Should Argentina Now Pay the Ransom to Its Hostage-Takers?

By Jeremy Smith, a Co-Drector of PRIME and a barrister, and Jorge Vilches (jorgevilches@fibertel.com.ar), a financial op-ed columnist based in Buenos Aires, Argentina. Originally published at PRIME Economics

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”. [1]

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).

The new Argentinian government, in office since October 2015, has decided to make an offer to settle with all the remaining hold-outs (on much more favourable terms than those accepted by nearly 93% of creditors in the 2005 and 2010 settlements), proposing to pay roughly 100% of the nominal principal plus interest at 50% of the principal.  (Alternatively, for those who have monetary court judgments, a settlement of the value of the judgment minus 30%).  The cost – to be financed, we understand, via new bonds (i.e. borrowing) and draining Argentina’s very limited foreign reserves – would be around $6.5 billion, in respect of claims estimated at $9 billion.

How We Got Here

A quick summary of how the mess arose (see more here). Argentina suffered a disastrous economic and financial collapse in 2001/02, after years of following the Washington consensus economic policies, backed by the IMF, and capped with a foolish peso-dollar parity policy, which had led to enormous foreign indebtedness to uphold until it had to be abandoned. (The IMF indeed criticized its own role in Argentina’s pre-crash policy and borrowing).

After this effective insolvency, and over some 10 years, successive Argentinian governments put  together the largest sovereign debt settlement in history, with 92.4% of creditors signed up to a major “haircut” via the 2005 and 2010 exchange bond agreements.  They refused point-blank to pay more to settle the claims for 100% of nominal principal plus interest (plus sundry other exorbitant claims for damages, fees etc.) from a set of billionaire vulture funds (notably NML and Aurelius) who had bought up distressed bonds dirt cheap on the secondary market during or after Argentina’s default.

It appears that, for example, NML (owned by Elliott Management, and registered in the Cayman Islands tax haven) paid some $50 million for bonds which, including interest (plus the array of claimed surcharges and penalties), were in 2014 valued at around $830 million – let’s call it a claim for 1600% interest.  Indeed some of the old bonds snapped up by NML had effective interest rates (due to drafting quirks) of 101% per year! But whilst being the most aggressive plaintiffs, there were and are many other hold-outs, actively or passively engaged, hoping to piggyback on any gains by the vultures.

Most of the multitudinous litigation over many years has been heard by a single, now 85 year old, New York District judge, Judge Thomas P. Griesa, though he has been supported at every stage by the US appeals courts.  He undoubtedly has what we may call a “Wall Street-cum-Cayman Island billionaire” perspective on the litigation, with no broader vision of the public interest in sovereign debt or its consequences in poorer countries.  Yet his decisions and precedents are having a potentially profound – and negative – impact on the legal status of trillions of dollars of outstanding sovereign debt around the world.

Faced with what he saw as Argentina’s intransigent refusal to pay out on the usurious terms demanded by the vulture funds (whose basic claim in pure contract, but not the wider international public interest or in equity, was clear), Judge Griesa used what the Financial Times, in a recent editorial, calls an “creative and eccentric” interpretation of the pari passu  clause in the bonds [2].  First, to find Argentina in breach of the clause (contrary to previous understanding of its meaning), but second and more importantly, to impose an extraordinarily one-sided injunction.

The Judicial Blockade

This injunction prohibited Argentina from paying even current instalments of interest to exchange bond-holders unless it had paid 100% of principal and rolled-up interest (etc.) to the vultures in one go. Under the injunction, therefore, the vultures were to be treated far more favourably than anyone else – it actually imposed unequal treatment in the name of equal treatment!

The injunction was drafted to cover virtually any financial intermediary, wherever on the globe to be found, who might have even the most tenuous tiny connection with New York. To its credit, the Argentinian government refused to be blackmailed by the court in this way and continued to refuse to pay the usurious sums claimed by the vultures… while making emphatically clear its willingness to pay the exchange bond-holders what they were due under the 2005-2010 re-structured agreements – and also to pay hold-outs on the same basis as the exchange bond-holders.

