By Kanad Bagchi
On 28th February 2016, Argentina finally reached a settlement with the rest of its holdout creditors lead by Elliot Management in what is being hailed as ‘historic’ signalling the return of Argentina to international bond markets. While the pesky details of the settlement agreement are yet to be hammered out (at the time of writing), it is however known that in substance, Argentina has agreed to shell out a total of around $4.4 billion to the holdouts including Elliott Management, Aurelius Capital Management, Davidson Kempner and Bracebridge Capital. In sum, that represents a 25% write down of the original debt amount previously owed to the funds. While indeed, the present agreement unlocks Argentina’s financial leg room in the international capital market, thus providing a fillip to its already distressed economy, the agreement is also a manifestation of almost 15 years of desolate and futile negotiations, characterized by opportunity costs, derailed investments, scarce liquidity and immense deadweight losses leading to a general reduction in economic welfare. That apart, one wonders whether it is ethical or moral for a few set of private funds to arm-twist a sovereign into a contractual enforcement claim, that causes at best a deflection of governmental resources towards defending such claims and at worst, obstruction and hindrance in performing essential governmental functions. Moreover, in the present instance, there was every possibility that the deadlock would have continued unabated, lest for Judge Griesa’s unflinching stance towards a resolution. By indicating his disapproval for continuing with the ‘no pay-out’ injunction against Argentina, which had hitherto allowed a leverage to the holdouts in the negotiations, Judge Griesa tilted the balance in favour of Argentina, finally leading to the settlement.
Flashback to 2012 and readers will remember that Greece, during its debt restructuring phase, had similarly experienced a holdout situation characterized by a minority group of bondholders demanding for a full pay-out. It was indeed to avoid a long drawn court ligation, that Greece readily agreed to pay the holdouts in full (around €6billion), inviting criticism from various quarters for its compromising stance and for setting an undesirable precedent.
Continue reading “Argentina debt restructuring deal – 15 years too late!”