

Ruling on Argentina Gives Investors an Upper Hand - tristanj
http://www.nytimes.com/2014/06/20/business/economy/ruling-on-argentina-gives-investors-an-upper-hand.html

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pdabbadabba
This article gives little attention to very major point. It says:

> But the courts say that interest may not be paid unless the country pays all
> it owes on bonds it defaulted on years ago, something Argentina says it
> cannot and will not do.

This is only true because of the terms of Argentina's debt agreement. Unlike
the language of virtually every country in the world today except (I think)
Jamaica, Argentina's agreements include what is called a "pari passu" clause
and not a collective action clause. This fancy jargon just means this: under
the pari passu clause, Argentina could not subordinate the debt to any future
debt (that is, it cannot issue new debt that will be given a higher priority
in making payments). All the courts have done is rule, sensibly I think, that
Argentina has, in effect, subordinated the old debt by passing a law making it
illegal to make payments on that debt while issuing new debt on which it will
make payments.

Meanwhile, under a collective action clause, a country could force hold-out
debtors to accept a restructuring. If Argentina had written such a provision
into its agreement, this would have been over a decade ago. (Though, in
fairness, when the debt in question was issued, such clauses were not widely
used). The article does talk about this, but only briefly. It highlights
arguments from a few nations that old bonds do not all have collective action
clauses, and that, possibly, a creditor could buy enough of a single bond
issue to block restructuring even with a collective action clause. What the
article does not point out, however, is that it is entirely within a nation's
control how it drafts its pari passu and collective action clauses (and
whether it includes either of them). All the courts are doing today is
enforcing the agreements the way Argentina itself drafted them. If Argentina,
or other nations feel threatened by our courts' robust enforcement of those
agreements, they should probably consider changing the terms that they commit
themselves to.

~~~
midas
Would anyone have bought the bonds without this clause?

I'm not sure, but keeping in mind that these bonds were issued at a time when
Argentina was considered extremely risky to lend to, I'd imagine this was more
than just an oversight on the part of some lawmaker or beaurocrat. If this
clause makes it harder for Argentina to reneg on their promises (as they have
done repeatedly in the past) that strikes me as crucial.

It's quite telling that they structured the deal in NY and not Argentina. I
don't know why a country would agree to that unless they knew it was the only
way foreign investors would consider lending them money.

~~~
conanbatt
No investor would accept exchanging a bond in Argentinian courts: the courts
in Argentina dont have the same independence that the US court would do, so it
would very likely screw over investors.

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spikels
This article is very biased. One thing that's missing is the key fact that
Argentina knew exactly what it was doing when it issued this debt: agreeing to
pay it off no matter what. That is why it agreed to the most onerous terms
possible. Otherwise no one would have lent them the money at the time. This is
exactly what they agreed to.

If you run your country's finances like a drunken sailor, you should
eventually expect your access to credit to be cut off. The government of
Agentina has had ample opportunity to sober up but just can't resist buying
another round of drinks for the entire country before every election. The
Argentinian people deserve better but keep electing incompetent leaders.

~~~
conanbatt
What does it mean to agree to pay off no matter what? And how was that written
in the bond issuing?

Every debt has in its nature the possibility of default, and owing 120 billion
dollars would be giving up the next 10 years in exports just to pay that
single debt, out of 7% of holdouts in one of the particular debts.

Always have to weight pros/cons for every decision. There are several
scenarios: Argentina would pay the 1.5 billion for the hedge funds, but if
that means having to pay 15 billion extra, it would be virtually the same as
defaulting.

~~~
spikels
While the government of Argentina could not actually guarantee repayment they
instead agreed to terms to eliminate every possible method to avoid repaying:
denominated in foreign currency, cannot be subordinated, terms can only be
changed voluntarily, subject to foreign law, etc. They knew exactly what they
getting into but pushed ahead regardless because they wanted the money no
matter what.