(It subsequently got worse – Judge Griesa even had the judicial nerve to find Argentina in “contempt of court” for introducing legislation into its own democratically elected Congress, with a view to making payments that were contractually due to exchange bond-holders! For a US court to intervene so crudely in another country’s democracy speaks volumes about colonialist mindsets.)

Through this extraordinary injunction, the US courts, including the Supreme Court (by its novel interpretation of foreign immunity law – but see Justice Ginsburg’s fine minority opinion) in effect imposed a blockade on Argentina to prevent it having any access whatever to the capital markets.  This prevented Argentina from making any payments to exchange bond-holders, and it was then – perversely since it wished to pay them – held to be in new default.   In fact, it seems to us quite wrong to say that Argentina was in “default” to the exchange bond-holders, given that it made every conceivable effort to pay them but was blocked only by force majeure on the order of the US courts.  For more on this aspect, see “Did Argentina ‘Default’?” [3]

Then stalemate, until a new President was elected in late 2015, who hopes to resolve the problem and – for better or for worse – regain access to foreign capital markets.  Hence the very recent offer to settle with the hold-outs.  But will this work?

What Happens Next?

Already, several creditors have agreed in principle to settle – but these do not include the two most aggressive vulture funds – NML (owned by Republican billionaire Paul Singer’s Elliott Management) and Aurelius (headed by Mark Brodsky, ex of Elliott Management).  They are indeed reported to have rejected the terms offered by President Macri and his Finance Minister, Mr Prat-Gay.  Instead of the 1600% profit some of them have been claiming, under the new Argentine offer it would amount to only 1000%!

Even if Argentina can reach in principle agreement with many of the hold-outs, there are two conditions precedent to finally settling and paying out on the claims and disputes.  First, the terms of any deal have to be agreed by the Argentinian Congress (parliament), in which the government does not have a majority it can necessarily rely on.  Second, no payment can be made unless the current US court injunction is either lifted entirely, or its terms are substantially changed.

This means that Argentina is still in the position of a hostage, with its people being required by the hostage-takers to pay an exorbitant ransom.  But this is state-backed hostage-taking, with any attempt to release the hostage being prevented by the modern version of gunboat imperialist blockade – the extra-territorial, all-embracing injunction.

We are not alone in calling this a case of ransom – this is how the Financial Times (editorial of 8 February) sees it:

Galling though it must be to pay ransom, Mr Macri’s government is right to make the offer. It is not yet clear how many of the holdouts, and particularly the combative Elliott Management, will accept the terms or something close to them. If they insist on full payment or a much smaller writedown, Mr Macri’s position becomes more difficult and his decision more finely balanced.

That Argentina ever came to this reflects a ruling by a judge in New York on pari passu clauses in sovereign bonds that was creative bordering on eccentric. That judgment and the extraterritorial reach of US law cut Argentina off from international bond investors.

The editorial – while encouraging the vultures to accept a deal (the ransom) along the lines offered – is realistic as to the dangers:

But there can be no doubt that paying back at full value the holdout creditors who have held Buenos Aires to ransom for more than a decade would be expensive politically as well as financially. Outside investors would also ask, with good reason, why obstreperous bondholders with superior financial and legal resources should be paid so much more than those co-operating early on.

(The highly influential Buenos Aires newspaper “Clarín” – which is politically close to the present government – favourably cites quite a lot of this FT editorial, but curiously avoids the passages referring to “ransom”, or to “why obstreperous bondholders with superior financial and legal resources should be paid so much more than those co-operating early on”. Nor does it quote the FT’s view that “Argentina should not be eager to start racking up debt again”!)

A Messy Situation

At present, not only have NML and Aurelius declined to accept the offer as it stands – other hold-outs are clamoring to get hold of their share of the carcass.  Lawyers for a separate set of would-be “Class Action” plaintiffs have just written to Judge Griesa arguing against any move to lift the injunction unless they get paid on the same basis.  Yet the person charged by the court with mediating the settlement negotiations, Daniel Pollack, denies that – as they claim – their bond contracts include the pari passu clause in the first place!

