August 01, 2014
The New York Times, August 1, 2014
There is no way to construe as fair the United States court ruling that Argentina cannot pay 93 percent of its creditors, unless it first pays a small group of hedge funds. It’s not fair to the 93 percent of bondholders who negotiated a restructuring of Argentina’s debt in 2005 and 2010 with reduced payments. What gives Judge Thomas Griesa the right to take them hostage in order to force payment to the “vulture funds” that still demand full payment?
It’s not fair to the government of Argentina, which cannot pay the vulture funds without facing demands from other creditors to be paid in full, a move which would open the country up to many billions of dollars of claims that it cannot possibly pay. Although the news media reports that Argentina has defaulted to the restructured bondholders, this is not clear. The government did make the latest $539 million payment to these bondholders, but Judge Griesa is not allowing the New York bank that received this money to pay the bondholders. Griesa is defaulting, not Argentina. This is unprecedented and wrong.
It’s not fair to the people of Argentina, who suffered through a depression from 1998-2002, and could only begin to restore employment and reduce poverty after defaulting on the debt. Not to mention that much of the debt was accumulated by a dictatorship that the people did not even elect.
Lastly, it is not fair to the tens and possibly hundreds of millions of people in countries who will face sovereign debt crises in the future. In these situations, a debt restructuring may be the only way forward, since there is no mechanism for bankruptcy for governments who cannot pay. The court’s ruling will make it more difficult to resolve these problems, since even one bondholder or vulture fund will be able to torpedo such an agreement.
Questions have been raised about whether Judge Griesa understood the dimensions of his rulings. But the case also raises questions about the politicizationof the U.S. judicial system, in this unprecedented decision to force a default to creditors by a sovereign government that has both the intent and ability to pay. Griesa may be an outlier, but how did the U.S. Supreme Court decline to review a decision based on bad law, bad economics — violating basic legal principles of equity, with such important consequences?