Authoritarian tendencies in the Argentine government of Mauricio Macri

With authoritarian-minded governments and movements in ascendancy in various places of various types, there's a lot of speculation about an wide-reaching authoritarian trend internationally: the US under Trump and his pliant Republican Party, Poland, Hungary, Turkey, Russia of course, Austria, Brazil, the Phillipines, Argentina to some extent. Most American would probably include Venezuela in that list, and that's partially accurate. But the reporting on Venezuela in the US is pretty pathetic. And with it, we can never forget, "Venezuela claims the world’s largest proven reserves of petroleum, an estimated 298 billion barrels of oil." (Michael Klare, The Desperate Plight of Petro-States TomDispatch 05/26/2016)

Such trends are hard to measure. Marc Plattner gives his version of such concerns in Liberal Democracy’s Fading Allure Journal of Democracy 28:4 (Oct 2017). That publication's website states, "The Journal of Democracy is part of the International Forum for Democratic Studies, housed within the National Endowment for Democracy." The NED is rightly suspected of an excessive enthusiasm for regime change in countries in which US neocons and "humanitarian hawks" disapprove of the government in power. I mention that not to suggest that their arguments be disregarded, but rather that they should be understood in the broad context of NED's outlook and practice.

Plattner is looking back at the triumphalist "end of history" narrative after the fall of the eastern European Communist governments after 1989 in what former German Foreign Minister Joschka Fischer once called revolutions by implosion.

Looking at the global situation today, a quarter-century later, we see a vastly different picture. Those same principles and practices, which by the 1990s seemed to have fully regained their former attraction and to have spread to a much wider range of countries than ever before, now seem again to be losing their luster. Today liberal democracy is clearly on the defensive. Authoritarian regimes of various stripes are showing a new boldness, and they appear to be growing stronger as the confidence and vigor of the democracies wane.

Plattner expresses particular concern about the rise of populism in Peru:

In April 2016 in Peru, voters handed a landslide congressional victory to Popular Force, the party of populist former dictator Alberto Fujimori, who is serving a 25-year prison term for severe human-rights violations committed during his presidency. The party’s 2016 presidential candidate, the former leader’s daughter Keiko Fujimori, won a very substantial plurality in the April first round—almost 40 percent, nearly twice the vote share of second-place finisher Pedro Pablo Kuczynski. Yet this still left her well shy of a majority, and she was forced to face Kuczynski in a June runoff. She lost to him by less than a single percentage point, but her party’s legislative majority means that her influence on Peru’s political direction is considerable.

While the Peruvian case is important, the election of the rightwing/oligarchic government of Mauricio Macri in Argentina (end of 2015) and the "soft coup" in Brazil (2016) are currently notably more significant in terms of their effects on democracy and the neoliberal policies that undermine it.

Neither Argentina nor Brazil has abolished elections or political parties. And the "soft coup" that put current President Michel Temer in power in Brazil was more authoritarian in nature than the straightforwardly democratic election that brought Macri to the Presidency in Argentina.

But Macri's government is a great example of predictably bad economic policies - although of the kind approved and insisted upon by the IMF and the "Washington Consensus" - and how they are easier to maintain in more authoritarian conditions than in democratic ones. Macris's government came after 12 1/2 years of kirchnerismo government, i.e., left social-democratic Peronism under the Presidencies of the late Néstor Kirchner and Cristina Fernández de Kirchner. Although Macri in his 2015 campaign made gestures toward Peronist perspectives and was supported by a Peronist faction (Peronism is a complex political phenomenon, to put it mildly), his economic policies have been the textbook neoliberal playbook of budget cuts, privatization, low taxes for the wealthy, and lower salaries and wages for the majority. The results, of course, have been high inflation and a slumping economy.

Kirchnerismo was notable in having broken with the Washington Consensus on free trade and debt by maintaining capital controls and refusing to pay vulture funds for debt that had to be defaulted on after the financial crisis of 2001. The goal was to develop the domestic economy and in particular to develop Argentine industry. Foreign debt has been a problem for Argentina as a block to national development and independence from foreign control since the "unitarian" government of Bernardino Rivadavia took a major loan from the British Baring Brothers bank in 1824. Developments in Argentina would later touch off what became known as the Baring Crisis of 1890-91, which "originated in Argentina but it was felt all over the world, first in London." (Gerardo della Paolera and Alan M. Taylor, Straining at the Anchor: The Argentine Currency Board and the Search for Macroeconomic Stability, 1880-1935 [2001])

The Elliott Management hedge fund of Paul Singer, an American vulture capitalist and one of the largest contributors to the Republican Party, bought up defaulted Argentine debt and sued in American courts, getting a bizarre and genuinely radical decision in their favor from Federal Judge Thomas Griesa in a ruling upheld by the Supreme Court. Once Macri was elected President, he quickly made a settlement that was extremely favorable for Singer's vulture funds, taking on new debt to pay it off. (The Vulture: How Billionaire Rubio Backer Paul Singer Made Billions off Argentina Debt Crisis Democracy Now! 03/11/2016; Katia Porzecanski, Singer Makes 369% of Principal on Argentine Bonds in Debt Offer Bloomberg Markets 03/01/2016)

Time magazine of 05/02-09/2016 included Macri in its list of 100 Most Influential People, with a two-paragraph tribute from Mauricio Macri:

Argentina is rich in natural resources and human capital, but its economic progress has been hobbled by the ineptitude and corruption of its political leaders. Over the past decade, the policies of Argentina's ruling duo, Nestor and Cristina Fernandez de Kirchner, led to rampant inflation, falling currency value and capital flight. The result was the 2015 election of the reformist Mauricio Macri.