Rather than think carefully about how to best default perhaps they should have
been thinking carefully about how to best borrow or even better how best to
spend.

~~~
conanbatt
This whole situation arises from a clause in the bond restructuring deal that
was common when it was made. If the exchange deal had a collective agreement
clause, this would have been over 10 years ago, and contracts today normally
have that clause (that if the majority of the bond holders accepts, the
minority has to accept as well).

I am willing to bet that the whole reason the new clause became common, was
because of Argentina's or Congo's case with default swaps and hedge funds that
exploit that loophole intro a 10000% profit lawsuit.

Irresponsible spending is something that brought Argentina to its defaults,
but not to the situation its now facing.

The change in courts and terms are not part of the original default debt, but
of the default swap in 2005: before that, Argentina didnt have to answer to
the US supreme court for those bonds or to a hedge fund. When Argentina had
economic recovery, and wanted to get rid of debt, it proposed a default swap
bonds, at a discount rate. To make the deal appealing to bond holders and give
trust to it, they proposed the US courts as a trustable mediator.

93% of the debt was restructured this way, and has given hefty returns, up to
77cents on the original bond dollar. However, the remaining debt is all owned
by the hedge fund, whose entire strategy is the pari passu clause. Without it
or with a collective clause, this situation would not happen, and the debt on
these bonds would have been done and over.

------
8uhb
You won't find this in any history book, not for the next 50 years probably.
English ain't my language, and you could find glitches.

The external Argentinean debt matter is a very complex issue.

There have always been internal economical groups in the country culturally
unaligned with the best interest of the nation. Along with external economical
groups, they got by now aproximately 60 years of bad influence in Argentina.
They controlled the media, the upper political, militar and clerical circles.

They managed to get full control of the country several times, those times are
what you usually associate with the massive acquisition of new debt. The first
move they did was done in 1956, then again, several times during the 70's,
then in the 80's and finally, and taking debt to a record level, in the 90's.

The population has been thoroughly manipulated and controlled to support many
of these economical plans, purposely beneficial for them, but actually
assembled to enrich the upper circles, secure the control and giving the close
supporters a cut. And then you have a full country fully controlled by plain
hunger and long hours of work (+14), the population enough desperate they
cannot get to assemble a minimal resistance.

Of course there was resistance, and it was labeled by international media as a
whole "guerrilla", even when only a small minority of the resistance was
actually violent.

Obviously the upper circles feeded and encouraged the violent resistance
groups as a way of enforce their points of views and build support for
"stronger action". Those "stronger" actions led to the dead of thousands of
innocent eventually, and were the real motivation for the military coups
during the second half of the XX century in Argentina.

Thousands were killed by straight violence, from the state o from the violent
groups. But actually, the dead were a couple of millions during the last 50
years: the level of poverty were so high that these people have nothing, and
they keep dying silently, in the background, thoroughly covered by the
internal and external economical interests, the massive media, etc.

The resistance, the small minority of the upper economical, political,
military and clerical establishment got another chance to take back the
control of the country in 2001.

At last, after a long fight and millions of casualties, Argentina was free for
the first time in almost 60 years.

Since then, the new order kept the rest of the upper classes under strong
control, and started paying the debts (not taken by them), to take back the
country to a status more related to a modern country than the Tortuga Island
style management from 1956-2001.

Many of the economical actions of the new order had to be related with
spending of vast economical resources, mostly given them back to the
population by welfare state politics.

This is "giving back" as opposed to "giving a gift for not working", returning
the wealth illegally and criminally stolen by the economical groups during
decades.

This is what you could read in the mass media tagged as "populism". And now
you could understand why that was not true.

[http://en.wikipedia.org/wiki/Populism](http://en.wikipedia.org/wiki/Populism)

The external economical groups did not like how Argentina escaped from their
control, how the country got the their freedom back, because they begin to
"lose" money, "their" money was actually economical wealth from the people of
Argentina. With the "money" in their hands, the people was mostly incapable of
getting a job, food, health attention (from the state and they couldn't get a
job to pay for they own medical attention).

These dudes keep trying to trigger several economical, military and political
chaos during the last decade.

Some american citizens like to think that the most powerful economical groups
are "american", and they play for the best interest of the US, always, no
matter what. That of course, is not true. Sadly, they already paid the price
several times, just like Argentina did (60's > racism, 70's,80's,90's,2000's >
military industrial complex).

[http://en.wikipedia.org/wiki/Military%E2%80%93industrial_com...](http://en.wikipedia.org/wiki/Military%E2%80%93industrial_complex)

These economical groups do not respect or are interested in keeping the
nation-states in control of their fate, nor the actual freedom of people -
i.e. not working 14 hours a day - is a high priority in their currently
ongoing strategies of pan-national control.

The Argentina case in just another movement in much more, larger scale, long
term, continued global strategy game for control. China and Russia don't let
these boys play hard in their sand boxes, but the rest of the world is free-
to-play.

And now you also know what exactly means "free-to-play":

[http://en.wikipedia.org/wiki/Global_surveillance_disclosures...](http://en.wikipedia.org/wiki/Global_surveillance_disclosures_%282013%E2%80%93present%29)

Or you still think terrorism what this is all about? More probably, just
money.

------
jvm
Tyler Cowen's perspective here rings true:

> Most likely, this means creditors have a stronger incentive to be holdouts
> in the first place. I take that to be a negative and welfare-decreasing. If
> creditor rights were weaker up front, as I would prefer, it would be harder
> for nations to over-borrow in the first place, and ex post less of the cost
> of that over-borrowing will fall on the taxpayers and citizens of the poorer
> citizenry.

[http://marginalrevolution.com/marginalrevolution/2014/06/wha...](http://marginalrevolution.com/marginalrevolution/2014/06/what-
does-the-argentina-supreme-court-decision-mean.html)

------
AndrewBissell
> “We believe,” he wrote, “that the interest — widely shared in the financial
> community — in maintaining New York’s status as one of the foremost
> commercial centers is advanced by requiring debtors, including foreign
> debtors, to pay their debts.”

So I guess that means this judge never lets companies or individuals file for
bankruptcy either.

The one policy you can always count on our government to enforce is "protect
bondholders at all costs."

The article talks a lot about how it's hard to be sympathetic to the
Argentinian government, a perspective I mostly agree with. But who's the
bigger heel, Argentina, or the idiots who lent them money expecting to get any
of it back?

