Argentine National Congress, Buenos Aires, Argentina
In 2001, economic crisis in Argentina led the country to default on its $82 billion debt in one of the two largest sovereign defaults in history. This past July, history repeated itself, as the South American nation went into default for the second time in as many decades, after a New York federal court ruled against the country’s efforts to pay back some, but not all of its creditors. On Friday, an appellate court upheld this ruling. This most recent payment failure, however, cannot be solely linked to the country’s faltering domestic economy.
Back In 2010, Argentina was able to bring 93 percent of its debt out of default by striking deals with the majority of bondholders to pay them back at a rate of 33¢ on the dollar. The remaining 7% of debt, however, was controlled by holdout creditors who refused to accept the deal accepted by the other bondholders, and continued to maintain their demand that they be paid back in full, 100¢ on the dollar. Unfortunately for Argentina, a particular term of the original debt issuance prevented the country from paying off any of its debt, unless it paid back all of it. The stipulation specifically enumerated the fact that if Argentina paid back only the 7% of its debt that remained unsettled, the other 93% of debt—that which had already been settled—would have to be paid back at the same rate, as opposed to the settled one. It also stipulated that payment of the already settled debt could not occur unless the remaining 7% of debt was paid off simultaneously. In effect, by refusing to accept a settlement, the creditors who held the rights to that small portion of Argentine debt were in effect holding an entire country hostage.
Because the original Argentine bonds were issued in New York, the US legal system oversaw the debt negotiations. In July of 2014, a New York judge enforced the aforementioned stipulation, blocking Argentina from selectively paying back its settled debt, and effectively forcing the country into default. Although the international community, including the UN and OAS, denounced the decision of the US court, repeated attempts at appeals or stays of the July decision have been shot down.
This entire situation does a disservice to the reputation of the US on the world stage. Simply put, the US has no business supporting greedy investors—or as they are called in Argentina, “vultures”—in their ventures when such activities put an entire country’s economy at risk. Such an action recalls some of the darker episodes in American imperialist history, like the CIA’s intervention in Guatemala in 1954 on behalf of the United Fruit Company, and has no place in a modern society that claims to uphold humanitarian values.
It is high time that American courts begin to rule in favor of the majority, instead of the minority in cases like these, where the stakes are so high for so many. In this case in particular, US courts should allow Argentina to pay back the debt it has already settled without having to pay back the “holdout” investors at the same time. This would not only bring relief to the Argentine economy on the verge of crisis, but would also benefit the vast majority of bondholders who are waiting to be paid back.
Ultimately, if the US approached the Argentine default from a moralistic or a utilitarian standpoint, the choice between helping Argentina get back on its feet and regain its fiscal stability, and helping a few greedy investors earn massive returns on small initial investments, is clear. The US must free Argentina from the greed of the few, for the benefit of the many.
Image Attribution: “Atardecer en el Congreso de la Nación Argentina” by Miguel Cesar, licensed under CC BY-SA 3.0