Macri has removed Argentina's currency controls, allowing more freedom for trade. He has pledged to reintegrate Argentina into the global economy, seeking private investment from abroad. And he has taken action to end the 15-year default that has kept the country in economic exile since 2001. Macri still has important tasks ahead of him, including taming inflation. But if he lives up to his promise, Argentina may finally do the same. [my emphasis]

At that time, the Macri government was raising regulated prices on public utilities and the economy was slumping. Macri's supporters were telling everyone to be patient and wait for the segundo semestre (second half of the year). Argentina is in the first half of Macri's third year as President. But still waiting for the segundo semestre. This video from the beginning of his second half-year in office mocks, "The second half was born dead." Segundo semestre de Macri 07/01/2016:

There have been some disturbing signs of political repression.

Gastón Chillier and Ernesto Semánmarch wrote about the concerns that were already emerging in Macri's "first half-year" in What Obama Should Know About Macri’s Argentina New York Times 03/23/2016, including the already-iconic case of indigenous activist Milagro Sala. Obama left the general impression with US voters and a political press that's largely oblivious to Latin American affairs that he had a left-leaning policy on Latin America, largely because of his pragmatic abandonment of the long-standing, failed Cuba policy. But actually his Latin American policy was generally conservative, including welcoming the political-military coup in Honduras and the extra-constitutional soft coups in Paraguay and Brazil. Obama's relations with Cristina's government was distant. But he made a point of embracing Macri after his election:

Mr. Obama’s historic trip to Cuba has all the pageantry of a farewell to the Cold War in Latin America. His visit to Havana will serve as a symbolic climax in the normalization of American relations with Cuba’s Communist government. But his excursion to Argentina has a very different resonance.

Shortly before Mr. Obama’s arrival in Buenos Aires, his administration announced the declassification of United States government documents relating to Argentina’s 1976-83 military dictatorship. Yet the visit is not about the current state of human rights, but about free trade and hemispheric security.

An acknowledgment of the malign role the United States played in the early years of the dictatorship is welcome, if overdue. But to ignore the red flags on human rights raised by the recent actions of Argentina’s new ruling party is a worrying reminder of that legacy. For Mr. Macri, Mr. Obama’s visit is already an endorsement. [my emphasis]

There have been some questionable legal investigations of senior officials from the previous government, including Cristina herself. The details of such cases can be difficult to judge from outside. The allegations against Cristina herself always looked fairly thin to me.

But after the 2017 midterm elections which brought her back to Congress and gave her a stronger position as leader of the opposition, the questionable arrests escalated and included the previous Foreign Minister and former Vice President Amado Boudou. And a new legal charge against Cristina Fernández that didn't result in her arrest because of her new parliamentary immunity. But the charge related to a sensational suicide of a prosecutor named Alberto Nisman in early 2016, who had been working for years on the AMIA bombing case from 1994. I know enough about the details of that case to say with confidence that those charges are bogus. So those are not good signs.

There have also been some questionable acts of repression against some of the many demonstrations against Macri's policies. Those are also difficult to judge from afar. But it's a pattern that is certainly disturbing from the standpoint of democracy and human rights.

And the borrowing that has historically been such a burden and trap for Argentina is continuing. Axel Kiciloff, currently a Congressional deputy from Buenos Aires city, the last Minister of Economics under Cristina's government and still a close ally of hers, warns that Macri's government is taking on a "colossal" amount of debt that, in his formulation, is being used for speculative purposes and is of "little benefit for the national economy." Kiciloff also charges Macri with trying to evade constitutional procedures and attempting to govern by decree. ("El DNU es anticonstitucional" Página/12 14.01.2018)

Citibank throws in with the vulture funds against Argentina

The latest twist in the ongoing story of the hedge funds, appropriately called vulture funds by Argentine officials, trying to drive Argentina into bankruptcy over long-defaulted debt is that Citibank has decided to side with the vulture funds whose most visible spokesperson is Paul Singer, one of the largest donors to the Republican Party. Nixon-appointed zombie Federal Judge Thomas Griesa made dubious legal history by his radical decisions in favor of the vulture funds that disregarded centuries of law and practice in sovereign debt.

The Buenos Aires Herald summarizes the latest this way ('We will maintain Citibank’s suspension' 03/29/2015):

Economy Minister Axel Kicillof said the suspension of Citibank Argentina, ordered by the National Securities Commission (CNV) financial watchdog, will stay in place until the bank revokes its agreement not to appeal US Judge Thomas Griesa’s ruling that interest payments on Argentina's restructured local law bonds could not be processed if the bank was allowed to make two one-off payments to help it exit its local custody business.

The official condemned the deal between the bank and the “vulture funds” and said that Citibank is trying to please the vultures and Griesa at the same time but he pointed out that it is leaving its clients (bondholders) helpless.

“(Judge) Griesa in his attempt to extort the country along with vulture funds, has told US Citibank to not let Argentina Citibank to operate with Argentina’s public debt securities in Argentina,” Kicillof explained in an interview with Tiempo Argentino newspaper. “This is a mess because Citibank has opened a branch in this country and it has to comply with this country’s laws.”

The title of this article by Alfredo Zaiat refers to it as "the Citi-Singer Pact," El pacto Citi-Singer Página/12 29.03.2015.

