Sunday, October 12, 2014

Argentina's Finance Minister on the state of the vulture fund fight #GrieFault #GriesaFault

Tomás Lukin interviewed Argentine Finance Minister Axel Kicillof, who has been in Washington for the meeting of the International Monetary Fund (IMF) and the World Bank there. (“El sistema financiero mundial está bajo reforma” Página/12 12.10.2014)

The title comes from something Kicillof told him, "Hoy el sistema financiero internacional está bajo reforma por el caso argentino. Hasta el FMI cuestionó la interpretación que hizo el sistema judicial de Estados Unidos.” ("Today the international financial system is being reformed because of the case of Argentina. Even the IMF has questioned the interpretation made by the judicial system of the United States.")

He's referring, of course, to the radical decision by the Nixon-appointed zombie judge Thomas Griesa in favor of the vulture funds holding defaulted Argentine debt, a decision that would have forced Argentina into actual default, not just into the #Griefault, if they had been willing to go along with it passively and have the vulture funds pummel the Argentine economy because they found a senile judge, at least intellectually corrupt, to go along with them.

Argentina has a won a majority of countries in the US General Assembly to demand a reform of the sovereign debt system to prevent people like the vulture funds and Nixon zombie judges from doing crazy and massively destructive things like they tried to do this year with Argentina.

The IMF's Monetary and Financial Committee recently referred to the problem raised by the vulture funds' attack on Argentina - in bland bureaucratese, of course: "We welcome the work on modified pari passu clauses and strengthened collective action clauses, and call on the IMF, its member countries, and the private sector to actively promote their use in new international sovereign bond issuances." (Communiqué of the Thirtieth Meeting of the International Monetary and Financial Committee (IMFC) 10/112014; El FMI y “las fallas” de Griesa Página/12 12.10.2014)

A novel treatment of the pari passu clauses in the defaulted Argentine debt agreements was one of the features of the Nixon zombie judge's radical ruling.

IMF Chairwoman Christine Legarde addressed an issue related to the Argentine debt fight with the vulture funds at the IMF/World Bank meeting (The IMF at 70: Making the Right Choices—Yesterday, Today, and Tomorrow 10/102014): "A world of large capital flows means that we need a large global safety net. Regional arrangements—including the new BRICs contingency reserve arrangement—certainly have an important role to play."

The IMF also formally recommends a reform of the sovereign debt restructuring process, as the Buenos Aires Herald reports in IMF calls for reforms to avoid holdout cases 10/07/2014:

The International Monetary Fund urged a rethink of how sovereign bonds should be structured to avoid future debt restructurings turning into a repeat of Argentina’s disruptive court battle with a few disgruntled creditors.

A detailed IMF paper laid out a series of recommendations that centred on enhancing so-called collective action clauses (CACs) embedded in most sovereign bond contracts, on modifying clauses on the pari passu equal treatment of creditors, and on the IMF’s role in promoting the use of such clauses.

The reports comes after United States District Judge Thomas Griesa’s decision to hold Argentina in contempt of court because of the country’s attempt to pay bondholders in Buenos Aires and change trustee. [my emphasis]
Enhanced CACs that allowed restructuring agreements reached by some specified percentage of the bondholders to be made binding on all bondholders would take away the kind of rent-seeking speculation opportunities of which the vulture funds availed themselves thanks to the availability of a compliant Nixon zombie judge and the willingness of the Roberts Court to let his radical ruling stand. The IMF proposal suggests 75% of the bondholders agreeing as the threshold for such CACs.

As the BAH article notes, "The absence of such a [collective action] clause in Argentina’s original bond contracts is what has allowed hedge funds NML and Elliott to pursue the country for full repayment on debt it restructured in 2005 and 2010. Those restructurings were accepted by 93 percent of bondholders."

IMF Supports Reforms for More Orderly Sovereign Debt Restructurings IMF Survey Magazine 10/06/2014:

The IMF is engaged in a number of reforms designed to reduce the costs of sovereign debt restructurings—for the benefit of debtors, creditors, and the system more generally. These reforms include possible changes to the IMF’s lending framework that are designed to give the IMF a broader range of policy responses in the context of sovereign debt distress. Separately, there is a recognition that, in circumstances where a sovereign and its creditors have reached the conclusion that a debt restructuring is necessary, the existing legal framework may not be sufficiently robust to prevent “holdout” creditors from undermining the restructuring process. Recent developments, including the Argentine litigation in the United States, have highlighted these vulnerabilities. The IMF recently endorsed reforms to sovereign bond contracts that are designed to address these issues. [my emphasis]

The IMF's report itself is Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring Oct 2014. Pages 8-9 provide a chronology of the Argentina/vulture funds legal conflict and the decisions of the Nixon zombie judge.

Press Release on the report: IMF Executive Board Discusses Strengthening the Contractual Framework in Sovereign Debt Restructuring Press Release No.14/459 10/06/2014:

Directors acknowledged that the recent New York court decisions with respect to Argentina may exacerbate collective action problems, although most felt that the extent of their impact on the restructuring process is still unclear. Directors welcomed the recent modification of pari passu clauses in certain sovereign bond issuances to explicitly exclude the obligation to effect ratable payments. Accordingly, they supported the widespread use of these types of modified pari passu clauses in new international sovereign bonds so as to enhance legal certainty and consistency across jurisdictions. [my emphasis]
The "ratable payments" technicality was part of the Nixon zombie judge's ruling.

Axel Kicillof in his interview said that nothing would come of further mediation under Daniel Pollack with the vulture funds. Argentina seems to no longer regard him as any kind of honest broker.

Página/12 asked Kicillof if Argentina actually needed to go back to international bond markets. Kicillof replied, "Una cosa es recurrir y otra es no tener la posibilidad" ("It's one thing to go back and another to not have the possibility.") In other words, Argentina is able to maintain its payments with the 92% of restructured bondholders and does not need to borrow more money now. But the current administration wants to preserve Argentina's credit standing by making good on the 2005 and 2010 agreements with the restructured bondholders.

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