So the situation is very, very messy.  The vultures’ tactic is evident – to keep pressing for higher and higher settlement terms, while giving the impression that at some point they would be prepared to settle.   Meanwhile more and more plaintiffs (the so-called “me-toos”) try to join in, piggybacking (if the metaphor permits!) on the vultures’ backs.  The risk is that unless the US court relents, the Argentine government may be forced to offer more and more to get the settlement it wishes with all parties.   Given the low level of reserves, it appears that, if it wishes to settle the claims, the Argentinian government will be forced to borrow once more in order to fund the settlement.  And as (if) more and more parties do settle, then the remaining hold-outs get into an even stronger bargaining position.

Three Causes of Chaos

The chaos is down to three things above all.

First, there is the utter “liquidation messiness” of the situation, with a plethora of different bonds bearing different interest rates based on different formulae and dating back sometimes over decades – this can only lead to lengthy, drawn-out squabbling and arguing over interpretation and quantum.

Professors Juan J. Cruces and Tim R Samples (see details below) have studied some of the range of bonds held by “hold-outs”, and in the Abstract to their paper say:

We document the wide heterogeneity of holdout rates across Argentina’s 150 defaulted bonds (of which 74 still have holdout rates greater than 5 percent) and focus the subsequent analysis on the seven most held-out bonds. The bonds in our sample have holdout rates between 20 and 82 percent and account for about 30 percent of total holdout principal. We show that New York’s statutory real rate of interest on overdue interest has been 6.6 percent on average during the years affecting this suit compared to 3.1 percent during the previous forty years. As such, the New York statutory rate has become more punitive than compensatory.

We also illustrate the growth of the value of holdout claims for the seven bonds from their initial $1.7 billion in principal up to $4.3 to $7 billion in current value, depending on when holdouts obtained judgments. We analyze the sensitivity of holdout claims to different approaches to overdue interest—an issue that has become increasingly controversial in New York state law in recent years. We next assess the returns that investors would have obtained by purchasing the seven-bond basket at different times since 2002. We find that investors would have multiplied their money an average of 8 times if they obtained judgments in 2008 or 13 times in 2015. Finally, we compute the current value of Argentina’s 2005 exchange offer and find that is worth about one-half of the litigants’ claims for judgments obtained in 2008.

[our emphasis]

Second, the partiality of the US courts, using the discretionary remedy of injunction to enforce its “eccentric” interpretation of the (supposedly equitable) pari passu clause, to enforce completely unequal treatment, by discriminating in favour of the financial interests of some of America’s richest and most powerful corporations (we say America’s, though NML at least is registered in the tax haven Cayman Islands).

The key here is the so-called “ratable payment” that Argentina was required by the injunction to make – which was in the full discretion of the judge.  Judge Griesa took an absurd line, requiring 100% of what was outstanding to be paid.  Thus, if the exchange bond-holders were due a next stage payment of interest of say $1 million, while NML’s total claim for principal and interest came to say $1 billion, each should get exactly these amounts, representing 100% of what was then due!  Yet NML would have gotten 100% of his total amount due, while the exchange bond-holder would have received just a tiny fraction of the overall amount due on its exchange  bond contract, which was properly to be paid in many sequential  stages of interest and principal.

Judge Griesa’s interpretation of ratable payment was thus a recipe for inequality.  It reminds us of the old quip by Anatole France:

The law in its majestic equality forbids rich and poor alike to sleep under bridges, to beg in the streets and to steal bread.”

Messrs Juan J. Cruces and Tim R Samples [4] , in their paper “Settling sovereign debt’s ‘trial of the century’” (January 2016), also see the ratable payment as the key issue:

But adjudicating sovereign debt disputes is no easy task. Institutional voids and limited enforceability only make matters more difficult for courts.  As a result, striking a balance between the legitimate restructuring needs of a sovereign debtor, the interests of innocent third parties, and the legitimate rights of creditors is a complicated goal. But at least one point is clear: Abandoning—or at least revising—the ratable payment injunctions would clear the path for settlement.

Moreover, in the Abstract to their paper (already referred to), they also point out that

[W]ith so many holdouts unaccounted for, a settlement with the NML litigants exposes Argentina to the tyranny of the next litigant as long as the current injunctions remain in place.

