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.
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).
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.
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.
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.
Unless you just returned from holiday in some ultra-remote region lacking newspapers, television or internet access (is there such a place?), you will be aware the government of Argentina has defaulted on its external debt.
We are pleased that the Financial Times today published PRIME Co-Director Jeremy Smith's letter on the need for a fair system for resolving sovereign debt crises, arising from the recent court-induced "default" by Argentina.
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.
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.
As sovereign debtors do not enjoy any form of insolvency protection and Argentina’s contracts had no collective action clauses, New York courts correctly affirmed that any hold-out has a valid title, the right to accelerate principal in the case of default, and to demand full payment including interest.
“I had to let it happen I had to change Couldn't stay all my life down at heel Looking out of the window Staying out of the sun So I chose freedom” Lyrics by Tim Rice
Few of our readers (we suspect) will have heard of NML Capital Ltd – a company which today is at the centre of an extraordinary and damaging New York court judgment relating to the sovereign debts of Argentina. NML Capital was founded by Republican-funder Paul Singer, of the US$19bn hedge fund Elliott Management Corporation.
While monetary policies have been dominated by restrictive ‘inflation targeting’ across the world over the last two decades, one of the last places to look for progressive economic policy has been a central bank. Most commentators would have assumed, in effect, that no central bank in the world was pursuing a growth-focused mandate.