Here’s some legal comment from Mark Stefanini, litigator at international law firm Mayer Brown“Argentina has elected to isolate itself from international capital markets rather than pay its holdout creditors. It remains to be seen whether approaches such as a new bond swap for bonds governed by Argentine law and jurisdiction will be attempted to enable Argentina to avoid the full economic consequences of this decision.“Argentina has chosen to avoid the risk of incurring further liability to restructured bondholders under the ‘Rights Upon Future Offers’ (RUFO) clause [see previous post] and to maintain its defiant resistance but in doing so, she faces economic consequences that are far more difficult to quantify. In the face of this defiance, holdouts may well redouble their efforts to obtain access to Argentine assets overseas using the additional discovery ordered by the Supreme Court on 16 June as a starting point resulting in further cases developing the sovereign immunity laws of relevant jurisdictions.”
The holdout creditors, led by NML Capital (part of Elliott Capital), have already shown an appetite for chasing Argentinian assets. This is something that goes back to the 1970's. I sincerely recommend to anyone to read 'Confessions of an Economic Hit Man' by John Perkins. The premise is simple enough. Chicago University educated 'advisors' would go from Third World country to Third World country.
During their time in each of these places; they would encourage whichever pliant, recently CIA installed, despot happened to be there at the time, to take on a load of 'debt'. Everyone involved in said deals got something out of it. The dictators got a load of cash that they knew that they personally would never have to pay back. This they could then spend on bribes, kickbacks, patronage, and vanity projects.
The US (who were basically running the IMF at the time - and still are) got a proverbial 'insurance policy'. The country in question might be under their thumb now, but what about 10, 20, even 30 years down the line? How do you prevent it from falling into the Soviet sphere of influence? That was where the debt came in.
At key points, the IMF would issue directives against certain countries, using the debt as leverage. Thus, even without a client despot in charge, the US would still be holding the key levers on these countries economies. Now fast forward to 2014 and there are a lot of changes afoot. For one, the Soviet Union is long dead, and the 'Domino Theory' is no longer valid. But what of the debt? That is where the vulture funds come in. These were basically a disaster waiting to happen. Ruthless hedge fund managers eyed up these old Cold-War era systems of control, and saw in them a way of making incredibly large amounts of money. They would do this, not just legally, but within the internal logic of the market as well. They would buy up these old debts and using every legal and financial trick in the book; they would squeeze them for all they were worth. Most of the time, these were against poor, small countries with no real way to fight back. Argentina is another matter. It is the 8th largest country in the world. It has 42 million people and a GDP of close to $800 billion dollars (the 22nd largest). This is not some country that you bully like it was a small state in Africa. Here is a country with the means to fight back. The question is, what next? Argentina has had a particularly fractious relationship with the West and for good reason. I could mention those generals and where their support came from; but that would be too obvious. What puzzles me is the fact that the word 'China' hasn't come up yet.
During their time in each of these places; they would encourage whichever pliant, recently CIA installed, despot happened to be there at the time, to take on a load of 'debt'. Everyone involved in said deals got something out of it. The dictators got a load of cash that they knew that they personally would never have to pay back. This they could then spend on bribes, kickbacks, patronage, and vanity projects.
The US (who were basically running the IMF at the time - and still are) got a proverbial 'insurance policy'. The country in question might be under their thumb now, but what about 10, 20, even 30 years down the line? How do you prevent it from falling into the Soviet sphere of influence? That was where the debt came in.
At key points, the IMF would issue directives against certain countries, using the debt as leverage. Thus, even without a client despot in charge, the US would still be holding the key levers on these countries economies. Now fast forward to 2014 and there are a lot of changes afoot. For one, the Soviet Union is long dead, and the 'Domino Theory' is no longer valid. But what of the debt? That is where the vulture funds come in. These were basically a disaster waiting to happen. Ruthless hedge fund managers eyed up these old Cold-War era systems of control, and saw in them a way of making incredibly large amounts of money. They would do this, not just legally, but within the internal logic of the market as well. They would buy up these old debts and using every legal and financial trick in the book; they would squeeze them for all they were worth. Most of the time, these were against poor, small countries with no real way to fight back. Argentina is another matter. It is the 8th largest country in the world. It has 42 million people and a GDP of close to $800 billion dollars (the 22nd largest). This is not some country that you bully like it was a small state in Africa. Here is a country with the means to fight back. The question is, what next? Argentina has had a particularly fractious relationship with the West and for good reason. I could mention those generals and where their support came from; but that would be too obvious. What puzzles me is the fact that the word 'China' hasn't come up yet.
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