Court Rules Argentina Creditors Can’t Seize Its Central Bank

Former bank regulator Bill Black discusses the significance of a U.S. court ruling regarding Argentina’s debt.

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Story Transcript

JAISAL NOOR, PRODUCER, TRNN: I’m Jaisal Noor in Baltimore.

A U.S. appeals court has reversed a 2013 ruling that allowed bond holders to hold Argentina’s Central Bank accountable for the country’s debt obligations which has been in default since 2002, a number originating at $100 billion U.S. dollars, the largest sovereign debt default in world history at the time.

Now joining us to unpack this is Bill Black. He’s a former bank regulator, author of The Best Way to Rob a Bank is to Own One. As always, Bill, thanks for joining us.

BILL BLACK, ASSOCIATE PROF. OF ECONOMICS AND LAW, UMKC: Thank you.

NOOR: Bill, this court ruling is national news. It’s international, really significant news. Tell us what it means and what the significance is for Argentina and the rest of the world.

BLACK: Okay, so a little background. The Argentina dollarized its economy by pegging its peso at 1:1 with the U.S. dollar. And this was heavily supported by the right in the United States and by conservative economists, who held Argentina out as the great lesson for everybody else. But it ended in disaster. Because they no longer had a sovereign currency, as the U.S. dollar went up in value. Argentina could no longer export successfully, and there was an economic disaster. They were forced into the largest sovereign default in world history at roughly $100 billion, and this led to an economic crisis in Argentina. But also Argentina, in some sense, had no choice. The debt was completely unsustainable at $100 billion.

They cut a deal eventually with the creditors, with 93 percent of the creditors accepted this deal in which they got less than 30 cents on the dollar. These kinds of deals are absolutely normal, done literally hundreds of times a day in the commercial sphere between two corporations. We have a name for it, troubled debt restructurings, and such. But in this context there is no, of course, equivalent of an international bankruptcy court that says, your debts are discharged. So you had the rise of what are now called the vulture fund. These are hedge funds that go and buy up that 7 percent of the bond holders who didn’t tender their debt and get roughly 25 cents on the dollar for it. Instead, the vulture funds say hey, I’ll pay you 28 cents on the dollar. And then the vulture funds try to collect 100 cents on the dollar from Argentina.

And so they went to the U.S. District Court in New York and they said, don’t allow Argentina to do the settlements that it’s negotiated with the 93 percent, which is again roughly $93 billion. All of those creditors. Hold that hostage and say that Argentina can only pay if it pays us, the vultures, 100 cents on the dollar instead of 25 cents on the dollar.

Now of course if this is allowed you will never be able to do a troubled debt restructuring again in the international sphere. And it is absolutely essential to do these troubled debt restructurings. The Obama administration filed a friend of the court brief arguing in favor of Argentina. And by the way, of the 50-plus nations that we’ve done troubled debt restructurings for, Germany is one of them, which is why Germany was able to recover.

But the District Court ruled against Argentina, and that was upheld by the Second Circuit. But Argentina says, we’re not about to pay the vultures 100 cents on the dollar. They would make a, you know, a huge killing, probably, around 75 cents on the dollar.

NOOR: And Bill, Argentina even went to the world court over this, over the vultures trying to take over their debt at a higher rate last year.

BLACK: Well, not only tried to take over the debt but trying to seize assets of the Argentine government all over the world. Including–Argentina has a tall ship that it uses to help train young naval officers who, you know, they do world cruises. And they seized the ship in Africa, and kicked the crew off. Stranded them in the middle of an African nation, and such.

So yes, Argentina has other litigation, and it’s also going to the United Nations, saying you need to declare these practices unlawful. Sadly, the Obama administration that started out correctly has basically given up, and if anything is very hostile to Argentina at this point. So Argentina, of course, is not willing to pay under these terms. The District Court has been outraged about all of this, and it said, I will allow the creditors to seize the assets not of Argentina but of the Argentine Central Bank. You would totally disrupt the global economy if you were going to do all of this. So the Second Circuit has said, well, this is a bridge too far. You can’t do that. You can’t seize the central bank.

And by the way, the vulture funds said as soon as we get done seizing the central bank we’re going to go to the Bank for International Settlements in Switzerland and try to steal that money, take that money, as well. And of course if you do that, since BIS, the Bank for International Settlements, is critical to the world economy, then you screw up the entire world economy in these circumstances. But the Second Circuit didn’t just end its decision that way. It said, well, probably those lousy Argentines are going to use this as another excuse for not paying their debts that they can, in fact, pay.

So this is a little subtle, but Argentina clearly could not have paid in 2002, which is a long time ago. Thirteen years, as we speak. The debt was absolutely unsustainable. If you look many, many years later where 93 percent of the claimants have accepted the deal to write down the debt, well then the remaining $7 billion of course Argentina will be able to pay. But if you use that kind of logic you’ll never get the 93 percent to give up their claims in these circumstances. So the court’s logic is completely wrong.

And note that it moralizes. It says, oh, Argentina’s a bad place for not paying this, whereas it never does that when it’s a dispute between two corporations. And by the way, we just had in the big Republican debate Donald Trump say, I’m proud of the fact that while I could have paid the debts of my corporations, instead I filed for bankruptcy four times. And then he said, and all the greats–by which he means the wealthy–do exactly what I do. So again we have one rule for the plutocrats and a completely different rule if it’s the government and you’re going to be seizing assets that would otherwise go into health and education and such.

NOOR: All right, Bill. Thanks so much for joining us.

BLACK: Thank you.

NOOR: Thank you for joining us at the Real News Network.

End

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