The Argentine Congress voted last week to take the function of paying off the country’s sovereign bonds away from the private Mellon Bank of New York and transfer it to the National Bank of Argentina, a state enterprise. And the U.N. General Assembly passed a supportive resolution calling for a reworking of the entire system of dealing with the restructuring of sovereign debt.
The actions came as a sequel to a long running controversy over the efforts of U.S. hedge funds to make a large profit at the expense of the Argentine people.
From 1976 to 1983, Argentines suffered under the brutal U.S.-supported military dictatorship of General Jorge Videla and his colleagues, who stifled all dissent by methods that included murder of some 30,000 members of the opposition.
During this time of unaccountable rule by fear, the military rulers incurred sovereign debt for the country, through bonds organized through New York financial institutions. This pattern did not stop when the military left power in 1983, but continued in the chaotic period that followed, with Argentina under heavy pressure to implement neo-liberal policies of privatization, austerity and free trade.
By 2001, Argentina was broke and the enraged populace was in the streets. A new left-wing president, Nestor Kirchner, had to preside over a default. His government and that of his wife, current President Cristina Fernández de Kirchner, who succeeded him, managed to restore their country’s finances without the usual method of balancing the budget on the backs of the poor, by persuading the vast majority of creditors to accept new bonds at 30 cents on the dollar.
However, a small minority of the creditors held out, demanding that they be paid 100% of the original value. These include Elliot Management, whose major investor is Paul Singer, a heavy contributor to Republican Party candidates in the United States, and Aurelius Capital Management. These are not even the original bondholders: They bought these bonds from the original bondholders at fire sale prices when Argentina defaulted, and now they want not just to recuperate their original cost plus a profit, but to receive the entire value of the original bonds, pocketing an immense profit.
The way the bonds were originally set up stipulates, according to U.S. Federal Judge Thomas Griesa, that until Argentina pays off Singer and his allies in full, at the original price they demand, it cannot continue to pay a penny to the majority of bondholders who agreed to the bond swap. And if it agrees to pay the holdouts what they demand, it also has to offer those creditors who accepted the swap the same full payment as to the holdouts. So Griesa froze a payment Argentina had made to an account for the majority bondholders in Mellon Bank New York, to the tune of $539 million dollars, forcing Argentina to miss a July 30 deadline on those payments.
Thus, Griesa says, Argentina is in default again, which Argentina denies. The Argentine government took out ads in U.S. and Argentine newspapers declaring that they are not in default and referring to the hedge funds as “vulture funds.” Griesa has threatened to find Argentina “in contempt of court” for doing this.
Singer is well known for this kind of tactic, which he has employed to the detriment of the people of Peru and of Congo (Brazzaville). The precedent set if Argentina loses would represent a danger to all efforts at restructuring the debts of poor countries. The winners would be wealthy hedge funds in the rich countries, and their political allies.
So it is not surprising that President Kirchner has been getting strong support from other Latin American countries, from the BRICS countries (Brazil, Russia, India, China and South Africa), and from the Group of 77 developing countries.
Bolstered by this support, Kirchner asked her legislature to support a measure whereby the control of the payments of sovereign bonds would be moved away from Mellon Bank New York to the government-controlled National Bank in Buenos Aires. That way, the bondholders who agreed to the swap will get their payment in Argentina, and U.S. courts will not be able to interfere. Both houses gave this proposal a solid majority last week.
China, the Group of 77, and Bolivia brought the Argentine case to the U.N. General Assembly. The proposal was to move forward on changing the framework for the restructuring of debt. There were 124 votes in favor, including almost all poorer countries. Only 11 countries voted “no,” including the United States, Britain, Germany, Japan, France, and other wealthy states. There were 41 abstentions.
The U.S., which had earlier filed an amicus brief in Griesa’s court favoring Argentina, says that it voted against the U.N. Resolution out of fear that it would create instability in financial markets.
Photo: National Bank of Argentina. Jurist.org