NEW YORK – A recent
decision by a United States appeals court threatens to upend global
sovereign-debt markets. It may even lead to the US no longer being viewed as a
good place to issue sovereign debt. At the very least, it renders non-viable
all debt restructurings under the standard debt contracts. In the process, a
basic principle of modern capitalism – that when debtors cannot pay back
creditors, a fresh start is needed – has been overturned.
The trouble began a dozen
years ago, when Argentina had no choice but to devalue its currency and default
on its debt. Under the existing regime, the country had been on a rapid
downward spiral of the kind that has now become familiar in Greece and elsewhere
in Europe. Unemployment was soaring, and austerity, rather than restoring
fiscal balance, simply exacerbated the economic downturn.
Devaluation and debt
restructuring worked. In subsequent years, until the global financial crisis
erupted in 2008, Argentina’s annual GDP growth was 8% or higher, one of the
fastest rates in the world.
Even former creditors
benefited from this rebound. In a highly innovative move, Argentina exchanged
old debt for new debt – at about 30 cents on the dollar or a little more – plus
a GDP-indexed bond. The more Argentina grew, the more it paid to its former
creditors.
Argentina’s interests and
those of its creditors were thus aligned: both wanted growth. It was the
equivalent of a “Chapter 11” restructuring of American corporate debt, in which
debt is swapped for equity, with bondholders becoming new shareholders.
Debt restructurings often
entail conflicts among different claimants. That is why, for domestic debt
disputes, countries have bankruptcy laws and courts. But there is no such
mechanism to adjudicate international debt disputes.
Once upon a time, such
contracts were enforced by armed intervention, as Mexico, Venezuela, Egypt, and
a host of other countries learned at great cost in the nineteenth and early
twentieth centuries. After the Argentine crisis, President George W. Bush’s
administration vetoed proposals to create a mechanism for sovereign-debt
restructuring. As a result, there is not even the pretense of attempting fair
and efficient restructurings.
Poor countries are
typically at a huge disadvantage in bargaining with big multinational lenders,
which are usually backed by powerful home-country governments. Often, debtor
countries are squeezed so hard for payment that they are bankrupt again after a
few years.
Economists applauded
Argentina’s attempt to avoid this outcome through a deep restructuring
accompanied by the GDP-linked bonds. But a few “vulture” funds – most
notoriously the hedge fund Elliott Management, headed by the billionaire Paul
E. Singer – saw Argentina’s travails as an opportunity to make huge profits at
the expense of the Argentine people. They bought the old bonds at a fraction of
their face value, and then used litigation to try to force Argentina to pay 100
cents on the dollar.
Americans have seen how
financial firms put their own interests ahead of those of the country – and the
world. The vulture funds have raised greed to a new level.
Their litigation strategy
took advantage of a standard contractual clause (called pari passu)
intended to ensure that all claimants are treated equally. Incredibly, the US
Court of Appeals for the Second Circuit in New York decided that this meant that if Argentina
paid in full what it owed those who had accepted debt restructuring, it had to
pay in full what it owed to the vultures.
If this principle prevails,
no one would ever accept debt restructuring. There would never be a fresh start
– with all of the unpleasant consequences that this implies.
In debt crises, blame tends
to fall on the debtors. They borrowed too much. But the creditors are equally
to blame – they lent too much and imprudently. Indeed, lenders are supposed to
be experts on risk management and assessment, and in that sense, the onus
should be on them. The risk of default or debt restructuring induces creditors
to be more careful in their lending decisions.
The repercussions of this
miscarriage of justice may be felt for a long time. After all, what developing
country with its citizens’ long-term interests in mind will be prepared to
issue bonds through the US financial system, when America’s courts – as so many
other parts of its political system – seem to allow financial interests to
trump the public interest?
Countries would be well
advised not to include pari passu clauses in future debt
contracts, at least without specifying more fully what is intended. Such
contracts should also include collective-action clauses, which make it
impossible for vulture funds to hold up debt restructuring. When a sufficient
proportion of creditors agree to a restructuring plan (in the case of Argentina,
the holders of more than 90% of the country’s debt did), the others can be
forced to go along.
The fact that the
International Monetary Fund, the US Department of Justice, and anti-poverty
NGOs all joined in opposing the vulture funds is revealing. But so, too, is the
court’s decision, which evidently assigned little weight to their arguments.
For those in developing and
emerging-market countries who harbor grievances against the advanced countries,
there is now one more reason for discontent with a brand of globalization that
has been managed to serve rich countries’ interests (especially their financial
sectors’ interests).
In the aftermath of the
global financial crisis, the United Nations Commission of Experts on Reforms of
the International Monetary and Financial System urged that we design an
efficient and fair system for the restructuring of sovereign debt. The US
court’s tendentious, economically dangerous ruling shows why we need such a
system now.
*Joseph E. Stiglitz, a
Nobel laureate in economics and University Professor at Columbia University,
was Chairman of President Bill Clinton’s Council of Economic Advisers
www.project-syndicate.org
Δεν υπάρχουν σχόλια:
Δημοσίευση σχολίου