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September 22, 2017
Sunday, April 26, 2015

‘Griesa thinks the whole world has to obey him’

Professor Kunibert Raffer spent this week in Argentina and gave lectures in Río Negro University, the Economy Ministry and the Central Bank.
By Fermín Koop
Herald Staff

Debt expert and University of Vienna professor Kunibert Raffer talks to the Herald

Argentina won a small victory in its long legal war against holdout bondholders last week when it overrode litigant investors’ objections to raise US$1.4 billion through a local tap of its Bonar 2024. Nevertheless, the victory will probably not last for long as United States Judge Griesa has yet to rule on the so-called “me too” bondholders and could issue penalties against Argentina for being in contempt of court.

In an interview with the Herald, debt expert and professor at the University of Vienna Kunibert Raffer said Argentina hasn’t defaulted and backed the government’s stand on the case. Kunibert, in Buenos Aires to give a lecture at the Economy Ministry and the Central Bank, among other activities, criticized Griesa for favouring the “vulture” funds and asked for a new framework to restructure sovereign debt.

Do you agree with Argentina’s stand on the “vulture” funds case?

I see a lot of problems in Griesa’s decision. He can’t make a sovereign creditor pay. If a country pays, it’s by its own will. Griesa wanted Argentina to do something impossible because of the RUFO clause. Now the clause has expired but I don’t think the country will pay the “vultures” more than what it paid the creditors that accepted the debt swap. This is all possible because we don’t have an international solvency law. Creditors with even a single bond can go to the court and ask to be paid.

Argentina has actually been claiming at the United Nations the need for a new sovereign debt framework. Are you hopeful that it can be achieved?

I’m of course biased on this issue because I proposed to create that framework a long time ago. I’m all for it and I’m glad they have taken the proposal up again. But it will take time to move forward because the opposition is very strong from powerful countries such as the United States.

How would you describe the “vulture” funds and their lobbying action?

They seem to be quite good at lobbying and they are extremely aggressive. They are creditors that bought bonds with the intention to sue and not to get the interest payments. There are two types of holdouts, the professional ones and the “vulture” funds. They have a model of business that’s ethically wrong. Because of their actions, the International Markets Association has improved collective action clauses. I’m glad that this was done but it probably won’t be sufficient. There’s a necessity for an international solvency law.

Do the so called “me too” bondholders represent a new threat to Argentina?

They aren’t technically different from NML and Aurelius. They have also sued Argentina but are much more numerous. Their main argument is that if other creditors have sued and were granted a favourable ruling, they could also be given the same rights. Argentina warned about this in the past and said it would happen and surprisingly it did.

Argentina could also be penalized by Griesa soon after his contempt of court order against the country. Would those sanctions be applicable even though he is in another jurisdiction?

This represents one of the great breaches of international law. Griesa thinks the whole world has to respond to his court and that’s not the case in international law. He himself cannot sanction Argentina in anyway. His order is of course problematic but in the end he can’t do anything about it. For example, he can ask Argentina to pay US$1 million but he won’t get the money.

What would be a reasonable solution to this conflict?

Argentina is now paying its creditors who accepted the debt swap through Banco Nación. The problem is sending the money to creditors abroad as all transfers run through New York. Argentina has issued bonds and there was no problem. Quite the contrary, a lot of people bought them. Creditors trust Argentina. With the exception of the US, foreign creditors haven’t sued Argentina so that proves they agree with the country.

The government has criticized Griesa because of being partial to the “vulture” funds. Do you agree with that claim?

There’s some reason to say he has been biased in the case. His supposed frustration regarding the case shouldn’t be reflected in his rulings. After more than 10 years of serving as a judge in this case, he was unaware of very crucial facts such as that not all bonds had New York jurisdiction. This is scandalous and a denial of the rule of law. If he doesn’t know the fundamental points of the case, he can’t have a fair judgment. I was really shocked about this.

The same accusation was issued against special master Daniel Pollack, appointed by Griesa to issue as a mediator

A different way of handling the case would have given him a better picture of impartiality.

Has Argentina defaulted or not?

That’s a very difficult and almost impossible question but overall I think the country hasn’t defaulted. If Argentina had paid in any other way than it did, it would have been a violation of the contract. But it didn’t and the money is now in the hands of the creditors. From this point of view, it’s not a default. On the other hand, creditors are probably not happy because they can’t get the money.

Are you still hopeful that a negotiated solution can be achieved?

I don’t think a negotiated solution is possible. On one hand, you have Argentina that isn’t willing to pay more to the “vultures” because of a moral and legal point of view. On the other hand, you have the creditors whose business model is to be paid in full plus the interests. They might settle for 90 percent but they will certainly not settle for less than that. I see it as very unlikely that these two sides can meet. But if Argentina continues selling bonds successfully, the problem is solved.

@ferminkoop

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