happen in Greece. The first is that the institutions formerly known as the Troika had accepted Greece’s reform list sooner than I expected and that was positive. The second is that Greece could default before the end of April and that is negative. Unfortunately, the negative highlight is where talks seem to be heading.

The Greek Cliff-Hanger

Today, the G20 finance Ministers and Governors of Central Banks have been meeting in Istanbul. Tomorrow sees an emergency meeting of Eurozone finance ministers, to be followed by an EU finance ministers’ meeting on Monday. There is still just time to avoid disaster and reach a just outcome. But as we write, we fear that obstinate, damaging economic orthodoxy will prevail, with disastrous consequences.

The Troika, key player in this game, has let us recall, no formal legal existence, and no formal legal powers...

Did Argentina ‘default’?

A US court ruling has warped the otherwise precise meanings of three key words – “republic”, “sovereign”, and “default” – leading to such absurdities as a New York district court holding the Republic of Argentina in “contempt of court”. The entire understanding of sovereign debt and its restructuring is being read through private “contract law” that cannot address the complex questions that are inherently public in nature.

Feeding the vultures

A slightly abridged version of this article is published in today’s Morning Star newspaper.  It is the latest in PRIME’s series on Argentina’s debt, the US courts’ persistent bias in favour of the vulture funds – now stretching to finding Argentina “in contempt of court” for daring to pass its own laws – and the crying need for an independent, impartial international process for deciding on sovereign debt disputes.

 

G77 and China demand change in the international financial system

You may not have noticed, but the "developing" and "emerging" world is getting increasingly restless over the developed world's ways of working the international financial system.  We have reported on the BRICS Bank concept which is one articulation of the concern that the Bretton Woods institutions are not working for most non-rich countries.

"Debt forgiveness" - the hedge funds' double standards

In yesterday’s Financial Times, Henny Sender has written a piece Blackstone invests to edge out Wall Street – interesting in its own right - about how huge US private equity fund Blackstone is investing in data and technology companies  to enable it to bypass its traditional bankers and brokers, thus saving paying out loads of fees to Wall Street.

Of Argentina’s Debt, Default and Dreck (or Javert v Valjean)

OK I should never have got into a twitter brawl today with Heidi Moore of the Guardian (of which she is US finance editor).  I have never crossed swords with her before, and I am sure she is generally a Good Thing. And I apologize if I was a bit strong in my tweet. But her piece in today’s Guardian on Argentina’s debt got my blood up.

Partial Justice: the US Courts v Argentina

We have been following the tortuous path of litigation between NML and Argentina for a few years now, with growing concern at the way the US courts have interpreted the respective rights – and wrongs – of the parties in relation to Argentina’s debt, following the economic collapse, devaluation and default in 2001.  See our November 2012 article “Don’t (cry for me) pay up now, Argentina!”  for our analysis at that point.

The IMF's new consultation on an SDRM: reflections on the last SDRM

Readers will know that I played a role (as part of the Jubilee 2000 movement) in the cancellation of about $100bn (in nominal terms) of debt owed by dozens of low income countries in and around the year 2000. While advocating for debt cancellation (as opposed to 'relief') I became increasingly conscious of the imbalanced and unjust relationship between sovereign debtors and their international creditors. It was clear that one-off debt cancellations would not resolve that imbalance - indeed debt cancellation made sovereign debtors more creditworthy in the eyes of international markets, and so creditors (including official creditors) would quickly jump in and burden the sovereign with new debt. In other words, in the absence of an international 'insolvency' framework for the resolution of debt crises, neither sovereign debtors or creditors were disciplined for reckless lending/borrowing. Fortunately Prof Kunibert Raffer of the University of Vienna had already given this issue much thought, and had proposed a sound framework for resolving debt crises - the Raffer Proposal.