Argentina and the Vultures
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In mid June the U.S. Supreme Court declined to consider Argentina’s appeal of the ruling by U.S. Federal Judge Thomas Griesa of the Southern District of New York that it must pay holdouts to the restructuring deals it reached with creditors in 2005 and 2010. The problem looming over the conflict is that if Argentina does pay them, other creditors may then come demanding similar terms thus swamping the Argentine treasury and economy. If Argentina does not make a deal with these so-called “vulture funds” (as Argentine President Cristina Fernandez de Kirchner has called them), it could mean default. The press in Latin America has paid a great deal of attention to the problem, and is still trying to figure out what it all means. Observers there have raised a whole host of issues: the power of “neoliberalism” and of financial capital in general; U.S. “soft” power; Argentine efforts to honor obligations to the cooperating 92% of its creditors yet not give in to “extortion;” questions of sovereignty; implications for and threats to the capitalist system; reactions of the UN, IMF, even the Financial Times; blame of or sympathy for Griesa, and the lack thereof for Argentines; blame of President Fernández de Kirchner due to her combative stance; the degree that this has become a personal struggle between Griesa and CFK; those standing with Argentina, those not in their corner; how origins of the crisis predate the current government; calls for both sides to negotiate, while many on the Latin American left say the holdouts (who bought the debt after the fact) are loan sharks, speculators, and heartless opportunists.
What Went Down and Reactions to It
In Página/12 of Buenos Aires Raul Dellatorre quoted President Fernandez de Kirchner in her reaction to the U.S. Supreme Court’s decision. “Argentina will meet its restructured obligations, we will not default on our debt to bondholders, but we will not give in to blackmail” perpetuated by interests that would profit from “the misery of the people.” She was speaking to the millions of Argentines listening, but also to the 92% of Argentina’s creditors who had accepted the earlier agreements. When the Court rejected Argentina’s appeal, the nation had to face his order to pay NML Capital Ltd and other investment funds (Aurelius and Blue Angel, among them) a sum of 1.3 billion dollars in cash, as appreciation to the consolidated value of nominal price of the securities in possession of those, plus interest and penalties forthe time since the cessation of payments in December 2001. “This ruling is contrary not only to the interests of Argentina, but also to the 92% of creditors who believed in the country and the debt restructuring, and also against the operation of global economic and financial system,” argued CFK. She pointed to support for Argentina’s position expressed by France, Mexico, Brazil and British MPs, who understood that it was a cause of global implications. Yet she also said she was “not surprised” by the judgment. It was just more evidence that the global business model perpetuates “a form of world domination based on speculation” in which businesses and financial interests can force countries “to kneel” before them and “give in to the pressures of this financial power” as they “impose conditions to their advantage.” And she warned that this “will have serious consequences” and could generate “unimaginable tragedies.” She also reiterated that these “vultures” bought the debt (much of it run up by Argentina’s authoritarian military governments) for pennies on the dollar, and were just looking to make a big score at the Argentine people’s expense.
In the Buenos Aires Herald Mempo Giardinelli said that “the only thing we know with absolute certainty is that nothing is (or will be) easy for Argentina,” with the national government on one side, “and the vulture funds and their best advocate, the New York judge Thomas Griesa” on the other. And around the showdown “the spectators cluster.” These include “a worried and silently expectant people; a government paying for the corruption and shady deals of its predecessors; an alarmed international community; a bunch of politicians and local journalists who want everything to go wrong for this country — or worse if that were possible.” Griesa declared that Argentina’s payment to the bondholders who had entered into the 2005 and 2010 swaps “is illegal and will not happen,” and told New York Mellon bank to take the money already transferred and “send it back to Argentina.” In this situation “here are three things” that a reasonable observer may spot: “a) the decision of the judge to force Argentina into default; b) the decision of the government to fight to the finish and disqualify the judge for his bias and for straying beyond his jurisdiction and c) the panic this issue causes among many economists and local columnists.”
It is still clear that “the debt restructuring of 2005 and 2010 was so positive that today nobody wants the country to fall into default,” while “almost 93%” of Argentina’s other creditors “would like to continue collecting in peace.” What is more, Giardinelli observed, the “restructuring permitted growth without an austerity which would have had serious social consequences” and has allowed the country to amass “relatively high levels of reserves for several years.” On balance, during the years of Kirchnerismo Argentina has kept good faith with its creditors, while “nobody in good faith could fail to recognize that the country today is abysmally better than it was a decade ago — and two, three or four decades ago as well.” This fact is “inconvenient and even annoying for the opposition, as is natural and logical, but it should not cloud the minds of its leadership, as happens all the time.”
