In a nod to Argentina’s position, the UN General Assembly strongly endorsed a new legal bankruptcy framework for sovereign debt restructuring. But it was those who voted against it that may matter most.
Argentina’s advocated bankruptcy process could make debt restructuring difficult
The bankruptcy process being advocated could make it more difficult for “hold-out investors” such as NML Capital and Paul Singer to block sovereign nations from debt restructuring, a move supporters say could limit future defaults.
The 124-11 vote with 41 abstentions was a world popularity contest that, while overwhelming in its super majority for organized debt restructuring, might have little teeth. This is partly due to the vote having no legal authority, but more importantly due to the influence of those members of the controlling financial world elite who voted no.
The United States, which had initially stated on the record support for Argentina in its legal battle, voted no along with other world financial powerhouses including the United Kingdom, Germany, Canada and Japan. Also voting no was Iceland, a country known for its rebellious defiance of western-controlled international finance, along with South Korea. New Zealand and many other western-orientated countries abstained. Those voting in favor of the measure were primarily the G-77 countries along with with Russia and China. In a nod to US influence, the only Latin American country to not vote in favor of the resolution was Mexico.
Eric LeCompte says world needs a bankruptcy system
“If we are going to solve what global leaders believe is the root cause of inequality, we need a bankruptcy system in place,” noted Eric LeCompte, Executive Director of the religious debt relief organization, Jubilee USA who also serves on UN expert groups working to create an international bankruptcy process. LeCompte points to none other than the founder of modern economics, Adam Smith, as advocating for a formalized sovereign bankruptcy process.
In explaining their no vote, US authorities cited by the Associated Press said the legal framework would create uncertainty. However, LeCompte notes the US at one point in the early 2000s supported exactly what the UN debated yesterday.
“The United States has led for 15 years on debt relief and has been a powerful voice against predatory behavior,” LeCompte in a statement. “I along with the entire faith community is so deeply saddened that the US government voted against our debt relief efforts. Our leaders failed us today.”
Armored Wolf notes Argentina’s disrespect for US authority
LeCompte fell short of calling US voting no a turnaround, but other observers in the hedge fund community noted an increasing aggravation with how Argentina handled the process. As reported yesterday in ValueWalk, John Brynjolfsson, portfolio manager at Armored Wolf, noted an increasing disrespect for US authority.
Argentina first assured everyone that it would respect Judge Griesa’s decisions as President Cristina Kirchner promised that default was not an option, which turned out to be a false promise as the Argentine government “proceeded to break all of its assurances,” he said. Furthermore, Argentina “moved aggressively to infuriate all of the parties that were sympathetic to its cause. It pulled the rug from underneath the local Argentine banks and business leaders when they tried to buy out the claim of the holdouts. It turned a deaf ear to an overture from large international banks to do the same, and it alienated the Obama Administration by trying to bring the matter to the International Court of Justice in The Hague.”
The next moves of substance in the issue could be seen at the International Monetary Fund, which is currently discussing the SDRM or Sovereign Debt Resolution Mechanism.