In the world of sovereign debt workouts, the relationship between Argentina and the Paris Club has tended to look like Lucy, Charlie Brown, and the football. Time and again, Argentina (Lucy) would earnestly declare interest in striking a deal to repay its debt to club creditors only to pull back at the last minute. So imagine everyone’s surprise at this week’s announcement that Charlie Brown finally got to kick the football.
The deal clearly reflects Argentina’s growing desire to normalize its access to global markets in the face of domestic economic problems. Argentina’s government is also looking for a more sympathetic stance from the international community pending a decision in its case (Argentina v. NML Capital) before the US Supreme Court. A decision by the court to uphold the lower court ruling could effectively force Argentina to pay in full the claims of holdout private creditors, and in the process, disrupt long standing norms that have governed orderly debt workouts.
If you really want to understand this case in all of its glory, you should follow Anna Gelpern’s excellent posts on the Credit Slips blog, going back a year or so. In very crude fashion, the NML Capital argument is that the sovereign debt on which Argentina defaulted represents a contract, and a contract is a contract. Of course, if the international system had a bankruptcy mechanism akin to our domestic system, this view would not have currency. In the absence of a supra-sovereign mechanism, we have a set of norms and practices that seek to mimic the orderly proceedings of a bankruptcy process internationally, including the expectation that creditors will agree to reductions on the value of their bonds as the basis for a “workout” even if they have the right through national courts to seek to enforce the full value of the claim.
It will be interesting to see how the US government reacts following the Paris Club agreement. Three years ago, the US Treasury articulated a number of concerns about Argentina as the basis for opposing nearly all World Bank and Inter-American Development Bank assistance to the country. The list included lack of a Paris Club deal, a failure to settle investment disputes that had been brought to the international dispute settlement body (ICSID), and a dispute with the IMF over data reporting. The ICSID cases involving US firms have since been resolved and Argentina now appears to be making progress with the IMF.
That leaves the thorny question of the holdout private creditors. Treasury’s few public comments on its voting stance toward Argentina do not directly reference the holdouts, referring generally to “creditors,” which could be interpreted broadly to include the holdouts or more narrowly to mean the US government itself along with the other Paris Club creditors. And in fact, the US has filed amicus briefs in the lower court case in support of the existing regime around debt workouts, a position that favors Argentina over the holdout creditors. Of course, the US is at pains to note that its position is motivated by strongly held general principles around sovereign debt crises and workouts, not a desire to favor Argentina.
So it would seem that the United States might be poised to soften its MDB position toward Argentina, with a Paris Club deal, positive ICSID outcomes, the IMF issue moving in the right direction, and a reasonably clear and skeptical policy view toward holdout creditors.
Looking forward, far more worrisome is the general attitude in Congress when it comes to the issues at stake in Argentina v. NML Capital. The interests behind the lawsuit have pursued a lobbying strategy in tandem with their legal strategy, proudly in evidence in this “congressional letters” section of the website of American Task Force Argentina (ATFA), the advocacy group that espouses the views of the holdout creditors.
Of course, they have a right to express their views on debt policy, no matter how self-interested they may be. My concern is that they are by far the loudest, and largely the only, voice being heard in Congress right now when it comes to the highly technical and consequential issues surrounding sovereign debt crises.
Oftentimes on policy issues involving big money, you can count on one monied interest to provide a counterweight to the views of another monied interest. Barney Frank used to describe the issues before the House Banking Committee as “rich people fighting with each other.” And while there have been some elements of that dynamic in the court case, ATFA seems to be the only lobbying game in town these days. That can’t be bode well for future legislative efforts on an issue as complex as this one.