This set of actions has the usual tangle of legal, financial and political complications. But the basics are that Citibank has been caught between its legal obligations to Argentina to process payments to creditors who have renegotiated their debt and Nixon zombie judge Griesa's order blocking them from making the payments. So Citi wants to wash its hands of the whole thing and get out of the custody-payment business in Argentina altogether.

Apparently Citibank figured they stood to lose more money from trying to comply with Argentine law and their custody payments agreement with it than by going along with the vulture funds and their Nixon zombie judge.

Singer and the vulture funds stand to gain money from their position. But they won't go broke or suffer in any meaningful way if they loses. Argentinians, on the other hand, have a great deal to lose, economically, socially and politically.

Not unlike Greece's position in negotiating with Germany over debt and austerity issues, the side that's closer to having nothing to lose has a negotiating advantage in that fact.

Argentina and the vultures #GrieFault #GriesaFault

Argentina's fight with the vulture funds and their poodle, the Nixon zombie judge Thomas Griesa, continues.

The fight has provided opportunities for the paper Página/12 to do some imaginative representations of it. For instance, August 22, featuring the Nixon zombie judge:

August 30, stressing the global dimensions of the Nixon zombie judge's mischief:

The country took a big step this past week by passing a law allowing themselves to bypass American jurisdiction on the payments to the renegotiated bondholders (CFK signs Sovereign Debt bill: We can pay, we want to pay, we will pay Buenos Aires Herald 09/11/2014):

President Cristina Fernández de Kirchner has passed into law the Sovereign Debt bill, which changes the payment location of Argentine bondholders and was approved by Congress earlier this morning.

After the announcement made by Economy Minister Axel Kicillof of the “Now 12” initiative, a new government plan aiming to boost local consumption levels, Fernández de Kirchner assured that with the new bill “Argentina wants to pay, can pay and will pay all the contracted debts,” in a clear reference to the judicial dispute with the holdouts and the consequent adverse ruling by US Federal Judge Thomas Griesa.

“This law assures the payment for 92,4 percent of bondholders which in addition contemplates the interest for those investors who did not took part of the two previous debt swap processes,” the head of state explained. [my emphasis]

Cristina addressed the debt situation in a public statement, 11 de SEP. Lanzamiento del Programa "Ahora 12". Cristina Fernández Casa Rosada 11.09.2014 (40 min.):

And Argentina just received a new loan commitment from the staunchly neoliberal World Bank, demonstrating once again the the vulture funds' attempted bandit move in conjunction with Nixon zombie Judge Thomas Griesa is not endangering Argentina's national credit-worthiness as such. (Charlie Devereux, World Bank to Lend Argentina Up to $1.2 Billion Through 2018 Bloomberg News 09/09/2014; New WBG Strategy to Support Poverty Reduction & Inclusive Growth in Argentina World Bank 11/09/2014)

The World Bank press release just linked includes this quote from Argentine Economics Minister Axel Kiciloff, who has been a very prominent figure in the fight against the vulture funds:

In the past 10 years, Argentina has gone through an historical process of development based on employment and production. We are aware that industrial revitalization is the only way for Argentina to achieve sustained and socially inclusive growth. The Government has supported public policies that resulted in this growth process. International financing associated to employment creation, infrastructure development and supporting the needs of vulnerable sectors is a tool to achieve inclusive growth.

And, the UN General Assembly voted to set up a global legal framework for sovereign debt restructuring, an initiative of the Group of 77+China (Kicillof says UN debt restructuring resolution 'historic,' telling vulture funds 'no more' Buenos Aires Herald 09/10/2014). Only 11 nations voted in opposition. Including the US, with our Nobel Peace Prize President.

Cristina addresses that development in 09 de SEP. Cristina Fernández promulgó Ley de Moratoria Previsional. Cadena Nacional Casa Rosada 09.09.2014:

Página/12 came up with an image for that, too (14.09.2014), showing the vulture funds "without a place in the world":

It's a #GrieFault that's going on, not a genuine default. And Argentina is arranging a course around their scam.

Even the International Capital Market Association (ICMA) is calling for new international rules to present nasty characters like the vulture funds and their Nixon zombie judge accomplice from doing what they're trying to do to Argentina. (ICMA publishes revised collective action clauses (CACs) and a new standard pari passu clause to
facilitate future sovereign debt restructuring 08/29/2014):

Leland Goss, ICMA’s General Counsel said: "The potential adverse fallout globally from the default and restructuring of Argentina’s debt demonstrates the importance of having clear, unambiguous contract terms for sovereign bonds. In‐depth consultations with our members and other interested public and private sector representatives have led to the development of enhanced legal technology that will  make more orderly and efficient sovereign debt restructurings achievable in the future".

See also, Cambian reglas de reestructuraciones para evitar un nuevo caso como el de Argentina La Economía Online 29.08.2014. The ICMA has provided details of their proposals if you want to geek out on them: STANDARD COLLECTIVE ACTION AND PARI PASSU CLAUSES FOR THE TERMS AND CONDITIONS OF SOVEREIGN NOTES (Aug 2014).

David Dayen, who has an impressive gift for explaining complex financial issues in a generally accessible way without dumbing them down writes about Argentina's fight in Why Argentina’s Crazy Debt Gambit Could Make Sense Fiscal Times 08/22/2014. He compares Argentina's current approach as a kind of "Calvinball," changing the rules as the game is played:

The thing is, Argentina is kind of allowed to play Calvinball; it’s a side benefit of being a country. By definition, sovereign nations get to make up their own laws and even alter them on a whim. If they don’t want to obey the dictates laid down by other countries or international norms, there’s only so much the international community can do about it.