~~~
cpwright
> The one policy you can always count on our government to enforce is "protect
> bondholders at all costs."

Unless of course those bondholders are institutional investors, and the other
creditor is the UAW. When governments are so intimately involved in these
kinds of proceedings, the only thing that we can be sure of is political
expediency.

~~~
pdabbadabba
You must not have been following the Argentina saga very closely if you think
the courts are ruling out of political expediency. The U.S. government has
appeared in this case multiple times in support of Argentina, but the courts
rule against them anyway. The U.S. government (the executive branch, that is)
would clearly rather the courts allow Argentina to wipe out the bondholders
and start over. This litigation has become a major point of friction between
the U.S. and Argentina diplomatically.

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yummyfajitas
I find the reporting on this interesting:

 _The United States government told lower courts that this could create big
problems. It could lead to countries choosing to borrow under English law,
rather than New York law..._

Most of those arguing for Argentina are arguing that it would be good policy
to let them force restructuring. But:

 _There is no legal procedure to resolve debts of destitute countries. There
is no court to approve a restructuring plan that will wipe out some debts and
convert others to equity, as there is for companies._

The court essentially said that making policy isn't their job - only enforcing
the law is.

I find it quite odd that the article and many of the parties involved almost
seem to assume that the court should be making law from the bench. At least,
that's the impression I get from the article.

------
firstOrder
* Argentinian workers begin organizing, get better pay, get Argentinian resources into hands of Argentinian people * CIA and US military help organize a coup, help kill off opposition to dictatorship * Dictatorship loads on tons of debt * Decades later, US international powers invoked to force Argentinian people to pay off debts incurred by the dictator who the CIA and US military imposed on them

And people wonder why Saudi nationalists flew planes into the Pentagon and
World Trade Center...

~~~
droope
disregarding the last point, which I think is rather disrespectful, you have a
good point. The open veins of latin america is a good read for those who are
interested

