Vulture funds over Argentina, the dollar crisis and New York

Oscar Ugarteche, Ariel Noyola Rodríguez

08/09/2014

Opinión

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Paul Singer, proprietor of NML Capital, has, without intending to do so, done a great favour for humanity. In two months, he has completely delegitimized the rules of existing International Financial Architecture (IFA), and in passing, has strengthened the support of most of the world in favour of Argentina. In this sense, the letter sent on August 25 2014, to the General Secretary of the United Nations Organization, Ban Ki-moon, signed by economists Joseph Stiglitz, Robert Solow, Dani Rodrik and José Antonio Ocampo, among others, and the former Prime Minister of Canada, Paul Martin, marks part of the beginning of a global campaign to transform mechanisms of restructuring sovereign debt. The other part is the initiative of the G-77 plus China group (made up of over 130 countries) to bring an initiative for reform to the General Assembly of the United Nations.

On one hand, the system established at the end of World War II under the mandate of the United States has been once again called into question. On the other, and even more important, the action against Argentina unleashed a wide consensus concerning the need for a profound reform of the IFA, based in New York and subject to the courts of that city, with contracts in US dollars and with court decisions universally applied. That is to say, the struggle of the vulture funds over Argentina led to a crisis of confidence in the dollar as an instrument of credit and of New York as a privileged jurisdiction to resolve future debt restructuring.

Today it is obvious that the vulture funds constitute the most aggressive sector of financial capital. Through complicated juridical and speculative manoeuvres almost always supported by high level public bureaucrats, the vulture funds have put various sovereign governments up against the wall (Republic of Congo, Panama, Peru, Argentina, etc.). The modus operandi consists in demanding full payment with interest acquired in critical moments for debts bought at great discounts. In the case of Argentina, in 2005 and 2010 approximately 92% of creditors accepted the terms of debt proposed by the government after the crisis of 2001. Nevertheless, 0.45% of the remaining 7% of creditors that did not come to an agreement (holdouts), bought bonds for some 40 million dollars that they now demand to cash in at over 1.3 billion dollars.

Because of this, and moved by the fear that the vulture funds may look for new victims, the Argentinian Chancellor Héctor Timerman, accompanied by the Minister of Economics Axel Kicillof, announced on August 29 2014, that the G-77+China group had unanimously approved a proposal to the United Nations to establish a new regulatory framework. Kicillof noted in detail: “the remaining countries have asked that we confront this experience in order that the Griesa decision not be repeated, that a claim such as that formulated by Singer [...] can never happen again. The vulture funds are a parasite on the international financial system that must disappear”. The initiative will be presented on March 9 2014: “If the majority votes in favour, in less than a year Argentina will have given the world a Convention for a just and equitable resolution that is not subject to threats from a judge or a country, but on a basis established by all the member States of the United Nations”, indicated the Argentine Minister (Xinhua, 30/08/2014).

On the other hand, the day before the announcement of the Argentine government, the International Capital Markets Association (ICMA), which includes over 450 members including banks, creditors and investors from over 52 countries, made public the idea of generalizing the clauses of collective action incorporated in contracts. In this way the new regulatory framework would transform de jure the relationships between debtors and creditors. On one hand, this would establish the express will of three fourths of creditors in controversial situations and on the other, would de facto neutralize the attacks of the vulture funds. The next step would be for national governments immediately to adopt the new regulations. Sadly, the changes would not include Argentina since they would not be retroactive. There are, then, two paths towards open reforms, one involving more State action through the United Nations and the other more Market oriented through the ICMA. It appears to be impossible for the international system to return to the status quo before the Judge Griesa's decision.

Both initiatives took place a month after Argentina was declared to be in partial default by the New York Court. In conclusion, the conflict between the vulture funds and Argentina has accelerated the decline of New York as the controlling centre of international finance and tabled the need to implement more universal, just and transparent rules. Meanwhile, the funds of George Soros and Citibank maintain open judgements with the Bank of New York so that the IFA no longer benefits majority investors nor underwrites the stability of the global system.

(Translated for ALAI by Jordan Bishop)

- Oscar Ugarteche, a Peruvian economist, works in the Instituto de Investigaciones Económicas at UNAM, Mexico. Member of the SNI/Conacyt. Coordinator of the Observatorio Económico de América Latina (OBELA) www.obela.org and President of ALAI www.alainet.org

- Ariel Noyola Rodríguez, member of the OBELA project, IIEc-UNAM. Columnist for the journal Contralínea (Mexico) and collaborator with the Red Voltaire (France). Contact: anoyola@iiec.unam.mx

URL de este artículo: http://www.alainet.org/active/76869Buitres sobre Argentina, la crisis del dólar y Nueva York

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