Which is why expecting U.S. courts to unilaterally delineate Argentina’s payment schedules was predictably impossible. They should have never inserted themselves in the first place into what is little more than a hedge fund’s moneymaking scheme. And Argentina’s response, however unorthodox and bizarre, might even help the U.S. economy, in a cock-eyed way.

Daniel Ozarow describes the stakes for the global financial system in Let's end this madness in the global debt system Aljazeera America 08/25/2014:

The [Nixon zombie judge's] decision has also set a legal precedent: Now that investment funds know that they can successfully appeal to the courts to claim millions of dollars in profits on their original outlay, any incentive they once had to restructure the value of their bonds following debt defaults has now been removed.

This will not only drain the already depleted treasuries of indebted nations, it will also create far-reaching instability in the global financial system, as the IMF has warned. However, the damage caused by a lack of regulation of speculation is not a concern for only poorer nations. Indeed, vulture fund activity has recently intensified closer to home with Aurelius' investment in the UK's Cooperative Bank having forced it to abandon its mutual structure in 2013, and Elliot Management's CEO Paul Singer squeezing huge payments from the Greek government during the eurozone crisis by threatening to create a mass default of banks across Europe.

Ellen Brown talks in some detail about some of the long-range implications of the vulture funds' play in the Argentina conflict in Colonization by Bankruptcy: The High-stakes Chess Match for Argentina Web of Debt 08/25/2014:

Argentina is playing hardball with the vulture funds, which have been trying to force it into an involuntary bankruptcy. The vultures are demanding what amounts to a 600% return on bonds bought for pennies on the dollar, defeating a 2005 settlement in which 92% of creditors agreed to accept a 70% haircut on their bonds. A US court has backed the vulture funds; but last week, Argentina sidestepped its jurisdiction by transferring the trustee for payment from Bank of New York Mellon to its own central bank. That play, if approved by the Argentine Congress, will allow the country to continue making payments under its 2005 settlement, avoiding default on the majority of its bonds.

Argentina is already foreclosed from international capital markets, so it doesn’t have much to lose by thwarting the US court system. Similar bold moves by Ecuador and Iceland have left those countries in substantially better shape than Greece, which went along with the agendas of the international financiers.

Tags: argentina, axel kicillof, cristina fernández, thomas griesa

Vulture battle #GrieFault #GriesaFault

The legal battle between Argentina and the vulture funds is back before the federal appeals court. Argentina and Citigroup have a court appearance scheduled Monday over the blocking of payments Argentina has made to the bank as paying agent for holders of renegotiated debt - known as the Exchanges of 2005 and 2010 - from being actually paid to the bondholders. (Cristian Carrillo, Nueva fecha para seguir la pelea con los buitres Página/12 16.08.2014; Holders of Argentina eurobonds appeal US Judge Griesa ruling Buenos Aires Herald 15.08.2014) Argentina is also asking the US Executive Branch to intervene on the grounds that the Nixon zombie judge Thomas Griesa is encroaching on its prerogative to conduct foreign affairs.

President Cristina Fernández de Kirchner is stressing that it's a national struggle for Argentina. And that the problem is not just a matter of the vulture funds' avarice but also "una decisión política y geopolítica de querer volver a endeudar a la Argentina y tirar abajo, de cualquier modo, la reestructuración de deuda soberana" ("a political and geopolitical decision that wants to return Argentina to an indebted state and to shoot down the restructuring of sovereign debt by whatever means"). (CFK: "La amenaza de los fondos buitre es a todos los argentinos") (CFK: "La amenaza de los fondos buitre es a todos los argentinos" Página/12 16.08.2014)

Argentina has also appealed to the International Court of Justice over the case, Visión 7 - Fondos buitre: Argentina demandó a EEUU ante La Haya TV Pública argentina 07.08.2014:

But even though the Obama Administration theoretically supported Argentina's position, it quickly declined to accept The Hague's jurisdiction over the Nixon zombie judge case. As Joseph Ax and Andrew Chung report in Argentina threatened with contempt order by U.S. judge Reuters 08/08/2014:

... a spokeswoman for the U.S. State Department said the United States would not permit the International Justice Court in The Hague to hear Argentina's claims that U.S. court decisions had violated its sovereignty.

"We do not view the ICJ as an appropriate venue for addressing Argentina's debt issues, and we continue to urge Argentina to engage with its creditors to resolve remaining issues with bondholders," the spokeswoman said in an email.

Argentina petitioned the International Court of Justice on Thursday, but the lawsuit could only move forward if the United States submitted voluntarily to the court's jurisdiction.

Despite its origins in judicial malpractice, the case has become "completely political" ("absolutamente política"), as Edgardo Mocca wrote a couple of weeks ago. (Malvinas no es sinónimo de derrotas Página/12 03.08.2014)

Ellen Brown describes thew conflict in Cry for Argentina: Fiscal Mismanagement, Odious Debt or Pillage? Web of Debt 08/12/2014. The current standoff with the Nixon zombie judge, she writes, "underscores the need for an international mechanism for nations to go bankrupt."

And she argues:

Who is at fault? The global financial press blames Argentina’s own fiscal mismanagement, but Argentina maintains that it is willing and able to pay its other creditors. The fault lies rather with the vulture funds and the US court system, which insist on an extortionate payout even if it means jeopardizing the international resolution mechanism for insolvent countries. If creditors know that a few holdout vultures can trigger a default, they are unlikely to settle with other insolvent nations in the future.