The third issue leading to the present chaos is the absence of a fair and independent international process for dealing with sovereign insolvency – fair in the sense of properly balancing the interests of creditors and debtors.  While individuals and corporations can go bankrupt – and have their unpayable debts written off – that is not true of states.  And when we talk of states, we mean people, the vast majority of whom are not rich.  The particular evil of vulture funds is that their business model, devoid of any social merit, largely targets poor people in poorer countries.

Absent a formal international process, a settlement between a sovereign state and at least a large majority of creditors is the next best thing – which inevitably means creditors accepting a significant haircut.  It is absurd and against the public interest that – with the matter left to individual contract law – a small percentage of hold-outs and vultures should be able to destroy the integrity of a settlement process agreed to by an overwhelming majority of creditors.

The ordinary courts have, however, shown themselves unfit to resolve such issues.  The “Wall Street” mindset of Judge Griesa was demonstrated when he sought to justify his injunction – which explicitly offers more favourable treatment to the vultures – in the following terms:

In accepting the exchange offers of thirty cents on the dollar, the exchange bondholders bargained for certainty and the avoidance of the burden and risk of litigating their rights on the FAA Bonds. [They] made the choice not to pursue the route which plaintiffs [i.e. the vultures] have pursued. Moreover, it is hardly an injustice to have legal rulings which, at long last, mean that Argentina must pay the debts which it owes. After ten years of litigation this is a just result.”

The injustice in fact goes deeper, since the vultures’ business model could not work unless the overwhelming majority of creditors accept a deep haircut, thus laying the financial basis for the payment of a huge ransom.

As we have previously argued,

This is really quite breath-taking in its intellectual audacity and paucity. [T]he judge is telling the exchange bond-holders in effect that since they took the “safe” route out of the problem by agreeing to the debt sustainability restructuring, they have only themselves to blame for ending up worse off than the hold-outs!

No mention of the fact that most of the hold-outs buy up their bonds dirt cheap and take their speculative chances in enforcement. No hint of a thought that an orderly settlement of a debt crisis to enable a country to return to debt sustainability might just be in the public interest. No. Just unadulterated judicial support for the Cayman Island billionaire vulture funds.” (p.16).

So despite all the official talk of CACs (collective action clauses) and improved contractual terms for future bond issues, the case for a formal independent, fair process for resolving sovereign insolvency issues remains as strong as – if not stronger than – ever.  Unless the courts see their task to protect the world’s poor as well as to enrich its wealthiest billionaires, the vultures will continue to prey.

The Injunction Must Be Lifted

There is only one just outcome now – and that is for the New York Court to lift the injunction and enable any agreed settlements between Argentina and its remaining hold-out creditors to be made, if that be the democratic will of Argentina’s Congress.  What must be made clear is that the US courts will cease to act as the hostage-takers’ enforcer, and the vulture funds must see that from now on, they are on their own.

If the US courts continue to back the vultures to the last, then the Argentinian government will indeed be in a very tricky spot – in the FT’s words, it would be “expensive politically as well as financially”.   In our view, it would be time to call the bluff of the vultures and the courts, refuse to pay an “exorbitant ransom”, and mobilise a wide international political move against the imperial blockade.

Footnotes:

[1] And in the view of some “experts” of questionable neutrality, keep all offers a secret from your own people so that the Wall Street hostage-takers are not embarrassed – see Charles Blitzer in FT Alphaville, and a retort from PRIME.

[2] Roughly speaking, though it is the subject of much legal debate, “pari passu” means on the same footing.  It had been very widely seen as mere “boilerplate” wording carried across from commercial bond contracts, where it relates to legal ranking in case of legal insolvency.  For more on this, Professor Rodrigo Olivares-Caminal’s 2013 article for the Bank of International Settlements (BIS) “The pari passu clause in sovereign debt instruments: developments in recent litigation” offers an interesting and helpful introduction.

[3]   “Did Argentina  default?” by Jorge Vilches and T Sabri Öncü, first published in the Indian journal, Economic and Political Weekly, 24 January 2015, and cross-posted on the PRIME website

[4] Professor of Finance and Economics at the Universidad Torcuato Di Tella Business School, and  Assistant Professor of Legal Studies, Terry College of Business, University of Georgia, respectively.


