Wednesday, March 09, 2016

Argentina government surrenders to the vultures

Argentine President Mauricio Macri surrender to the vulture funds and has agreed to pay large amounts to those purchasers of already-defaulted debt. Apparently it will require taking on new debt to pay ransom to the vulture funds. It was a decision that not only compromised Argentine sovereignty but will also impose major economic costs on Argentina itself.

Macri's government is an ideal neoliberal, One Percenter government bending over backwards to accommodate the demands of oligarchs national and international.

Alexandra Stevenson and Jonathan Gilber reported on the deal in Argentina Reaches Deal With Hedge Funds Over Debt New York Times 02/29/2016 with a shamelessly pro-vulture-fund spin in the opening paragraphs, including: “'This is the equivalent of a giant albatross being lifted from Argentina’s neck,' said Brett Diment, the head of emerging market debt at Aberdeen Asset Management. 'The litigation and lack of access to international capital has had a sclerotic effect on the country for years but it was facing a real financial squeeze this year,' he said."

But they do provide some basic facts:

The four hedge funds, which include the billionaire Paul E. Singer’s NML Capital, were the last major hedge fund investors among a group that declared legal war on Argentina in the United States courts 12 years ago.

These holdouts, so named for their refusal to participate in Argentina’s two restructurings after the country defaulted on $100 billion of debt in 2001, sought billions in bond repayments and eventually succeeded in preventing Argentina from paying any of its creditors.

And they went to great lengths to compel Argentina to pay — at one point persuading authorities in Ghana to seize an Argentine navy ship as collateral, with a crew of about 300 on board. They also moved to impound other government assets, including a satellite.

Their ultimate victory illustrates the outsize influence hedge funds can have in the countries where they bet their money. And their legal tactics are likely to be used again by other investors contesting the debt obligations of sovereign powers. [my emphasis]
And they do give their readers an idea of the bad consequences of this case:

In 2012, the holdout hedge funds achieved a stunning breakthrough when Judge Griesa ruled that whenever Argentina wanted to pay any of its creditors, it would have to also pay the holdouts. The move and its fallout led Argentina to default on its debt again in 2014.

That move will have far-reaching implications, many analysts say. With his ruling, the judge has laid the foundations for future investors to contest the debt obligations of other countries.

Anna Gelpern, a law professor at Georgetown University, said that the ruling created a new tool for investors.

“The tool is a kind of financial boycott” that would allow creditors to enforce equal payment in other instances, she added.

Mr. Guzman went further, saying that the settlement created “a problem of moral hazard in which this settlement incentivizes this type of behavior because it is profitable.”
Axel Kicilof, the Finance Minister of the last government and currently a Deputy in the Argentine Congress, heavily criticized the deals Macri's government has struck with the vultures.

He said, “Es la primera vez que yo veo alguien festejar que vamos a endeudarnos a lo loco. Todos sabemos lo que pasó cuando argentina abrió la tranquera del endeudamiento. Todos sabemos que eso no va para obras ni para el bolsillo de los que menos tienen” ("It's the first time that I've seen someone celebrating that we are going to go into debt like crazy"). (
Kicillof: "Es la primera vez que veo festejar que nos endeudamos a lo loco"
Diario Registrado 29.02.2016)

David Dayen also points out the problems of this deal in
Hedge Fund Creditors' Deal With Argentina Sets Alarming Precedent The American Prospect 03/01/2016:

The Argentine government is certainly happy to crawl out from under the rock of default, and to unlock international credit markets to refresh depleted foreign reserves. A fresh infusion of capital will help with a treacherous inflation situation, and stabilize the country’s economy.

Of course, the first set of borrowing will go directly to paying off the holdouts, not Argentine public services or investment. That the holdouts succeeded this much, with the help of the U.S. judiciary no less, always represented to me a kind of punishment for Argentina rejecting the IMF-led consensus. They defied the world and lived to tell about it. The holdouts gave the international community a chance to punish the country for its intransigence, and only let them out of the vice grip when they elected a pro-business president.

Meanwhile, the precedent for this working out so well for the vulture funds is terrifying. A principle has been firmly established, that you can go around looking for sick countries and corporations and use all necessary means to use their pain for profit. It can be applied to Puerto Rico, where another similar tragedy is playing out. The ability to renegotiate debt, a standard tool in practically all borrowing relationships, will be hurt by the example of stubbornness winning out.
The vulture funds' fight with Argentina, which has now resolved itself in favor of the vulture funds, is a true example of international financial banditry.

Will anyone be surprised to hear that a leading figure on the side of the vulture funds, Paul Singer, is also a major donor and behind-the-scenes political player in the US Republican Party?

Greg Palast discusses him in
Rubio's Billionaire wins ransom from Argentina 02/29/2016:
Singer’s actions are outlawed in most of the civilized world. Hillary Clinton, as Secretary of State, attempted to stop Singer’s predatory act, but Singer did a brilliant end-run: he used his cash to help elect a new President in Argentina that would jump to his tune and pay him billions.

Now, he’s attempting to do the same to the USA: pick a president for us who will feather his vulture's nest. He’s the number one donor sugar daddy for Marco Rubio’s candidacy [See, "Who Hatched Rubio"]. Singer is also the big bankroller of Karl Rove, to make sure that, even if he can’t sell Rubio to the GOP base, at least The Vulture can use "Turdblossom" Rove to ensure that Hillary won’t become President and put him out the of vulture business.

Rubio, in fact, skirted some ethical lines in his attempts to pressure the State Department to side with his corpse-chewing donor against Argentina.

As I’ve said, Singer directs his fellow billionaires’ investments in candidates. So, it is not surprising to see The Koch's lend their top political operative, Marc Short, to Singer's man, Rubio.

Rubio’s affection for carrion-eating birds has no decent bounds. While Clinton and Sen. Bernie Sanders are currently siding with Puerto Rico against a whole flock of vulture financiers. Sanders and Clinton support [Puerto] Rico’s plea for the same bankruptcy protections afforded the 50 states (and afforded to Donald Trump).

Kenneth Vogel and Ben Schreckinger report that Il Duce Donald Trump pitched Singer to support him, unsuccesfully: Trump courted megadonors he now scorns Politico 11/04/15.

Harper Neidig reports on Singer's support for Rubio, who is currently faltering in the Presidential race, in Hedge fund billionaire gives $2.5 million to Rubio super-PAC The Hill 01/31/2016.

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