Blame has also been laid at the feet of the IMF and the international banking system for failing to come up with a fair resolution mechanism for countries that go bankrupt. And at a more fundamental level, blame lies with a global debt-based monetary scheme that forces bankruptcy on some nations as a mathematical necessity. As in a game of musical chairs, some players must default.

She also has a memorable quote from Adrian Salbuchi, "the IMF was to Argentina what Arthur Andersen was to Enron, the difference being that Andersen was dissolved and closed down, whilst the IMF continues preaching its misconceived doctrines and exerts leverage." (From How to Solve Argentina's Recurrent Foreign Debt Crises: Proposal for a Long-Term Solution Global Research 11/07/2006.

Stefan Kaiser describes the general conflict in Argentinien und die Hedgefonds: Duell der Erpresser Spiegel Online 28.06.2014.

Tags: argentina, cristina fernández, thomas griesa

State of the #GrieFault battle between Argentina and the vulture funds

Greg Palast takes a look at the Argentine debt situation in How Barack Obama could end the Argentina debt crisis Guardian 08/07/2014. Palast suggests that Obama could overrule the Nixon zombie judge Thomas Griesa's ridiculous ruling by declaring that it violates the Executive's prerogative over foreign affairs:

Obama could prevent vulture hedge-fund billionaire Paul Singer from collecting a single penny from Argentina by invoking the long-established authority granted presidents by the US constitution's "Separation of Powers" clause. Under the principle known as "comity", Obama only need inform US federal judge Thomas Griesa that Singer's suit interferes with the president's sole authority to conduct foreign policy. Case dismissed.

Indeed, President George W Bush invoked this power against the very same hedge fund now threatening Argentina. Bush blocked Singer's seizure of Congo-Brazzaville's US property, despite the fact that the hedge fund chief is one of the largest, and most influential, contributors to Republican candidates.

Notably, an appeals court warned this very judge, 30 years ago, to heed the directive of a president invoking his foreign policy powers. [my emphasis]

Thirty years ago was 1984, when St. Reagan was President.

Obviously, it's way too easy to criticize Obama or any political leader for not showing more "leadership" or for compromising too much. Both require assuming a counterfactual outcome if only the leader in question had done this or that.

But this Argentine debt battle with the Nixon zombie judge who's siding with the vulture funds offers a useful, real-world contrast: between Argentine President Cristina Fernández' posture toward the vulture fund head Paul Singer and Obama's posture in 2009 when Singer fleeced the federal government over the GM bailout, the bailout itself being one of Obama's most successful, politically beneficial and progressive accomplishments. Palast: "But while Fernández declared 'I cannot as president submit the country to such extortion,' Obama submitted within days."

He also lists some of Singer's Republican credentials, further raising the question of what Obama got politically from that particular cave-in.

Cristina's website has a Spanish translation of Palast's article, Cómo podría Barack Obama poner fin a la crisis de deuda argentina? 07.08.2014.

In another Guardian column Argentina default? Griesafault is much more accurate 08/07/2014, Joe Stiglitz and Martin Guzman observe, "The US financial system, already practised at exploiting poor Americans, has extended its efforts globally. Sovereign borrowers will not – and should not – trust the fairness and competence of the US judiciary. The market for issuance of such bonds will move elsewhere." (my emphasis)

They note that not only does the Nixon zombie judge's ruling not only offers potentially absurd gains on their investment in defaulted Argentine bonds, but also the possibility of their having snared huge profits by betting on an Argentine default:

What's more, the existence of credit default swaps creates the possibility of further gains for the vultures. A CDS insures against a default, paying off if the bonds do not. They can yield substantial returns, regardless of whether the bonds are repaid – thus reducing their holders' incentive to achieve an agreement.

In the runup to 30 July, the vultures conducted a scare campaign. A second default in 13 years would be a big setback for Argentina, they claimed, threatening the country's fragile economy. But all of this presumed that financial markets would not distinguish between a default and a Griesafault. Fortunately, they did: interest rates for different categories of Argentine corporate loans have not reacted to the event. In fact, borrowing costs on 30 July were lower than the average for the whole year.

Argentina is pressing for further investigation of the CDS holdings of the vulture funds involved.

Stiglitz and Guzman recount the post-2002 default bond purchases by the vulture funds:

The vultures were neither long-term investors in Argentina nor the optimists who believed that Washington Consensus policies would work. They were simply speculators who swooped in after the 2001 default and bought up bonds for a fraction of their face value from panicky investors. They then sued Argentina to obtain 100% of that value. NML Capital, a subsidiary of the hedge fund Elliot Management, headed by Paul Singer, spent $48m on bonds in 2008; thanks to Griesa's ruling, NML Capital should now receive $832m – a return of more than 1,600%.

The figures are so high in part because the vultures seek to earn past interest, which, for some securities, includes a country-risk premium – the higher interest rate offered when they were issued to offset the larger perceived probability of default. Griesa found that this was reasonable. Economically, though, it makes no sense. When a country pays a risk premium on its debt, it means that default is a possibility. But if a court rules that a country always must repay the debt, there is no default risk to be compensated. [my emphasis]

Argentina has brought its case to the International Court of Justice in The Hague, demanding that the US rein in what Argentina not unreasonably sees as a rogue judiciary on the #GrieFault case, Capitanich. ("Que Estados Unidos asuma la responsabilidad de su Poder Judicial" Página/12 08.08.2014; Argentina seeks legal case against U.S. in The Hague Reuters 08/07/2014)

The Nixon zombie judge seems to be going all Rumpelstilzchen over the thing.