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31 comments

  1. Jim Haygood

    ‘…for the New York Court to lift the injunction and enable any agreed settlements between Argentina and its remaining hold-out creditors to be made, if that be the democratic will of Argentina’s Congress.’

    At least in domestic political matters, U.S. courts are usually happy to avoid sticking their necks out, if they can plausibly defer to some other branch of government.

    Ostensibly Argentina’s debt negotiation is just a commercial dispute. But it presents foreign relations overtones as well as possibly some precedent value, both for future sovereign debt defaults as well as for the future use (or not) of New York law in sovereign bond indentures. Perhaps the U.S. State Dept would weigh in, if it weren’t fully occupied releasing Hillary’s emails.

    That Argentina’s international competitiveness is focused almost solely on primary products (meats, grains, wine) means it desperately needs to reintegrate into the global financial system. Macri’s devaluation should begin to build forex reserves, making reasonable settlements affordable.

    Argentina’s “overvalued peso” policy was a terrible idea that the Widow K got from Hugo Chávez in 2011. After five years of pressure on forex reserves (exactly what one would expect from subsidizing imports while punishing exports), Argentina’s dual exchange rate has been tipped into history’s dustbin.

    Unlike the previous Argentine administration, Venezuela is committed to servicing its debt. But in pursuing a policy of overvaluing its official exchange rate by hundreds of times, Venezuela soon will reach a point where it simply can’t pay.

    1. Older & Wiser

      Can someone with judge Griesa’s seriously impaired health follow (let alone lead) a highly complex subject matter such as the one at hand affecting millions of people and trillions of worldwide oustanding sovereign debt ?

      The corporate world mandatorily retires its best and brightest at age 65 for a reason.
      The video speaks for itself
      What does all this say about the US judiciary ?

      Judge Griesa (86)
      * struggles hard to focus his eyesight on anyone or anything.
      * doesn’t hear well at all and probably mis-hears things
      * only mumbles, doesn’t speak as you and I do by any stretch of the term (just watch video linked below)
      * has a very hard time reading anything only if for postural reasons.
      * can he read at all ? how well ? how fast ? for how long ?
      * can he operate a computer and read off small sized fonts on a CRT screen ??
      * can he write anything with anything ? (keyboard, ball-point pen ?)
      * can he talk over the phone ???
      * can’t drive
      * can’t get out of the back seat of a car by his own means
      * can’t walk by his own means
      * probably very much concerned about his health
      * requires constant nursing help and medical attention

      http://tn.com.ar/economia/fondos-buitre-el-juez-thomas-griesa-analiza-la-propuesta-del-gobierno-argentino_651629

  2. RabidGandhi

    An excellent summary of the situation thanks for posting it.

    One thing that should be noted is the Macri government’s bargaining strategy (or lack thereof). Macri and his economic team have said on several occasions that Argentina must pay “whatever Griesa decides”– in sharp contrast to the previous administration’s refusnikism. Even if they are going to take this posture, I cannot think of a worse negotiating strategy than caving on major issues before negotiations even start.(shades of Varoufakis)

    To put this in contrast, yesterday Macri hosted the heads of the major unions to start annual negotiations on salary adjustments for inflation. Even the most pro-government consultancies are saying 2016 inflation will be north of 35%. Yet last month FinMin Prat-Gay announced that they have set an inflation target of under 25%. The reason for this, of course, is that the government is using a strategy against the workers that they should have used against the vulture funds: by saying 25%, they put a lower barrier on the negotiations, thus making workers’ demands for 30% increases seem unreasonable.

    This shows pretty clearly where the priorities are.

    1. Jim Haygood

      Federico Sturzenegger, the new president of Argentina’s central bank, will play a role in determining whether Argentina’s chronic 30% inflation continues or stops.

      Expanding the BCRA’s balance sheet by 30% annually, as was done in past years, ensures that prices will follow suit.

      He’s got a PhD Econ from MIT. Hope he didn’t study under J-Yel’s discredited sidekick, Stanley Mellon Fischer, at MIT. Unlikely, since Sturzenegger ain’t that old.

