Saturday, June 21, 2014

Neoliberal logic of Judge Thomas Griesa's decision against Argentina

The decision by US District Judge Thomas Griesa to uphold the vulture funds in their claims for full payment on which Argentina defaulted in 2001, upheld on appeal and allowed to stand by the decision of the Supreme Court not to review it despite the Obama Administration's support for Argentina's appeal has immediate consequences for Argentina and not-distant consequences for other nations. Peter Coy reports for Bloomberg Businessweek (Argentina's Debt Appeal Dies at U.S. Supreme Court 06/19/2014):

"It is a pretty remarkable precedent for the U.S. to allow a lower court judge to push around a sovereign nation," says Karen Hooper, director of analysis for Latin America at Stratfor, a geopolitical intelligence company. Some countries could choose to issue debt in countries that are more favorable to debtors, she says. In 2012, Greece, whose bonds were issued under Greek and English rather than New York law, reduced its debt by about €100 billion ($136 billion) in a restructuring. ...

Argentina has been able to get along without tapping international bond markets. Other nations might have a harder time. "It’s a really bad precedent for countries like Greece," says Stratfor's Hooper. "Sovereigns have to be able to default. They have defaulted continuously since money was invented." [my emphasis]
I would say that changing a precedent that has been around "continuously since money was invented" counts as a pretty radical change.

Raúl Dellatorre in La culpa es de Martínez de Hoz Página/12 19.06.2014 looks at how the decision by Judge Griesa confirmed by the Supreme Court's refusal to hear the appeal fits with the neoliberal ideology.

El fallo del juez Griesa favoreciendo el reclamo de los fondos buitre fue convalidado por la Corte de Apelaciones de Nueva York, primero, y la Corte Suprema de Estados Unidos, después. Pasada la perplejidad inicial por tamaña muestra de injusticia y aparente sinsentido, vale la pena repasar la lógica del modelo imperante (neoliberal, con predominio del capital financiero) para tratar de entenderlo. Antes que a una reestructuración de deuda exitosa, a lo que esta decisión judicial le apunta es a castigar al pecado original: el default de 2001. Y si éste es seguido de una reestructuración exitosa, peor, mayor razón para condenar al país que haya logrado superar ambas experiencias.

Argentina defendió, con buen criterio, el argumento de que un fallo en su contra perjudicaría al sistema financiero en su conjunto, porque anularía toda posibilidad de reestructuración de deuda futura de un país que cayera en cesación de pagos. Pero la lógica que sigue el fallo de la Justicia norteamericana es muy diferente: lo que se pretende anular es el paso previo, la alternativa del default, la cesación de pagos. El “castigo ejemplar” a Argentina busca demostrar que el camino de defoltear y reestructurar deuda es inútil, intransitable. Un sendero al fracaso.

The ruling of Judge Griesa favoring the demand of the vulture funds was confirmed by the Court of Appeals in New York first and the Supreme Court of the United States later. Besides the initial perplexity over such a huge sample of injustice and apparent senselessness, it's worth reviewing the logic of the dominant model (neoliberal, with predominance of international capital) to try to understand it {the decision}. Before a successful restructuring of debt, which this judicial decision indicates is {an intention to} to punish the original sin: the default of 2001. And if this is followed by a successful restructuring, even worse [and] and even more reason to condemn the country that has managed to survive both experiences.

Argentina defended with good criteria the argument that a decision against it would prejudice the financial system in its cycle, because it would annul the possibility of future debt restructuring for a countries that falls into halting payments. But the logic that the decision of North American justice follows is very different: one that tries to annul the previous step, the alternative of default, the cessation of payments. The "exemplary punishment" of Argentina seeks to demonstrate that the road to default and debt restructuring is useless, impassible. A path to failure.]

Coy makes a contemptuous characterization that reinforces the sense that free-marketers may view Argentina as in need of punishment for defying the True Gospel of neoliberalism: "Argentina, as a defiant, serial defaulter that offered creditors the worst terms since World War II, isn’t the ideal poster child for debt relief." There was, you know, a devastating financial and political crisis in Argentina in 2001. But, hey, what is that against the claims of billionaire bankers to milk every penny out of Argentina they can get away with? Free enterprise!!

