.....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.