He's hopping mad that Cristina and other Argentine officials keep saying they've paid the debt they legitimately owe. And he's threatening them with contempt of court if they don't stop saying that. The fool seems to think he has the power to censure public statements by the elected President of Argentina. (US judge threatens contempt ruling in Argentina case Reuters 08/08/2014; US judge Griesa insists Argentina makes 'false statements', threatens to declare the country in 'contempt' Buenos Aires Herald 08/08/2014)

The Senate Democrats should hold impeachment hearings over this guy. His performance on this looks like pathetic judicial misconduct to me, on the part of a 84-year-old judge who's mental capacities are probably no longer able to deal with this kind of complex case.

Tags: argentina, cristina fernández, thomas griesa

Today in the #GrieFault

The International Swaps and Derivatives Association (ISDA) has declared that Argentina is a condition of "failure to pay" due to the #GrieFault provoked by the decision of Nixon-appointed zombie federal judge Thomas Griesa. (Davide Scigliuzzo, Isda declares credit event on Argentina CDS Reuters 08/01/2014) This will allow credit default swaps (CDS) designed to pay in the case of an Argentine default to be paid out.

What is the ISDA, you may ask?

The Buenos Aires Herald article from before the ISDA meeting took place, gives us some description, Default insurance up in the air 08/01/2014:

The leader of Argentina’s holdout creditors, New York-based hedge fund Elliott Management, also sits on an industry committee that will determine whether investors who bought credit-swaps protection on the nation’s bonds are paid out.

Elliott Management, worth US$24.8 billion and directed by the billionaire Paul Singer, denied owning CDS in a US court last year, refuting the possession of such contracts that would allow it to profit if Argentina ceased repayments. Stephen Spruiell, Elliott’s spokesman, declined to comment for Bloomberg yesterday.

Ironically, JP Morgan, the bank that bought Argentine bonds from Spanish oil firm Repsol this year, was said to be negotiating to buy out the holdouts’ defaulted debt yesterday, is also part of the 15 dealers and investors on the ISDA committee. Citigroup is another member, and is also at the table with Elliot and Aurelius Management for their bonds. [my emphasis]

It stinks to high heaven to me. But then my nostrils probably don't work like those of a Nixon zombie judge.

Yes, Elliott Management and other vulture funds get an apparently badly confused, 84-year-old Nixon zombie judge to make a genuinely bizarre ruling that forces Argentina into the #GrieFault. Then the director of Elliott, Paul Singer, and several other potentially interested parties get to decide whether it really is a default for the purposes of paying out big bucks on the CDS insurance against an Argentine default. And if Elliott or the institutions of the other members of the committee does have such CDS's, their companies stand to make perhaps hundreds of millions on the outcome of the vote.

Abigail Moses et al in Argentine Bonds Decline as Default Triggers $1 Billion of Swaps Bloomberg News 08/01/2014 indicate, as the title suggests, that up to a billion dollars of swaps could pay out after the ISDA's decision.

What.A.Racket.

It helps to have a crassly partisan judge on your side. I don't know whether the problem with the Nixon zombie judge is mental incapacity, some kind of moral or legal corruption, or if he's just an a*****e. Did I mention he was appointed to the federal bench by President Richard Nixon?

Mark Weidemaier was gobsmacked by some of the Nixon zombie judge's performance on Friday, as he recounts inWhere Do We Go Now? Credit Slips 08/01/2014

After making some initial remarks in which he pointedly refused to use the word "default" (despite having used it in the order setting the hearing), the judge excoriated Argentine officials for publicly saying that the country is willing to pay its debts, when the country really only wants to pay exchange bondholders and not holdouts. According to the judge: "The Republic has issued public statements that have been highly misleading and that must stop... [I]n those public statements, only one of the debts is talked about..." The judge continued, remarkably: "Any disclosure of facts about the obligations of the Republic of Argentina must talk about the two obligations..." The judge further noted that he is "counting on counsel for the Republic to take steps to stop... factual misrepresentations [by Argentina]..."

This is pretty extraordinary. First of all, factual misrepresentations? Argentina has not exactly kept it a secret that there are holdouts and that it considers their claims illegitimate. Its rhetoric might be disrespectful to the court, even petulant at times, but it isn't within shouting distance of misrepresentation. Second, the judge's comments come close to (but stop short of) ordering Argentine officials to acknowledge the legitimacy of holdout claims in their public statements. (See the italicized bit in the last paragraph.) He has no power to do that, but his tone and the content of his comments made clear the extent of his displeasure. [my emphasis]

The Nixon zombie judge on Friday refused to dismiss the mediator who had been working on the Argentina/vulture funds, rejecting Argentina's implied suggestion to do so after he displayed blatant support for the vulture funds over the question of whether the #GrieFault actually was a default in the normal sense. (US judge Griesa urges Argentina, vulture funds to resume negotiations; rejects replacing Special Master Pollack Buenos Aires Herald 08/01/2014)

According to Weidemaier's account, Argentina's counsel didn't specifically asks for the mediator's removal:

The real substance of counsel's comments, however, addressed the special master and the press release he issued on July 30. Now, the special master is basically a mediator, and it isn't exactly unheard of for mediators to issue public statements. But it isn't exactly routine, either. What is routine is for mediators to consult with the parties before disclosing anything about the mediation, and certainly before issuing a public statement. Especially a statement that directly contradicts one party's position on the merits of an important issue - say, by using the word "default" six times to characterize Argentina's status after failing to reach a settlement.

Weidemaier expresses his puzzlement at Argentine counsel's harsh criticism of the mediator/Special Master. He doesn't see what they hope to gain by it. "The judge was mad at Argentina before July 30 but seems madder now," he writes.

