M
MDZ
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Right ... http://www.nytimes.com/2013/05/28/us/politics/obama-plans-to-nominate-3-judges-for-key-court.html?pagewanted=all&_r=0
Should Argentina Default On Its Debt?
- Thread starter Joe
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Right ... http://www.nytimes.com/2013/05/28/us/politics/obama-plans-to-nominate-3-judges-for-key-court.html?pagewanted=all&_r=0
ajoknoblauch
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AP take on Argentina's debt situation:
Argentina's 13-year fight with creditors erupted in U.S. courts last week, and the results were messy.
Argentina had asked the U.S. Supreme Court to overturn a lower court's ruling that it must pay $1.5 billion to hedge funds that own bonds the country had defaulted on back in 2001. The Supreme Court refused to hear its appeal — a victory for the hedge fund investors whom Argentina's president, Cristina Fernandez, calls "vultures."
Fernandez had said Argentina couldn't afford to pay off the hedge funds while also making regular interest payments to other lenders. Late last week, signs of a possible resolution emerged. Fernandez said she will seek a U.S. judge's support for resolving all of Argentina's unpaid debts in one grand bargain.
But the time for a resolution is running out. Argentina has one week before it's supposed to make an interest payment to its other bond holders on June 30. The U.S. court said that if Argentina made those interest payments, it also had to give the plaintiffs their due. And if Argentina refuses to comply, the ruling bars U.S. banks from handling the government's debt payments.
One misstep and Argentina could slide toward another default, an event likely to spread trouble beyond its shores.
Just how did Argentina wind up in this mess? Here are some questions and answers:
Q: What happened after the Supreme Court turned Argentina down?
A: A lot. The Supreme Court also decided to let bondholders subpoena banks in U.S. courts to track down Argentina's assets abroad. The decisions drove the country's Merval stock index down 11 percent last Monday.
The next day, the rating agency Standard & Poor's cut Argentina's rating further into junk territory — to CCC-, S&P's lowest grade for any country.
For most countries, the rating agency's move would be a harsh blow. It would inflate borrowing costs and make it harder to finance budgets. But Argentina's troubles are so well-known that the downgrade came as little surprise. Argentina hasn't borrowed from the bond markets since its default in 2001.
Q: Who are the players?
A: In one corner, Argentina's government. In the other, a group of investors led by NML Capital, a subsidiary of Elliot Capital Management, run by billionaire Paul Singer. Singer, a lawyer by training, has in the past successfully sued the governments of Peru and the Republic of the Congo to make good on their bonds. In this case, NML and other funds bought bonds left from Argentina's default in 2001.
Q: What do they want?
A: When the hedge funds bought the defaulted bonds, they joined the ranks of Argentina's creditors. Now, like lenders everywhere, they want the borrower to repay its debts on the original terms.
The problem is, other creditors had already agreed to cut Argentina a break in 2005 and 2010 by swapping their bonds for new ones worth less. This helped Argentina's government slash its debts.
The bonds acquired by Singer's group were among those left over. In 2012, U.S. District Judge Thomas Griesa in New York ordered Argentina to pay the holdouts. They're now owed $1.5 billion in principal and interest.
Q: Why is a US court telling a foreign government what to do?
A: When a big business goes bust, it winds up in bankruptcy court. By contrast, sovereign countries have no dedicated international court to help them strike deals with creditors. So in agreements involving bond sales, language typically stipulates that any legal battle must occur in one of the two biggest financial capitals: New York or London. "That's where the money is," said Anna Gelpern, a professor of international law at Georgetown University and an expert on government debt.
Q: Why does this matter?
A: One worry is that forcing Argentina to pay the holdouts would set a dangerous precedent. The thinking is that it could encourage bondholders to play tough when struggling countries try to restructure their debts. Last week, the International Monetary Fund warned that the Supreme Court's decision could have far-reaching repercussions. "We are concerned about possible broader systemic implications," the IMF said.
Another concern is that the ruling upends the usual order of things. In the past, when some creditors had to take precedence over others, sovereign governments typically came before investment funds, said Mark Blyth, a professor of international political economy at Brown University.
"The old hierarchy really no longer applies," he said.
In negotiating with lenders, governments had the threat of default on their side. Creditors accepted restructuring deals in the certainty that they would at least receive something. Now, it seems, "the courts are taking away the possibility of default," Blyth said. "It's part of this wider push to put investors ahead of everyone else."
Q: How big is Argentina's economy?
A: It's South America's second-largest behind Brazil, according to the IMF. The IMF puts the country's economic output for this year at $404 billion, or $9,639 a person. By contrast, the United States has a $17 trillion economy, or $55,000 a person, according to the IMF's data.