      1. RabidGandhi

        1. The only time Argentina has ever had inflation under control was in the 1990s when it pegged the peso to the dollar under Menem– doing this raised the poverty level to 54% and led to the 2001 crisis. Sturzenegger was a key player in Menem’s central bank, and as recently as last week continued to wax eloquent about the economic policy in that epoch. I.e.,with Sturzenegger we’re going backwards, not forwards.

        2. The problems is not inflation. While it would be great to get inflation down, the bigger issue is whether Argentines have purchasing power. If wages continue to outpace inflation as they did over the last decade, there would be no problem, but it is much harder to negotiate when there are massive public sector layoffs and a huge shift of resources from the poor to the rich minority.

  3. Legendary Bigfoot

    Invade the Cayman Islands, seize all businesses chartered there, declare the claims null and void.

      1. prostratedragon

        I think that movie was the opposite. Small country hits on idea to boost its foreign aid receipts. Very funny, as I recall.

        Invading the Caymans is a tempting idea. Or somewhere.

        1. ambrit

          Some of the ‘Powers Behind’ should engineer some sort of fatwa from the Caliph of Mosul demanding the destruction of all ‘offshore’ banks. (Those Infidel institutions charge interest!) Then it should be easy to arm and train some “Moderates” to nuke the Caymans, and Jersey, and, well, you get the picture.

  4. Matthew G. Saroff

    Argentina should charge the leeches criminally, and then put out a multimillion dollar bounty on them and their lawyers to have them delivered to Buenos Aires for trial.

    Not one step back.

    1. dejavuagain

      Argentina should actually bring an action against the bankers and their lawyers who structured the deal for Argentina. Really, they did not want to pay the higher rate required by a properly structured bond. Argentina should have purchased back its own bonds at the vulture discount rate. Argentine economics almost has a child-like aspect similar to its claim on the Falkland Islands. Really, if the Falklands (uh, Malvinas if your are in BA) belongs to Argentina then Cuba belongs to the US.

  5. Strategist

    Some interesting stuff from the great Greg Palast on vulture fund boss and Republican party funder Paul Singer. http://www.gregpalast.com/who-hatched-rubio-2/#more-11168

    Palast is saying that Singer has invested in Rubio to make sure he makes some crazy profit out of the Argentinian debt he bought. He’s also saying Singer is investing in rigging the general election through voter blocking – something Palast has investigated a lot and is expert on.

    I hope there’s some interesting info here for anyone unfamiliar with Greg Palast’s work

  6. Chauncey Gardiner

    Why the sudden rush to settle? Call the bluff of these vultures indeed. They are just wealthy speculators operating out of international tax havens who purchased Argentine bonds in the secondary markets at incredibly deep discounts with a hope of realizing extraordinary gains through legal maneuvers and a friendly court. Argentina’s sovereign government should both continue to refuse to pay these vulture funds their demands and to enlist the support of other nations and supranational institutions for their decision to do so.

    It has never been clear to me the extent to which these bonds were originally “odious debts” and as such should be repudiated, or a clear failure of prudent and responsible creditor underwriting as a result of a fundamental currency mismatch behind the veil of a currency peg or maturity mismatches.

    Further, in addition to limiting Argentina’s external borrowing of non-peso debt, Argentina’s monetary and financial authorities should explore alternatives to the US and UK bond markets if they haven’t already done so. In addition to non-western private banks, accessing supranational institutional creditors or borrowing through other entities such as friendly sovereign governments and corporate vendors should be on the table if necessary. The claims of these vulture funds are beyond ridiculous IMO.

    1. RabidGandhi

      1. Why the rush to settle? Because of internal politics. Macri inherited a country that was more economically solid than any other Argentine president has ever inherited. Neoliberalism needs for there to be a crisis in order to be able to implement its favourite policies: fiscal austerity, privatisations, layoffs, indebtedness to foreign capital… The best way to provoke such a crisis is to piss away the country’s net assets.

