March 10, 2014
This turkey won’t fly
The fourth Thursday of every November is normally Turkey Day (Thanksgiving) in the United States but this year it was the day of the vulture in New York at least as Judge Thomas Griesa’s Wednesday night ruling favouring debt bond swap holdouts became public knowledge. Yet no pardon for any turkey here. The ruling of the venerable magistrate (82 years old) is not only as impracticable as it is implacable but also highly destructive of any debt redemption mechanisms falling short of total repayment — the perfect becomes the enemy of the good and the harm extends far beyond seven years of Argentine haircut payments (just think of Europe’s current problems). Griesa’s zeal to apply the pari passu principle placing creditors on an equal footing in order to end holdout exclusion seems to violate that principle at the other extreme by granting those holdouts the full repayment denied the more flexible, who now stand to lose even their diminished returns despite being a huge majority of creditors (93 percent).
Yet the Cristina Fernández de Kirchner administration forfeits any claim to innocent victim status by doing everything possible to become carrion. Not only does moralizing against “vulture funds” cut no ice in the ruthless world of global finance — it does nothing to explain why the Paris Club of major creditor countries also remains unpaid, thus sealing Argentina’s international isolation which is so much of the problem. The CFK administration has been such a serial offender, especially in the last year — twisting inflation statistics to chisel index-linked bonds (with growth-indexed bonds poised to follow), the expropriation of YPF without compensation, ignoring the adverse rulings of international arbitration courts, etc. — that Griesa is given plenty of ammunition to overlook the shadier aspects of “vulture funds” while the grandstanding bravado of open defiance of the legally binding New York ruling by both CFK and her economy minister may well have been the last straw. The government’s legal strategy is feeble — appealing to the previous instance which has already ruled with the vague hope of going to the US Supreme Court (invoking sovereignty or purely national legislation like the “padlock law” is also wholly irrelevant within international jurisprudence).
In a word, the law is an ass (as Mr. Bumble said) although the victim has also contributed to their own destruction but whatever the merits of the case, Argentina seems headed towards a gratuitous default whose uncertainty will blight a 2013 which had seemed until now likely to improve on this dying year.