Q: Argentina isn't poor. Why doesn't the government just pay off the holdouts and be finished with them?
A: It's not that simple. Argentina is supposed to make an interest payment to bondholders June 30, and the judge's verdict requires it to pay the holdouts their $1.5 billion at the same time. If that were the entire bill, it wouldn't be a problem.
"$1.5 billion isn't going to break Argentina," said Siobhan Morden, head of Latin American strategy at the investment bank Jefferies. "The problem is all the other litigants that could join in."
Paying the hedge funds in full would likely trigger lawsuits from other bondholders demanding to be paid on similar terms. Buenos Aires estimates that the liability could run up to $15 billion. Morden said it could approach $20 billion.
With nearly $29 billion in foreign reserves, Argentina appears to have the money to pay its bills. But those reserves include loans to other countries, deposits with the IMF and other assets that aren't easily used. Take those away, and Argentina has roughly $16 billion on hand.
Troubled countries often find bond investors willing to lend to them to pay other creditors. But Argentina has been locked out of the bond markets for more than a decade. Some investors would probably step up to lend it money — at painfully high interest rates.
"You can see why they have some financial reservations about paying the holdouts," Morden said.
Q: How are traders treating Argentina?
A: They're keeping a safe distance. Judging by recent trading, bond buyers seem to think another default is imminent. In the market for credit default swaps, Argentina's government debt is among the most expensive to insure in the world.
To insure $10 million in Argentine bonds for five years, investors must pay $4.4 million up front, then an additional $500,000 a year, according to Markit, a data provider. Those figures imply a 71 percent chance that Argentina will default within five years.
Taking out insurance on debt from Brazil looks cheap in comparison. The cost to insure Brazil's debt runs $139,000 for five years, and investors have to pay nothing up front.
Q: So if Argentina defaulted on its debts again, would it spread turmoil to other countries?
A: Not immediately. Argentina is already isolated from global credit markets, the usual route for financial turmoil to spread, because traders have been wary of just such a threat.
Over the long term, however, a default could still cause problems for other countries. Gelpern said her concern is that Argentina's experience would make it harder for smaller countries to emerge from trouble. "Other weaker countries can't afford to wage fights for 13 years," she said
Argentina's 13-year fight with creditors erupted in U.S. courts last week, and the results were messy.
Argentina had asked the U.S. Supreme Court to overturn a lower court's ruling that it must pay $1.5 billion to hedge funds that own bonds the country had defaulted on back in 2001. The Supreme Court refused to hear its appeal — a victory for the hedge fund investors whom Argentina's president, Cristina Fernandez, calls "vultures."
Fernandez had said Argentina couldn't afford to pay off the hedge funds while also making regular interest payments to other lenders. Late last week, signs of a possible resolution emerged. Fernandez said she will seek a U.S. judge's support for resolving all of Argentina's unpaid debts in one grand bargain.
But the time for a resolution is running out. Argentina has one week before it's supposed to make an interest payment to its other bond holders on June 30. The U.S. court said that if Argentina made those interest payments, it also had to give the plaintiffs their due. And if Argentina refuses to comply, the ruling bars U.S. banks from handling the government's debt payments.
One misstep and Argentina could slide toward another default, an event likely to spread trouble beyond its shores.
Just how did Argentina wind up in this mess? Here are some questions and answers:
Q: What happened after the Supreme Court turned Argentina down?
A: A lot. The Supreme Court also decided to let bondholders subpoena banks in U.S. courts to track down Argentina's assets abroad. The decisions drove the country's Merval stock index down 11 percent last Monday.
The next day, the rating agency Standard & Poor's cut Argentina's rating further into junk territory — to CCC-, S&P's lowest grade for any country.
For most countries, the rating agency's move would be a harsh blow. It would inflate borrowing costs and make it harder to finance budgets. But Argentina's troubles are so well-known that the downgrade came as little surprise. Argentina hasn't borrowed from the bond markets since its default in 2001.
Q: Who are the players?
A: In one corner, Argentina's government. In the other, a group of investors led by NML Capital, a subsidiary of Elliot Capital Management, run by billionaire Paul Singer. Singer, a lawyer by training, has in the past successfully sued the governments of Peru and the Republic of the Congo to make good on their bonds. In this case, NML and other funds bought bonds left from Argentina's default in 2001.
Q: What do they want?
A: When the hedge funds bought the defaulted bonds, they joined the ranks of Argentina's creditors. Now, like lenders everywhere, they want the borrower to repay its debts on the original terms.