Dellatorre calls attention to the implications for the eurozone crisis countries:

El mensaje a países como Grecia, Portugal y otros deudores soberanos comprometidos es que el default es el camino al infierno, que el único camino de salida posible, el que se les permitirá, es seguir aplicando las políticas de ajuste impuestas por sus acreedores y los organismos financieros, para obtener las refinanciaciones que les permitirán seguir viviendo, aunque menos dignamente.

Los grupos financieros pretenden preservar la deuda externa de los países como herramienta de control. La Cámara de Apelaciones neoyorquina, al levantar la suspensión sobre la orden de embargos, volvió a cargar el arma con la que le apunta a Argentina, el país que intentó quebrar un pilar fundamental del modelo dominante.

[The message to countries like Greece, Portugal and other sovereign debtors at risk is that default is the road to Hell, that the only escape route possible, the only one permitted to them, is to continue applying the policies of the agreements imposed by their creditors and the financial organs to obtain the refinancing that allows them to go on living, even if with less dignity.

Financial groups are trying to maintain the external debts of countries as a tool of control. The New York Appeals Court, by lifting the stay on the order of seizure {allowing the vulture funds to seize Argentine property}, reloads the gun pointed at Argentina, the country that intended to break a fundamental pillar of the dominant model.]
With that last comment, Dellatorre is clearly referring to the dominant ideological model of neoliberalism; he's not trying to minimize the radicalism of Griesa's decision, a gift to the world from beyond the grave by Richard Nixon, who appointed Griesa to the federal bench.

Federico Kucher in El nuevo escenario que se abre Página/12 19.06.2014 discusses the recommendations of heterodox economists like Fabián Amico, Andrés Asiain and Aldo Ferrer to Cristina Fernández' government in confronting the immediate aftermath of the decision. Amico argues that even in the face of being shut out of international credit markets for even longer, Argentina has options in managing its foreign currency reserves to minimize any harmful impacts to the overall economy, though it could result in reducing imports of some consumer items like autos. He also mentions seeking direct loans from the BRICS countries as an option.

Argentina is fortunate in having a President at the moment like Cristina, who is not only willing to listen to sound if "heterodox" ideas but, even more importantly, is willing to make a major political fight over something like this. For fairly obvious reasons, she counts on considerable support from other countries on this, not just in Latin America. As mentioned above, the Argentine appeal was supported by the Obama Administration, which is scarcely known for being open to heterodox economic notions, leaning more toward Herbert Hoover economics instead.

Cristina used notably defiant and patriotic terms in announcing her determination to avoid the fate Nixon's Judge Griesa and the Republican Supreme Court wants to impose on Argentina. "No cuenten conmigo para eso porque antes que mi gobierno está el país." ("Don't count on me for that {submitting to the decision} because the country is more important than my government.") (La Presidenta anunció que se pedirán condiciones para una negociación justa y cumplir con el 100% de los acreedores Casa Rosada official press release 20.06.2014)

Here's Cristina explaining her position, Visión 7 - Cristina hizo un fuerte llamado a la unidad nacional y pidió "pensar en nuestros hijos" TV Pública argentina 20.06.2014:

And in fact, her government has considerable support among the opposition parties for her stand against the vulture funds.

The Buenos Aires Herald on 06/21/2014 tweeted an image of the ad the Argentine government is running in the Wall Street Journal offering to neogotiate reasonable alternatives with the vulture funds.

The creditors who did accept renegotiation of the bad debt have a big interest in seeing a settlement on terms other than those demanded by Nixon's Judge Griesa, because his decision would block payments on the renegotiated debts as of June 30, which would put Argentina into technical default a month later. (US Judge Griesa bans Argentina from paying bondholders in BA Buenos Aires Herald 06/20/2014)

Here is a news report on a march by Cristina supporters under the slogan, "Vultures or Argentina", Visión 7 - En repudio a los fondos buitre TV Pública argentina 20.06.2014:

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