Sunday, 3 August 2014

Argentina: This default is not a drastic change. Nothing much will change.....

.....Due, or thanks to lack of access to 
international borrowing markets after 
the country’s 2001 financial crisis 
Argentina has been living in a default reality for over 10 years,” said Estanislao Malic, an economist at the Center for Economic and Social Studies of Scalabrini Ortiz in Buenos Aires, referring to a lack of access to international borrowing markets after the country’s 2001 financial crisis. “This default is not a drastic change. Nothing much will change.”
It is not clear whether Elliott expected Argentina to meet its demands by now. The firm managed to obtain payments from Peru and Congo-Brazzaville in somewhat similar cases. Elliott’s supporters assert that the bets that rely on suing governments and state-owned entities make up only a small proportion of its portfolio, and they add that the firm does not pursue countries that are clearly unable to pay their debts. Argentina, they say, is a particularly recalcitrant debtor that clearly has the wherewithal to pay the holdouts.
Mr. Singer, however, thinks that there are broader reasons to protect creditor rights. In particular, he has argued, doing so will help bolster a country’s economy. “Imagine how much capital a country like Argentina might attract,” Mr. Singer wrote in a 2005 article with Jay Newman, another Elliott employee. “If instead of defaulting seriatim and affecting a pose of anger toward creditors, it borrowed responsibly and honored its obligations.”
The big question, however, is whether Argentina will ever pay Elliott what it wants. If the firm fails to collect, that would underscore the limits of its legal strategy. There is no international bankruptcy court for sovereign debt that can help resolve the matter. 
Argentina may use the next few months to try to devise ways to evade the New York court. Debt market experts, however, do not see how any such schemes could avoid using global firms that would not want to fall afoul of Judge Griesa’s ruling.
But some debt market experts say that credit market idealists are going too far when applying their worldview to sovereign bond markets. In dire economic crises, they say, countries need to be able to slash their debt loads. The legal victories of the holdouts may embolden creditors to drive harder bargains after future defaults, these people say.
Professor Stiglitz says that this could prolong or postpone debt restructurings and extend the economic misery of over-indebted countries. “Singer and Elliott have already done a lot of damage,” he said.

2 comments:

  1. Hi Roy,

    I want to comment on what Mr Singer said: "Imagine how much capital a country like Argentina might attract".

    Countries like Argentina use foreign credits to finance capital outflight from the country at the expense of taxpayers. It works this way:

    - Government issues bonds and gets credit from investors
    - That money, after deducting commissions and fees from agents and banks, goes to the central bank as backup
    - An IMF condition to approve these loans is to open the capital market (free inlet and outlet of capital on that country)
    - Local branches of corporations, local companies and high-class and upper-middle class individuals buy foreign currency (USD) hold by the central bank and transfer that money abroad (fiscal havens, Wall Street, City of London, etc)
    - When the central bank gets depleated of money, it is forced ot restart the cycle by borrowing more. Lending usually requires IMF benediction, which requires further reforms (privatizations, reductions of pension plans for public retirees, etc.)

    Roughly, it's a subsidized scheme from the poor to the wealthy and keep that money safe from the tax autorities of the native country.

    I think that Singer knows pretty well this scheme and knows that he benefits from that. This caital has nothing to do with productive investment, it clearly falls into speculative financial operations.

    It's likely that Argentina will pay the vulture funds after January 2015.

    Thanks,

    Andres

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