The problem is, other creditors had already agreed to cut Argentina a break in 2005 and 2010 by swapping their bonds for new ones worth less. This helped Argentina's government slash its debts.
The bonds acquired by Singer's group were among those left over. In 2012, U.S. District Judge Thomas Griesa in New York ordered Argentina to pay the holdouts. They're now owed $1.5 billion in principal and interest.
Q: Why is a US court telling a foreign government what to do?
A: When a big business goes bust, it winds up in bankruptcy court. By contrast, sovereign countries have no dedicated international court to help them strike deals with creditors. So in agreements involving bond sales, language typically stipulates that any legal battle must occur in one of the two biggest financial capitals: New York or London. "That's where the money is," said Anna Gelpern, a professor of international law at Georgetown University and an expert on government debt.
Q: Why does this matter?
A: One worry is that forcing Argentina to pay the holdouts would set a dangerous precedent. The thinking is that it could encourage bondholders to play tough when struggling countries try to restructure their debts. Last week, the International Monetary Fund warned that the Supreme Court's decision could have far-reaching repercussions. "We are concerned about possible broader systemic implications," the IMF said.
Another concern is that the ruling upends the usual order of things. In the past, when some creditors had to take precedence over others, sovereign governments typically came before investment funds, said Mark Blyth, a professor of international political economy at Brown University.
"The old hierarchy really no longer applies," he said.
In negotiating with lenders, governments had the threat of default on their side. Creditors accepted restructuring deals in the certainty that they would at least receive something. Now, it seems, "the courts are taking away the possibility of default," Blyth said. "It's part of this wider push to put investors ahead of everyone else."
Q: How big is Argentina's economy?
A: It's South America's second-largest behind Brazil, according to the IMF. The IMF puts the country's economic output for this year at $404 billion, or $9,639 a person. By contrast, the United States has a $17 trillion economy, or $55,000 a person, according to the IMF's data.
Q: Argentina isn't poor. Why doesn't the government just pay off the holdouts and be finished with them?
A: It's not that simple. Argentina is supposed to make an interest payment to bondholders June 30, and the judge's verdict requires it to pay the holdouts their $1.5 billion at the same time. If that were the entire bill, it wouldn't be a problem.
"$1.5 billion isn't going to break Argentina," said Siobhan Morden, head of Latin American strategy at the investment bank Jefferies. "The problem is all the other litigants that could join in."
Paying the hedge funds in full would likely trigger lawsuits from other bondholders demanding to be paid on similar terms. Buenos Aires estimates that the liability could run up to $15 billion. Morden said it could approach $20 billion.
With nearly $29 billion in foreign reserves, Argentina appears to have the money to pay its bills. But those reserves include loans to other countries, deposits with the IMF and other assets that aren't easily used. Take those away, and Argentina has roughly $16 billion on hand.
Troubled countries often find bond investors willing to lend to them to pay other creditors. But Argentina has been locked out of the bond markets for more than a decade. Some investors would probably step up to lend it money — at painfully high interest rates.
"You can see why they have some financial reservations about paying the holdouts," Morden said.
Q: How are traders treating Argentina?
A: They're keeping a safe distance. Judging by recent trading, bond buyers seem to think another default is imminent. In the market for credit default swaps, Argentina's government debt is among the most expensive to insure in the world.
To insure $10 million in Argentine bonds for five years, investors must pay $4.4 million up front, then an additional $500,000 a year, according to Markit, a data provider. Those figures imply a 71 percent chance that Argentina will default within five years.
Taking out insurance on debt from Brazil looks cheap in comparison. The cost to insure Brazil's debt runs $139,000 for five years, and investors have to pay nothing up front.
Q: So if Argentina defaulted on its debts again, would it spread turmoil to other countries?
A: Not immediately. Argentina is already isolated from global credit markets, the usual route for financial turmoil to spread, because traders have been wary of just such a threat.
Over the long term, however, a default could still cause problems for other countries. Gelpern said her concern is that Argentina's experience would make it harder for smaller countries to emerge from trouble. "Other weaker countries can't afford to wage fights for 13 years," she said
ARbound
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You know, I'm so sick of this bullshit, it's why I ripped those posters of the de-feathered vultures standing in front of the American Flag posters
while I was downtown this morning. The world is not out to get Argentina or Argentines. How many times do we have to explain that most people,
rich or poor either don't care about Argentina or think Buenos Aires in Brazil or Mexico?
Argentina is not special enough to have super complex schemes for profit here...yet, let's see come vaca muerta.
Did our government sponsor directly or indirectly a dictatorship that many Argentines wanted at the time? Yes, it did and it was
a horrendous and grievous act that should not (but is still) be practiced.
