Friday, 1 August 2014

My sympathies are entirely with Argentina this time

Thomas Greisa is an ass. Thomas who , you might ask. This specimen is a Judge of the Southern District Court of  New York. Why should you bother about the "Southern District Court of New York", you might want to know. Unfortunately, the state of the world is that, we have to. For the USA is back to its old game - imposing its laws on the rest of the world.

The problem is Argentina. Remember the many times I have railed against Argentina, here , here and , on the same matter, here. This time my sympathies are entirely with them.

It all stems back to 2001 when Argentina defaulted on its international loan obligations. As is usual in such cases, an agreement was reached with most of the creditors , rescheduling the interest and repayment obligations. The operative word is "most". A few funds simply sold  their debts at a deep discount to whoever was willing to buy them. Up stepped a bunch of hedge funds, whom we shall justifiably call "vulture funds" as the Argentianians have labelled them. This lot have bought up the debt at a deep discount. They have then held out against any settlement and insisted that they be paid in full. They went to court in the US and thus entered  His Lordship  of Southern District Court fame.

Forget all the arguments about a petty judge of a "Southern District Court" imposing his will on a sovereign nation. The worthy has now ruled that the vulture funds should be paid in full, paid before the others who settled and no payment should be made to the others until the vultures have been paid. No less a body than the United States government has backed Argentina, calling Judge Griesa's ruling "impermissibly broad" and raising concerns that it could undermine U.S. foreign relations. The IMF has said that Griesa's ruling could make it easier for a handful of creditors to disrupt a country's efforts to reduce its debt burden. The  pedant is unmoved. He has ruled thus.

The consequence is that Argentina is in default again. They had a payment required to be made to the parties who settled yesterday. They duly deposited this amount which they had to do in a US bank. Unfortunately the judge has ordered that this money be frozen - because Argentina is in violation of his order and have not paid the vultures.

Argentina has basically said that they would honour the obligations of the rescheduled debt, but they are no way going to pay the holdouts in full. In this, they have a case. Restructuring of debt obligations is a common practice everywhere in the world, and more so in the US. The US bankruptcy law, on which the entire business system in the US relies in, has this as a fundamental precept. Business activity in the US, leave alone in the world, will come to a grinding halt if a few vultures are allowed to block any debt rescheduling process.

Why has the judge ruled like this ? Officially he has taken umbrage under the Ramamrithamesque parri passu clause, which is a technicality not worth elaborating. The real problem is that Argentina long refused to accept his jurisdiction over a soverign matter , and when it was forced to, basically showed him its finger. It is a dangerous strategy to show the finger at such a man. He has basically showed Argentina the finger back.

Pointed fingers apart, the original problem was of course Argentina's ridiculous management of its economy, piling of debt and reaching a point of default in the first place. In this, they are of course, not unique. Other notable members of the club - Greece, Portugal, Cyprus, Ireland keep them good company. India is also making every effort to join them. You could argue that the US is also an honorary member, given the levels of its debt. I wonder what the reaction would be if Judge Li Ping of the Second Sessions Court in Beijing ruled that the United States had to pay Chinese bondholders before Social Security cheques were despatched to US citizens. Perhaps he could cheekily rule that the bondholders must also be paid before the Medicare claim of Thomas Greisa is honoured.

The only beneficiaries out of this decade old saga are the lawyers. Imagine the fees they must be raking up.


Sriram Khé said...

Oh, come on, would a Ramamritham really have used "parri passu"???? ;)

Yours is the latest commentary that I read, and all express sympathies for Argentina. I tell ya, Cristina Kirchner has not been so favorably reviewed by commentators since, well, never!

This FP piece sub-title says it all about where the author's sympathies lie: "you would have done the same thing too, if you had been in their shoes" (

Ken Rogoff writes, "Argentina has defaulted on seven previous occasions – in 1827, 1890, 1951, 1956, 1982, 1989, and 2001" ( ... OMG! As I have often expressed in my blogging, Argentina is one awful case of promise and potential completely wasted away. It makes countries like India seem like super-champions!

But, seriously, Ramamritham and "parri passu"??? hehehe ;)
btw, I had to google that phrase to refresh my memory ... thanks for that Latin exercise for my brain. Did your class in JHSS also read an essay by Winston Churchill on his Latin exercises as a schoolboy? It was an awesome essay. Maybe I should track it down on the web and re-read his hilarious and sarcastic frustration at "mensa, mensae, mensam ..."

Ramesh said...

@ Sriram - OH Ramamritham delights in using outdated Latin phrases all over the place. You see, one of his characteristics is that he is extremely well educated and would like to display this in full measure. Phrases like mutatis mutandis, mens rea, mandamus, habeas corpus and locus standi litter his legal documents.

Yes, never thought I would praise Madam Kirchner for anything economic. Truly, it has been one of the worst governed countries for a long while.

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