This Institute of New Economic Thinking interview describes how Argentina’s completed sovereign debt restructuring was derailed by vulture fund NML Capital in a reading of the original bonds’ pari passu clause that was contrary to well-established practice. Even the US Treasury had weighed in on the side of Argentina in an amicus brief. The interview of Argentine ambassador Cecilia Nahon by Marshall Auerbach goes into the backstory of the restructuring, that Argentina’s woes in no small measure resulted from following the IMF’s neoliberal fads du jour.
As the summary from the INET website explains:
During the 1990s, Argentina had been the poster child for Neoliberal policies—they adopted virtually the whole of the so-called “Washington Consensus” agenda lock-stock-and-barrel. They even adopted a currency board. And unlike Euroland (which also adopted something like a currency board as each member adopted a foreign currency—the euro), Argentina would have consistently met the tight Maastricht criteria on budget deficits and debts over that period. The main purpose of the austere budgets and currency board constraints was to kill high inflation. It worked. But, over that period unemployment grew and GDP growth was moderate. And because the peg was sold to the Argentinean public as “inviolable” it created great incentives to accumulate a lot of foreign debt, particularly dollar denominated. By the late 1990s, however, growth slowed making it harder for Argentina to secure the dollars required to service its growing debt burden (it peaked at 180% of GDP) and the peg was ultimately abandoned.
One of the first policy initiatives taken by then President Duhalde was a massive job creation program that guaranteed employment for poor heads of households. Within four months, the Plan Jefes y Jefas de Hogar (Head of Households Plan) had created jobs for 2 million participants which was around 13 per cent of the labour force.
But the country still had to deal with the legacy of its defaulted foreign debit, and this was the main challenge faced by the Kirchner Administration. His government did reach agreement with 92.5% of its creditors for a restructured deal (interestingly enough, using the GDP-linked growth bonds, which was part of Greece’s recent proposal to the European Union). The problem that has plagued the conclusion of this debt restructuring is a small group of funds, led by NML Limited, has rejected the settlement and secured judgment in the NY courts demanding full payment at par. The court has supported this action, which means the vast majority of the so-called ‘exchange’ bond holders, who took settlements in 2005 and 2010 after Argentina defaulted on its public debt obligations, cannot be paid until NML, who has a small amount of so-called ‘hold out’ Argentine government debt, is paid in full. What can the Argentine government do in this situation, given it has been fully servicing the exchange liabilities but claims it cannot meet the original liabilities held by NML?