If you want to talk about oppressed people in Argentina let's talk about the Native Americans, it's been centuries and Argentina
and Argentines are still fucking them. (So is the United States, Canada, Australia...)
I don't think the holdouts deserve the full amount, let alone anything at this point. I honestly would say tough titty to them, they had their chance,
but this isn't what's happening so Argentina needs to find a way to deal with it.
I don't, and I'm sure 90%+ of other members don't want to pay the debt of our invasion of Iraq or drone attacks in Pakistan that kill innocent kids, or Canada's government pensions for people who kidnapped Native American children or the current borrowed Chinese money so it can murder of the environment, but that's how debt works with nations: it sticks, you can't choose what to pay back and what not too because the people that borrowed it before were bad/evil or used it for bad/evil.
Don Alberto
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Pure rubbish as the premise is completely wrong.
The bonds in question are as follows:
Of the US$ 81 836 million in defaulted bonds:
49% (40 363 million) were issued during the period 1989 to 1999
51% (41 473 million) were issued during the period 1999 to the default in 2002
Unless the dictatorship lasted until 2002, the bond holders were in good faith to buy them.
Don Alberto
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You are not only trying to shift the responsibility from Argentina to a judge who must follow the law, you are also on a very dangerous slippery slope, which can lead to not sending criminals to jail because their poor, innocent children would suffer.
In 1994 France had troops in Rwanda. They evacuated the Europeans and left from 500,000 to 1,000,000 black Africans to die.
Who killed these people, the French president?
The world is not a nice place.
M
MDZ
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in the last "six" years since 1987 http://www.npr.org/blogs/itsallpolitics/2012/12/19/167645600/robert-borks-supreme-court-nomination-changed-everything-maybe-forever
Don Alberto
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Your link leads to a 24 pages brief, which I won't spend time reading just to answer your question.
If you want a more elaborate answer, you must point to the precise arguments that is supposed to show judge Griesa's pari passu interpretation to be faulty and the French interpretation to be correct.
I read a couple of pages where they simply claim (no arguments) that the pari passu clause should be interpretated differently.
(p. 2, "First"). Why?
Griesa must have had a good laugh, when he read the next chapter(p. 2, "Second", 'adverse consequences'), where they demonstrated that they are several years behind what is happening in the sovereign debt chapter.
As I have written before: Since 2005, 206 out of 211 contracts included a collective action clause, which says that if a large majority of the bond holders acccept a swap with a haircut, then all bond holders are bound by it. Holdouts are a thing of the past.
Griesa must also have laughed when he read the part that shows that France's real concern is that they are afraid to lose money on failed sovereign debt contracts (p.3 "Third"). Oh, the poor dears!
What is pari passu?
The debate generally fall into two camps:
1. those who oppose the equal treatment of creditors and as a result ignore or distort the terms of the contract, and
2. those who believe that the starting place for interpreting contractual provisions is the language of the contract and that covenants providing for equal treatment offer creditors important protections.
New York University law professor Andreas Lowenfeld explains pari passu:
"I have no difficulty in understanding what the pari passu clause means:
it means what it says - a given debt will rank equally with other debt of the borrower, whether that borrower is an individual, a company, or a sovereign state.
A borrower from Tom, Dick, and Harry can’t say “I will pay Tom and Dick in full, and if there is anything left over I’ll pay Harry.”
If there is not enough money to go around, the borrower ...must pay all three of them on the same basis ..."
As explained by Professor Hal S. Scott, Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School:
"The language of the pari passu clause has a plain meaning. ...
The clause provides that lenders will have at least equal rights to payment and priority as all other External Indebtedness. This prevents the sovereign from discriminating against the Banks in favor of other creditors.
Don Alberto
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As one of the Argentine "vultures" said: "creí en el país y me estafaron" - a victim of Argentina is a vulture.
Here is a selection (from one end of the list, A-B ) of German holdouts and their claims as they stood in 2011 (the number of German holdouts is 400+ all of them with claims below 1 million Euro).
Do these holdouts look like billionaire vulture funds to you?
Arens ua € 595,100 (US$ 773,600)
Aslan GmbH € 94.400 (US$ 122,700)
Hans-Eberhardt Bastian € 342,500 (US$ 445,200)
Stefan Bauer € 267,000 (US$ 347,100)
Hermann Beck € 345,500 (US$ 449,100)
Manfred Beer € 535,900 (US$ 696.600)
Hank van Blokland € 30,200 (US$ 39,200)
Ricarda Böhme € 47,000 (US$ 61,100)
ajoknoblauch
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