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.
The latter have received the consistent and utterly unmerited backing (in any sense of the terms equity and justice) of the US judicial system – not just that of Judge Griesa, who has heard most proceedings at first instance, but also explicitly and implicitly from the Supreme Court (thanks to its conservative majority). We have tried, in the teeth of the cold gale of pro-creditor, pro-vulture propaganda, to do our bit in highlighting the need for a new, fair international system for deeaing with sovereign debt.
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. The real issue, he told a CSIS symposium in May 2013, just before the key Appeals Court hearing,
"is not about reining in hold-outs...[but] whether or not the US court system enforces the rule of law and draws some sort of line on rogue debtors. If Argentina wins, surely there'll be other countries which are tempted to pursue similar strategies of extremism, of non-engagement with creditors, of unfair offers etc.... so this case is really about the rule of law, setting limits in extreme cases on behaviour that is beyond the pale".
After criticizing the US government's earlier amicus brief (which defended the traditional legal view of the meaning of pari passu clauses) he said:
"It's important for the US bond market for the US government to be on the side of the rule of law."
As if there were only one view on the law and equity of the situation! (Injunctions being a form of equitable relief).
In other words, he has the same partial view as Judge Griesa – the wildly usurious, exploitative behaviour of US billionaire Paul Singer’s vulture funds means nothing to him. Zero.
Back to now. You would have thought that Blitzer would be content that the new Macri government in Argentina had indicated its willingness to negotiate a settlement with Singer’s vultures (Elliott Management, NML etc.). But no, it is still Argentina in the wrong, in his eyes:
“The creditors, which include numerous institutional holders led by Elliott Management and also individual pensioners, have long stated a willingness to reach a resolution.
But now, according to press reports, the talks are in danger of an early derailment because of Argentina’s puzzling reluctance to keep the talks confidential.”
So the creditors are again – in his ideological world – acting sensibly, patiently seeking a "resolution", while Argentina's behaviour is once again “puzzling”, since they will not just agree to roll over quietly and pay up.
Blitzer encourages the parties to adhere to the bland (and almost wholly creditor-oriented)
Principles for Stable Capital Flows and Fair Debt Restructuring, “a voluntary code of conduct drafted by issuers and market participants”. The trouble with these are that they relate to negotiations to avoid default and achieve an orderly restructuring – which was not possible in Argentina’s case – and not to a case of long-lasting vulture greed and rapacity versus a stubborn government.
He notes that these Principles were endorsed by the G20 (in 2004), and include: good faith by both sides, data and policy transparency within the discussions, and fair treatment (avoidance of discrimination) of all creditors…
I have read these Guidelines and can find nothing in them that Argentina would be breaking in making a public proposal to settle the dispute, or (if they so choose) in making public any counter-offer by the vultures. On the contrary, the Principles call for transparency. The only limitation is that “confidentiality of material non-public information must be ensured”, but Argentina is not bound to make only “confidential” offers.
Of course there would normally be a Non-Disclosure Agreement for any normal good faith negotiations – but the idea that it is only Argentina that has acted badly in the course of this dispute is laughable. And as to “avoidance of discrimination” against creditors, the whole basis of NML’s campaign has been to secure better treatment for themselves (a bigger payout) than is made to the exchange bond-holders – 93% of the total – under the settlement made to deal with Argentina’s effective bankruptcy in 2001/2.
Blitzer purports to be surprised that the Argentinian government’s approach to the vultures
“..is also inconsistent with recent financial negotiations conducted by the Macri administration, including a multi-billion dollar loan from international banks and the restructuring of foreign exchange contracts which have been conducted confidentially.”
Of course recent discussions were conducted differently! The new loans have been negotiated in good faith on the part of the creditors as well as Argentina, and are not blatant efforts to rip off the long-suffering people of Argentina.
A further reflection, since Mr Blitzer reminds of G20-backed principles – the 2004 G20 also endorsed a Statement on Transparency and Exchange of Information for Tax Purposes
“so that we can move towards an international financial system that is free of distortions created through lack of transparency and lack of effective exchange of information in tax matters.”
So let’s remember, as Argentina gets criticized yet again in the FT, that the main Singer vehicle in his fight against Argentina is NML, which is registered in... the Cayman Islands. Yes, all the argument about upholding the rule of law is, quite simply, in promotion of the financial interests of a company sheltering in the warm welcoming waters of a Caribbean tax haven.
But above all, it is time for decision-makers and influencers in the so called “advanced economies” to understand that the abuse of the sovereign debt (and credit) system by vulture funds is not seen by most of the world (e.g. the General Assembly of the UN) as an issue of enforcing the “rule of law” but of one of exploitation.
The people of Argentina can see this, even if they prefer to reach a deal on practical grounds. But we should not be surprised that in a democratic society – which Argentina is – the government wants to keep its people informed. Mr Blitzer points out that when choosing a new Pope, it’s done in private, before the white smoke goes up. But then, no one ever accused the Catholic Church of being a democracy. Even when the Pope's an Argentine.
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A little postscript. to the above. While discussing Argentina, it is worth mentioning the interesting dispute on how English courts would construe the relevant pari passu clause, were it to fall to be decided by them. I've been meaning for some time to say something on this!
In US based proceedings (but under English law bonds) by a fresh set of "hold-outs" against Argentina, piggybacking on singer/Elliott/NML's legal wins in the US, Lord Millett had given a Declaration arguing for a narrow (traditional) interpretation, i.e. favouring the Argentinian case.
Lord Phillips, retired ex-first President of the UK's Supreme Court made a counter-Declaration (hat tip Alphaville once again) arguing that the English Court would probably have followed the US courts' legal construction of the clause. (Indeed, I was ashamed to see from Lord Phillips how subservient the English courts would probably be to the US courts !)
There is no space to dissect the legal differences, but Lord Phillips' words emphasize the difference between the legal interpretation (right or wrong) and the order (injunction) made by the US courts:
"I consider that most of them [subscribers to the bonds] would reasonably have understood that the Clause promised them that they would receive equal treatment. Indeed I believe that this is the only sensible meaning that can be attributed to thhe Clause in the context of sovereign debt."
Yet the after finding the legal issue in favour of NML, the US courts went in the opposite direction and ordered Argentina to make unequal treatment, by paying NML and the vultures far more than the rest of the (restructured) bond-holders.
While the rest of the bond-holders were to get (and were till the injunction getting) regular payments of interest and principal based on a very substantial haircut, Judge Griesa ordered Argentina to pay NML one hundred per cent of un-haircut principal plus outstanding interest - all in one go. And banned Argentina from paying a cent to the other bond-holders until NML had received their ton of flesh.
Thus the US court's way of dealing with a clause that promised that payment obligations rank equally, was to impose paymnent obligations that were as unequal as one can imagine - in favour of a US billionaire's tax-haven-based hedge fund.
As I have consistently argued, the greatest injustice meted out by the US courts is to be found in the terms of their injunction - terms which were wholly at their discretion - than to their actual legal interpretation of the meaning of the pari passu clause.