      2. As far as odious debt goes, there is a legitimate question as to debts taken on during the last dictatorship (1976-83), but most of the debt was due to the “democratically” elected neoliberal regime of Carlos Menem (1989-99): further proof that neoliberalism is more effective under the guise of pseudo-democracy than under dictatorships. But to let you know which way the wind blows, the state undertook to re-evaluate the validity of both private and public debts in 1986 under the Central Bank’s Debt Manager, Carlos Melconian. Melconian’s response was to sign off on the public assuming any “illegitimate” private debt and then put an end to any further investigation. The previous administration attempted unsuccessfully to prosecute Melconian for this. The new government appointed him head of the National Bank of Argentina, his current position.

      3. The most important credit facility the previous government opened was a series of currency swaps with China. The current government renewed the swaps, but is also seeking some USD 15b in dollar-denominated loans from a conglomerate of private banks. Again, full throttle to the past.

  7. Jess

    On a larger canvas, what’s the long term solution, not only for Argentina but for all the countries of the world? How can the import-export teeter-tooter be made to come into balance? Or are all countries not on the USD or British pound, and perhaps the Euro (but who knows) doomed no matter what they do?

  8. Phil

    The Israelis kidnapped Adolph Eichman in Argentina and took him to Israel to face justice then hanging.

    Perhaps the Argentinians could kidnap the vultures in New York and take them to Argentina to face justice?

  9. Kingsley Lewis

    Don’t forget that it was was Argentina who was at fault in breaking loan agreements, not the creditors or their successors.
    All of Argentina’s creditors (and their successors) kept their side of legal agreements. So the creditors and their successors deserve sympathy rather than self-righteous rancour.

    If anyone feels sorry for a defaulting debtor like Argentina, they should advocate aid or charitable contributions rather than moralistic indignation against the honest creditors.
    If Argentina is worthy of debt relief, this should be paid by rich countries or international institutions, not by honest creditors.

    1. Older & Wiser

      The authors rightfully point out that vulture funds (term coined by the UK´s Gordon Brown for many good reasons) never ever lent a single dollar to Argentina.

      They just bought pre-defaulted or fully defaulted bonds worth nominal billions for a few pennies on the dollar. The centuries-old “Champerty” doctrine does not allow to buy such fully distressed debt for exclusive suing purposes as vulture funds did, but judge Griesa (appointed by Richard “Tricky Dick” Nixon, remember him ?) shamefully and very curiously decided to skip that well-known chapter of do´s and don’ts of financial litigation. The reason ? Simple, allowing vulture funds to make a 1600% profit. Hood Robin, you follow ?

      The IMF had very serious regrets regarding its own role in Argentina’s pre-crash policy and borrowing which, BTW, applies right now to 60 trillion of outstanding sovereign debt worldwide. But 92.4% of hold-in creditors agreeing was not enough for Your Honor´s most creative + eccentric (and unprecedented) interpretation of ´equitable pari passu treatment´ clause: 100% is the minimum, see ?

      So the very consistent “Griesa Strategy” required Argentina’s judicial blockade probably implemented by some of his clerks as he is 95% uncapable to “work” by any stretch of the term. The US judicial interference and game plan has been thoroughly described in Michael Hudson´s book “Killing The Host” with great detail.

    2. Yata

      If Argentina is worthy of debt relief, this should be paid by rich countries or international institutions, not by honest creditors.

      If Argentina is worthy of debt relief, this should be paid by rich countries or international institutions, not by honest creditors and honest successors.

      you’re welcome

    1. RabidGandhi

      Translations, at their root are personal. (even worse with poetry, and Piazzolla, ni hablar).

      But for me, mufa = the blues.*

      *I’m not porteño, so I have no authority on this.

  10. Ché Pasa

    Ah neo-colonialism! Ain’t it grand! And look, the colonized themselves elected the government that is making it so. No need for gun boats in the Buenos Aires harbor, no sir. Just cut off their access to capital markets and get some rheumy-eyed judge in New York City to rule savagely against the victims, and voilà! Done deal… and somebody is wildly richer than they were before. Pity the Argentinians, the poor devils, but it’s their own fault. Always blame the victims. It’s rude to do otherwise.

    It’s only going to get worse for the many until and unless a global paradigm shift occurs that protects the many from the rapaciousness of the few predators, scavengers and vultures. That day seems farther off than ever.

