January 20, 2018
Monday, August 4, 2014

Sound and fury

By Andrés Federman
For The Herald

The times when secrecy was the trademark of diplomacy are thankfully gone. Public and open diplomacy are, today, a way of showing (but not necessarily achieving) more transparency and accountability in international relations. Obviously, a number of issues require secrecy because of sensitivity or operational considerations. But that list is getting shorter.

However, in light of what happened last week in the holdouts/vultures/Griesa saga, it seems that some situations involving debt negotiations should be added into the list of items not to be discussed publicly.

Quite clearly, the ruling of the US Supreme Court, refusing to revise Judge Griesa’s decision against Argentina, opened a Pandora box which transcends Argentina, Cristina, and Griesa, let alone the US$1,340 million claimed by the creditor that everybody loves to hate.

The systemic difficulties created by Griesa’s ruling have been remarked by a number of players whose views and ideologies are far from anti-capitalistic. And the fact that there is a vacuum in international financial regulations, when it comes to defining aspects of debt restructuring in the case of sovereign states, has been remarked by many authorized voices.

In all likelihood this vacuum will be thoroughly examined in a not too distant future by all the interested parties. And some changes, that will avoid deadlocks like the one Argentina is facing now, will be put in place.

Unfortunately, whatever the changes implemented in the future, they will not be applicable retroactively. So the Argentine government is faced with the unfortunate task of navigating through unchartered and complicated waters. Especially when it comes to the — apparently unquantifiable — risks of the “Rights Upon Future Offers” (RUFO) clause that could be triggered if Argentina complies with Judge Griesa’s ruling on payment to holdout creditors — before 31 December 2014 — of a sum larger than what it had agreed with those creditors that accepted a restructuring.

The other — equable unquantifiable — risk faced by Argentina emerges if its refusal to comply with Griesa’s ruling, stops payments to those creditors that entered the 2005 and 2010 debt restructurings. They might claim that their credits are defaulted and — with 25 percent of the outstanding creditors voting in favour — demand an acceleration of payments. In short: “damned if you do, damned if you don’t.”

In fact, there is no certainty about the judicial implications of any of these occurrences. One of the lessons left by the recent events in the US courts, is that half of the legal library contradicts the other half. And that you run a 50-50 chance of crashing into a judge who agrees with the less favourable half.

So it is not surprising that the president repeats over and over that there is no default. Rather than trying to use narrative to hide fact (as she is frequently accused of by opposition columnists when she denies default) she might be exercising an extreme but necessary prudence. If the head of state herself goes on record accepting that there is a default situation, the consequences could get complicated.

But perhaps, her words — and those of her ministers — would be of more value if they were less abundant. This has nothing to do with the laws of supply and demand but with the need to ascertain who is who and who does what.

It so happens that ministers, let alone the president, might be making a mistake by permanently addressing — or even personalizing — Judge Griesa or his appointed Special Master Dan Pollack. Ministers and presidents do not address individual judges. With all due respects to Griesa, and to put it bluntly, CFK, Kiciloff et al are way above his pay-grade.

So his natural interlocutors should be the lawyers representing Argentina or — in the context of the tribunal — one or more representatives of the Argentine government. Engaging in an exchange with this particular judge has the immediate effect of having him entering into what seems, but is definitely not, a dialogue among peers. In the specific case of Griesa, things are worse because His Honour seems to be enamoured his role as a media contender.

Experts in political marketing might suggest that the president’s exchanges keep her in the public eye at a time when she is fighting a political battle aimed at appointing a possible successor for the 2015 elections.

But this line of reasoning cuts both ways. Out of conviction or political need, many in the opposition seem to be advocating for a quick settlement of the Griesa ruling without much concern about the RUFO clause.

And every time that CFK or one of her ministers attack Judge Griesa some members of the opposition feel compelled to reply with a contrasting view, thus competing for space and coverage with the president by getting hold of a “sexy issue” like the possibility of default.

For better or worse, Argentina’s traditions and institutional arrangements allow the opposition to limit its commitment in the grand national issues to views and criticisms. They do not involve taking responsibility. And opinion is free. But if limited to sound and fury, not too useful.


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