Giardinelli also pointed out that much of this debt was run up during the period between 1976 and 2001, and that now democratic Argentina is cleaning up the mess, and deserves some credit. “Surely it is no longer possible to repudiate that debt and not pay it, as some of the most extreme positions of the Argentine left seek. But it would be good to determine with certainty those who were responsible and to place their crimes beyond the statute of limitations. That would enable the trials of those responsible for all the shady deals which have ruined the future of several generations of Argentines.”
Oscar Laborde wondered in Página/12 of Buenos Aires “why the vulture funds have so much power?” After all, those supporting Argentina make up an impressive group: the Group of 77+China, many European and South American countries, U.S. government spokespersons, 100 British lawmakers, foreign and domestic banks, among others. Yet “the current hegemony of financial capitalism over the productive forces of the economy is increasingly obvious and damaging.” Faced with the emergence of the Brics, and newer, more socially sensitive models in Latin America, some powerful groups have decided to practice a kind of “financial terrorism” that is meant to destroy economic or political forces that threaten their dominant position. “They have achieved a huge transfer capital from productive sectors to speculative financial markets,” and have done so “no matter the cost in human life and the destruction of societies and countries.”
Alexandra Vanegas said in El Espectador of Bogotá that the consequences could be bleak for Argentines. “Economists and analysts” say that “the situation will be like a bucket of cold water” on the economy, because it would not only affect the government. The average Argentine would also have to suffer the blow as it would generate “more austerity, fewer purchases, dissent, frustration and, as usual in Argentina, more complaining.” According to Ismael Bermudez, columnist and editor of the business section of Clarín, the consequences that could arise can be summarized as follows: lower capital income in the country, bankruptcies, more debt, acceleration of the recession that has been brewing since the end of2013, increased unemployment, rise in the price of the dollar, and rising inflation.
El Espectador also published a piece by John Paul Rathbone of the Financial Times who argued that “Argentina is playing chicken with a cessation of payments,” saying: “we are prepared to go as far as the possibility of a cessation of payments as not to pay you. Given this situation, how are we to reconcile this case?” This, Rathbone says, “is risky.” If the whole thing falls through and Argentina defaults, there would be wide ranging consequences, most of them bad. “But it is also something politically necessary.” CFK has vowed never to succumb to the “extortion” of those who did not participate in the restructuring. El Universal of Caracas noted that most analysts and experts have stressed that it would be in Argentina’s best interests to negotiate to avoid a new default. And Clarín of Buenos Aires, certainly no friend of the CFK administration, said the fault lies with the president and Economy Minister Axel Kicillof for their failure to manage the consequences of their belligerent stance. Their description of the court’s decision as “blackmail” was unwise; “irrational challenges rarely end well.”
Questions of Sovereignty
Página/12 of Buenos Aires described how Argentines gathered in the Plaza de Mayo of Buenos Aires under the slogan “Vultures or Argentina, the homeland is not negotiable.” As one member of the President’s Frente para la Victoria faction of Peronismo (also known as Kichnerismo) put it: “We will not be submissive or passive, on the contrary we will defend our sovereignty and our national interests.” La Jornada of Mexico City noted that the International Monetary Fund (IMF) expressed concern over the implications of the decision by the Supreme Court to require the Argentine government to reimburse the so-called vultures, which has “created a situation of grave uncertainty for global finance.” Not only could it cause grave economic distress for Argentina through default, but it also “sets a precedent that threatens the finality of restructuring the external debt of other nations.” La Jornada also reported on the demonstrations in Buenos Aires against the Vultures.
Threats to the Capitalist System
Página/12 of Buenos Aires reported that the United Nations Conference on Trade and Development (UNCTAD) harshly questioned the decision by the Supreme Court of the United States to reject the request for review of the judgment of Judge Thomas Griesa. It warned of the potential implications for the international financial system. “In this chaotic environment, the formulation of standards and global and harmonious principles to guide restructuring has become of vital importance,” said the UN agency. It believes that the crisis caused by the“vulture funds” against Argentina “threatens to have profound consequences for the whole international system of finance,” making future debt restructurings “to be even more difficult.” It also stated that the activities of vulture funds highlighted some of the problems of the global financial system, and showed the unfairness of the current system. Ultimately the episode could undermine incentives for creditors to participate in an orderly debt restructuring.