Sheelah Kolhatkar addresses the #GrieFault in Argentina Defaults: Three Points
Bloomberg Business Week 07/30/2014. Her first two points seem mainly express her sympathy for the vulture funds. But the third point is more substantial:

Overlooked is that this case may set a precedent with far-reaching global consequences.

I'm not sure who she thinks has overlooked those implications, since for anyone following the case that was likely to be very obvious. But:

It proves that a handful of hedge funds may be able to impede the ability of countries around the world both to borrow money and to renegotiate the terms of their loans if they fall into economic crisis. Considering how many nations in Africa, Latin America, and elsewhere are under the control of corrupt regimes that may borrow funds only to saddle their people with crippling debt, this is is an alarming development. [my emphasis]

It's worth remembering here that the military dictatorship of 1976-83 loaded their country up with debt, which was a major reason for the 2002 default.

But the more immediate concerns are the periphery countries of the eurozone like Greece, Portugal and Spain who actually need to write down a substantial portion of their debt right now.

Shannon O'Neil has a genuinely good analysis of the #GrieFault in Of Course Argentina Defaulted Foreign Policy 07/31/2014.

Anna Gelpern speculates about future contingencies in the case, particularly what claims the creditors on the renegotiated debt may make. Injunction Math: Acceleration and the Incredible Shrinking Payment Percentage Credit Slips 07/30/2014.

As I was wrapping up this post, I came across this remarkable editorial in the Washington Post, which was once a great newspaper, though that was decades ago now. That was still the case long ago, when Thomas Griesa was first appointed to the federal judiciary. It's called, Argentina’s default case offers clarity on sovereign debt 07/31/2014.

They must have hired their own Nixon zombie judge to write this editorial: "And the battle between Argentina and the hedgies has certainly clarified U.S. law." I guess that's so. Except for, you know, the overruling of several centuries' precedent and a judge that can barely remember what he said from one sentence to the next.

This is about the loopiest thing I've read on this case, except for the very strange rants of a writer for Business Insider, Linette Lopez, whose articles leave you knowing less about it than you did before you started reading.

Tags: argentina, thomas griesa

What if they declared a default and nobody defaulted? You have a #Griefault!

Argentina's deadline for making a deal with the vulture funds backed by a ridiculous ruling from Nixon-appointed zombie federal judge Thomas Griesa has come and gone.

Shane Ferro reports in Argentina’s default: Here’s what’s happening 07/30/2014, "the ratings agency S&P cut the country’s credit rating to selective default."

Given the horrendous record of S&P and the other rating agencies before the 2008 crisis, what S&P has to say about doesn't much worry me. I'm surprised anyone listens to them at all.

Argentine President Cristina Fernández has been saying that since Argentina is paying its legitimate debts, i.e., everything but the debt defaulted in 2002 still being held by the vulture funds, you can't call what's happening a default. And that is the government's official position. She says they will have to invent a new word for what's happening.

There is a Twitter hastag, though, #GrieFault, which may suffice, incorporating the Nixon zombie judge's name.

Anna Gelpern gives a run-down on various alternative scenarios from this point: It Depends, Argentina Edition Credit Slips 07/30/2014.

One of the mysteries in this has to do with credit default swaps (CDS). The vulture funds may have bought CDS's in the hope that Argentina would default. And in our international financial system which allows high-finance gambling, anyone with enough money could buy a CDS against an Argentine default. Depending on the terms of the CDS, what is considered "default" matters a lot. Ownership of CDS's isn't public information, so this is one of the uncertainties going on behind the scenes.

Right now, Argentina is paying on the debt renegotiated from the 2002 default, paying to money to the financial institutions acting as paying agents under the agreements. The Nixon zombie judge is blocking the banks from paying those funds to the creditors. So Argentina is paying their debt service, but the creditors aren't receiving the money.

A new session with the Nixon zombie judge on the case is scheduled for Friday.

Eyder Peralta has a roundup of several major stories on the #GrieFault, Argentina's Default: 5 Headlines That Tell The Story NPR 07/31/2014. One of the links is to this New York Times story by Peter Eavis and Alexandra Stevenson, Argentina Finds Relentless Foe in Paul Singer’s Hedge Fund 07/30/2014:

... some debt market experts say that the battle may already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap to fund their deficits. Countries in crisis may now find it harder to gain relief from creditors after defaulting on their debt, they assert.

"We've had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system," said Joseph E. Stiglitz, the economist and professor at Columbia University. "We don’t know how big the explosion will be — and it’s not just about Argentina." [my emphasis]

The head of Cristina's Cabinet, Jorge Capitanich, said this was a failure of the entire judicial system of the United States - the Nixon zombie judge's bizarre ruling was allowed to stand by the Roberts Supreme Court refusing to take the case - which showed in this instance that "es independiente de la racionalidad, no es independiente de los fondos buitre" ("it is independent of rationality, but not independent of the vulture funds"). ("Ha habido una mala praxis del Poder Judicial de EEUU" Página/12 31.07.2014)

Tags: argentina, cristina fernández, thomas griesa

Argentina prepares for the Nixon zombie judge deadline

Hopefully the markets - meaning the actual individuals and institutions who buy and sell securities - have fully incorporated the information about real state of Argentine finances into their calculations when tomorrow's deadline passes with no new deal between Argentina and the vulture funds backed by Nixon-appointed zombie federal judge Thomas Griesa.

