September 22, 2014
Today is the 199th anniversary of the battle of Waterloo and the Cristina Fernández de Kirchner administration would seem to have met its Waterloo with Monday’s United States Supreme Court decision rejecting Argentina’s appeal against the Manhattan court ruling ordering the full payment of holdout creditors.Yet legal and military battles are not the same thing, despite the clarity of the government’s defeat and the hedge fund victory, and today CFK is not so much on her way to Saint Helena as between a rock and a hard place with some wriggle room — hence her essentially evasive speech that same night.
What CFK did do was dismiss the option of paying off the “vulture funds” as “extortion” costing over half Central Bank reserves (although she should perhaps explain why reserves are US$28 billion as against the US$60 billion of the much humbler Peruvian economy) — perhaps sensing that the door was still open for negotiations, she stopped short of the other option of launching a new plan to continue paying the 92 percent of creditors accepting the 2005 and 2010 haircuts under Argentine jurisdiction. This bold step was announced by Economy Minister Axel Kicillof yesterday — we shall study this in more detail in this space as the details become clearer. But today we would like to reflect on Monday’s US judicial decision-making with its drastic implications for international markets (prompting concern in the developed and developing worlds alike) as raising serious questions about legal security in the world’s superpower — especially, and beyond the Argentine debt case, when Manhattan judge Thomas Griesa is upheld in granting hedge funds a stratospheric profit margin not even appropiate to the league of even organized crime (in CFK’s words). These questions become all the more serious if we are to believe those critics who say that CFK was basically asking for it with her hostile rhetoric — even if this does not always fit the facts, such judicial hypersensitivity would only increase the alarm about US legal security. And if these critics are off target, the irony is greater when some of them were celebrating 15-20 years ago the clauses placing the whole debt process in the hands of US courts — the origin of today’s problems.
Serious as this new situation is, it can be overdramatized (and oversimplified). We are not about to revisit the total default of 2001 and there is still time even if the horizons are rapidly shrinking — Griesa has yet to define how his upheld ruling is to be enforced (the onus is also on him) with a stay still in force and the scope for new legal complications not exhausted. If Monday was D-Day and today is the Waterloo anniversary, many days of decision still lie ahead.