Along the same lines the Buenos Aires Herald noted that the IMF warned of “more complicated” debt restructuring processes. The decision not to hear the case between Argentina and the hedge funds “will give holdout creditors greater leverage and make the debt restructuring process more complicated,” the International Monetary Fund (IMF) said in a report. The IMF reached this conclusion based on two main reasons. On the one hand, according to the IMF, by allowing holdouts to interrupt the flow of payments to creditors who have participated in the restructuring, the decisions would likely discourage creditors from participating in a voluntary restructuring. On the other, the IMF considered that by offering holdouts a mechanism to extract recovery outside a voluntary debt exchange, the decisions would increase the risk that holdouts will multiply and creditors who are otherwise inclined to agree to a restructuring may be less likely to do so due to inter-creditor equity concerns.
In Folha de S. Paulo Clóvis Rossi wrote of a “vulture devouring carrion.” He quoted economist Aldo Ferrer who said the U.S. action “means demolishing the progress that came of Argentina’s restructuring its debt.” Even in the “orthodox” Financial Times Vivianne Rodrigues argued that “the Argentine plans to bury the hatchet with international financial markets were going pretty well.” But the power gained in contemporary capitalism by such financial actors “unbalances thegame.” He then recapped for a little broader context of the litigation: Argentina has not defaulted because of “populism;” it simply had no money to pay. And “if private companies canrestructure their debt, if necessary, under court protection, why not governments?” Also, “if 92% of Argentine creditors, more or less, accepted the post-default agreement it was because the Argentine proposal was not outrageous.”
Standing with Argentina
MercoPress of Montevideo noted that Mercosur and CELAC country-members expressed support for Argentina and its ongoing litigation. Mercosur heads of state expressed their “most absolute rejection to the attitude of the holdouts,” whose actions they claim, “are an obstacle for reaching definitive agreements between debtors and creditors and put at risk the financial stability of countries.” They also acknowledged “Argentina’s willingness to continue honoring its international financial commitments, as it has been doing systematically since the restructure of its debt in 2005 and 2010, when an agreement was reached with 92% of its creditors.” La Tercera of Santiago noted that Mercosur and CELAC expressed “solidarity and support for Argentina in its search for a solution that does not compromise its people’s development and well being, in consonance with its national development policies.” El Espectador of Bogotá pointed out that the Uruguayan President José Mujica proposed to raise a complaint with international organizations because “today or tomorrow they can do the same to anyone.”
It Got Personal
In the Buenos Aires Herald James Neilson highlighted the personal nature of the conflict. He thought “it would also have been better had Cristina done her best to see that reserves remained as high as they were when her husband handed her the presidential regalia and, just in case, had tried to butter up judge Thomas Griesa when he still seemed reluctant to throw Argentina to the vulture funds.” He offered that “presumably” the judge’s “decision to make Argentina cough up was based on sound legal reasons, but many think he simply got fed up with being told by Cristina that she would refuse to pay any attention to a verdict that did not meet with her approval. Many local politicians think it was her behavior that made Griesa turn nasty. They accuse her of getting the country into a wretched mess that, had she kept her mouth shut, it could easily have sidestepped. That may be unfair, but by staging a one-woman show Cristina ensured that should anything go badly wrong she would have to shoulder all the blame.” El Tiempo of Bogotá noted that Griesa criticized CFK for having said in a speech that the pressure of creditors amounted to “extortion,” and considered the words of the president as “a problem.”
Searching for a Solution
BNamericas of Santiago editorialized that “with all legal avenues exhausted, Argentina has but one option. Default will do nothing to advance the country’s interest despite protestations of poverty and the demonization of vulture funds. The only option which serves its interest is to negotiate and begin a new chapter, open to new investment and free from the burdens of the past.” In Página/12 of Buenos Aires Frederick Kucher also pointed out that most economists are pushing for negotiation. He quoted Aldo Ferrer who said “never fear to be negotiated with and never be afraid to negotiate.” Here’s to the art of negotiation.