They still have today and Wednesday for something to change. But there's no public sign that a deal is imminent.

Wow! This is a surprise. He didn't say it directly yet. But Pope Francis is taking Argentina's side against the vulture funds and the Nixon-appointed zombie judge Thomas Griesa that is trying to push the country into bankruptcy at the end of the day tomorrow. The Pope met with Gabriel Mariotto, the vice-governor of Buenos Aires province who's from President Cristina Fernández's Peronist party. According to Mariotto, "Francisco dijo que Griesa está a la derecha de la derecha en Estados Unidos" ("Francis said Griesa is to the right of the rightwing in the United States.") The Spanish has a nice double meaning that could also mean "to the right of the law."

Mariotto also relates:

“El Papa lo ve como una reacción de un sector reaccionario, de una minoría del sistema financiero carroñero que atenta contra todo ese sistema financiero e incluso contra el Partido Demócrata de los Estados Unidos”,

["The Pope sees it as a reaction by a reactionary sector, of a scavenger minority of the financial system that is making an attack against all of the financial system and including against the Democratic Party of the United States."]

Shorter English report: Mariotto: ‘Francis said Griesa is further right than right-wing Republicans' Buenos Aires Herald 07/28/2014.

Yo! I figured that Cristina had made a tacit deal with the Argentine Pope when he took office along the lines of: "You don't be a jerk to Argentina, and I won't remind people of your shady record under the last military dictatorship." Or maybe Pope Francis thinks it's insane and sinful for a Nixon zombie judge to try to wreck the economy of his home country so that some vulture funds can collect big bucks on wild financial gambles.

So, Cristina has the Pope on her side. The vulture funds and the Nixon zombie judge are backed by the Wall Street Journal, who is running this slam article on Cristina today: Santiago Pérez y Taos Turner, El vínculo entre el dinero y la política, una sombra que persigue a los Kirchner 07/29/2014.

The Nixon zombie judge did correct one problem of his goofy order by releasing bank funds that had been paid by Argentina to the Spanish oil company Repsol that didn't even related to the Argentine bonds! Visión 7 - Griesa autorizó a pagar intereses a Repsol TV Pública argentina:

I mean, trying to bankrupt the nation of Argentina is one thing. But inconveniencing a respectable oil company? That was something the Nixon zombie judge didn't want to do!

Miguel Jorquera in "No existe posibilidad de default" Página/12 29.07.2014 interviews Juliana Di Tullio, head of Argentine President Cristina Fernández' legislative bloc, the Frente para la Victoria (FpV). Di Tullio points out one of the foreign policy implications of the Nixon zombie judge's attempt to force Argentina into bankruptcy, which is that increases the need for Argentina to build stronger alliances with the BRICS, notably China and Russia. She notes that Cristina recently concluded a deal with China for $19 billion in investments in Argentina.

Di Tullio also articulates the government's position that a failure to comply with the Nixon zombie judge's decision cannot be regarded as a "technical default." Argentina is paying the debts recognized as valid under Argentine law, i.e., the 92%-plus of the 2001 defaulted debt that has been renegotiated. The Nixon zombie judge is blocking the banks to which Argentina payed last month's payment from transmitted the funds to the actual creditors. "No existe posibilidad de default, que sería si no está el dinero para pagar. Tampoco default técnico, porque eso sería tener el dinero para pagar y no depositarlo," she says. ("The possibility of default doesn't exist; that would be not having the money to pay. Nor technical default, because that would be having the money to pay and no depositing it.")

If this seems like a bit of legal comma-dancing, there is a lot riding on it. It's a safe bet that some of the vulture funds and other big-time gamblers have bought credit default swaps (CDS) that pay off in the event of an Argentina default. The vulture funds may actually be hoping for Argentina non-compliance for just that reason. So whether what happens when and if Argentina doesn't comply with the Nixon zombie judge's order by end of day tomorrow is considered a default in a legal sense matter a lot.

Di Tullio also harshes on Mauricio Macri of the Propuesta Republicana (PRO), Governor of the City of Buenos Aires and the main opposition figure right now, and Julio Cobos, an opposition parliamentary leader of the Frente Amplio UNEN and former Governor of the Province of Mendoza. Both have criticized Cristina's handling of the confrontation with the vulture funds. Macri essentially demanded that Cristina capitulate to the Nixon zombie judge, consistent with his general commitment to the neoliberal worldview. He has been doing so with some political mealy-mouthing in the form of demanding that Cristina comply with the ruling but skirting the ruinous cost to Argentina for doing so. (Fernando Cibeira, Idas y vueltas alrededor de los buitres Página/12 29.07.2014)

As Di Tullio puts it:

Macri por lo menos es sincero y dice que “si yo fuera presidente, ya lo hubiera pagado”, por lo cual la deuda de los argentinos quedaría abierta y nos endeudaríamos en 500 mil millones de dólares más. Es una cosa de locos, pero es lo que cree Macri.

[Macri at least is sincere and say that "if I were President, I would have paid," by which the debt of the Argentines would remain outstanding and we would take on $500 billion more. It's a crazy thing, but that's what Macri believes.]

She's referring there to the estimated additional debt that Argentina would have to take on if the RUFO clause is triggered, which through the end of 2014 gives all creditors the right to claim the same terms the vulture funds would get under the Nixon zombie judge's bizarre ruling.

Julio Cobos, along with other opposition figures like Socialist Party leader Hermes Binner, have criticized Cristina in general terms over her handling of the issue without being as explicit as Macri in saying she should just capitulate.

Tags: argentina, cristina fernández, thomas griesa