    But ya never know…

    1. Yata

      The whole world over, money dictates who gets elected into office, and then they dictate who gets money.

      Hell! we no longer need the Dulles brothers, or their ideological progeny, simply set up shop in new york or london and you’re essentially guaranteed a profit from the rest of the world.

  11. Crazy Horse

    How dare the Argentinians try to escape from the bonds of debt slavery. Why, if all countries behaved like that how could the moneychangers collect the surplus that is extracted from the soil and labor of their subjects and use the proceeds to buy villas, yachts and politicians? If London and Zurich had to live without their bankster mafias they would be little more than rural outposts among the world’s cities. And we couldn’t have that—.

    In a system of international finance that is based upon extraction of blood and tears from individuals, nations, and the natural capital of the planet, engaging in debate about the legalities that perpetuate the system is the height of self delusion.

    For all its faults, the Muslim prohibition against monetary systems based upon collection of interest has much to recommend it. http://www.islamic-banking.com/prohibition_of_interest.aspx

    And if you claim to follow the Christian bible you are also prohibited from collecting interest or engaging in Western style banksterism.

    “If you lend money to My people, to the poor among you, you are not to act as a creditor to him; you shall not charge him interest.” The Holy Bible (American Standard Bible)

    “Do not charge your brother interest, whether on money or food or anything else that may earn interest.” (Deuteronomy 23:19)

    [Jesus said], “If you have money, do not lend it at interest, but give [it] to one from whom you will not get it back.” Gospel St Thomas, V95

    Of course for Christians beliefs are only valid to the extent that they advance self-interest.

  12. ewmayer

    Pardon my ignorance of global capital-market-access nuances, but what would really be the cost of Argentina at this point simply throwing up its hands and saying ‘we made a more-than-reasonable offer, so now f*ck off’ to the holdouts, and perhaps to all the creditors? To the folks who agreed to the 2005/2010 deals they can credibly say “ask those greed-heads Elliott and Brodsky why you’re never, ever getting a penny”. The $billions saved would surely make up for a whole bunch of “global capital market access”, and since said access blew up in their faces multiple times before perhaps not having t would be a good thing for all involved – the Argies wouldn’t be tempted to make up for lack of domestic fiscal discipline by way of the hazardous game of borrowing in dollars, and the rentiers and IMF would have to go seek their usury rates and nation-pillaging-to-pay-off-debt spoils from some other sucker. Unlike Greece, they still thankfully have their own sovereign currency, after all, so except for dollar-denominated debt there is no currency-based force majeure exertable by outside parties here.

    Would things be tough for a few years? Sure. But in the end the hard-won autarky would be a great thing for all Argentines. Old-style colonialism was bad enough – why go out of your way to embrace the debt-and-reserve-currency-based modern version?

  13. Older & Wiser

    I read you ewmayer, I read you…

    The ” problema” here is that Mauricio Macri won the election, so he´s now the legit president and does not agree with such line of thought.
    He thinks ´let´s play Wall Street´s game again´ (it´ll be different this time around), let´s get in debt again, and try to beat the system again…
    With better managed new debt I will lead Argentina to growth (ha !) and to my political benefit (of course).
    Funny enough, either by ignorance or naiveté, roughly 50% of Argentinos (for the time being) would agree in trying out same old same old yet again.

    1. RabidGandhi

      I agree with both of you in principle, but just a note on the 52% that voted for Macri: since it was a runoff election, it was not that the electorate can be said to be in favour of Macri’s platform, rather that they preferred his platform to that of his opponent, the “handpicked successor” to the last regime, Daniel Scioli– whose policy statements and history are little different from Macri’s. Another example of how democracy ain’t so democratic. (a similar comparison: a vote for Sanders does not mean support, rather it means a democrat primary voter prefers Sanders over Clinton).

      Secondly, Argentina can tell the bondholders to take a long walk on a short pier, but that wouldn’t be without its perils: the vultures have a highly paid legal staff that they use to make Argentina’s life difficult by embargoing assets (such as the embargoed ship incident) or launching subversional propaganda attacks. How well Argentina could stand against this (if she wanted to) would depend on how much solidarity can be generated internationally.

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