Stiglitz, 137 economists from 20 countries back Argentina in debt showdown

[sandensea]

A group of 138 economists from 20 countries, including Nobel laureates Joseph Stiglitz and Edmund S. Phelps, urged Argentina's bondholders on Wednesday to take a "constructive approach" to the government's debt restructuring proposal.

The economists argue in the letter that Argentina's top spending priority is to protect its citizens from the health and economic fallout caused by the coronavirus crisis rather than pay back creditors who knew they were taking a big risk by buying high-yielding Argentine paper.

The government is out to revamp about $65 billion in "unsustainable" international bonds mostly dating from Mauricio Macri's 2015-19 tenure, requesting a three-year grace period with a 5.4% cut in capital and a 62% cut in interest.

But some major holders have balked at Argentina's proposal, estimated to be equivalent to a 56% "haircut." Bondholders have until May 22 to respond, after which Argentina will be in default.

This is part of a broad debt restructuring with creditors, including the IMF and Paris Club of country-to-country lenders. IMF Director Kristalina Georgieva declared that the country needs debt relief of between $55 billion and 85 billion.

Argentina currently owes $250 billion in foreign currency-denominated public debt - including $44 billion to the IMF. Over $34 billion is owed this year alone to private and foreign creditors.

The country was already in recession before going on lockdown against the pandemic on March 20, with GDP down 7.9% as of February from two years earlier.

At: https://money.usnews.com/investing/news/articles/2020-05-06/nobelist-stiglitz-economists-from-20-countries-back-argentina-in-debt-showdown

Columbia Professor and Nobel Laureate Joseph Stigliz with Argentine Economy Minister Martín Guzmán during a conference hosted by the Vatican on economic solidarity in February.

"We believe a sustainable agreement benefits both sides," Stiglitz and 137 other economists declared.

"A struggling economy with 45 million people and the creditors themselves. Now is the time for private creditors to act in good faith. A responsible resolution will set a positive precedent, not only for Argentina, but for the international financial system as a whole."

[The Magistrate]

1. The Bond-Holders Should Take The Cut, Ma'am

And thank their lucky stars they got a dime. Either they are capitalists or they are not. If they made a poor calculation of where to invest, or even if they are overtaken by unforeseen circumstances they are supposed to lose their money.

That is the mechanism for channeling capital out of speculative channels into productive ones.

[sandensea]

2. Well said - and they know it, as most of these hedge funds took out CDS (a kind of insurance)

And therein lies the bad faith: Credit Default Swaps (CDS) only pay out in the event of default.

The bad example was set by Paul Singer and his Caymans-based laundromat NML, which was allowed to cash in on its CDS in 2014 when a "default" was unilaterally declared by the ISDA (of which NML is a member).

But of course it was no such thing: Argentina's payments - on time and in full - were instead impounded by a (presumably bribed) Wall Street judge in order to give Singer his payout.

Singer's NML later made off with an additional 1,180% return when right-wing President Mauricio Macri paid him an over $2 billion settlement in 2016.

Macri then tripled the country's foreign currency-denominated debt to a massive $250 billion - which is why they are where they are on this.

Singer had been a substantial foreign backer of Macri's hard-right PRO party.

Singer, you'll recall, is a major GOP bundler as well; he was reportedly in close talks with Eric Cantor back when the then-GOP House leader was trying to provoke a U.S. default in 2011.

Thanks for reading and sharing your opinions, The Magistrate. All the Best.

[Judi Lynn]

3. Hoping the best for Argentina's conscientious President.

He has a lot of fine people behind him, too.

He arrived not a moment too soon.

Thanks for the information, sandensea.

[sandensea]

4. Sure, Judi. He certainly has his work cut out for him.

Given that foreign bondholders (which are mostly hedge funds) are not on board with the proposed bond swap, Argentina's right-wing media is making a lot out of the inevitable "default."

But though certainly not good news, it's not nearly as significant as they make it out to be. Why? Because Argentina has already been frozen out of the global credit markets since Macri's debt bubble popped in early 2018.

The country, moreover, has been in undeclared default since June 2018, when Macri had to run to the IMF for a record bailout (remember that one?) just to pay interest on the debt he racked up in just two years.

Macri himself already defaulted on part of the debt in September 2019 - including peso-denominated debt (the first time Argentina ever defaulted on debt issued in its own currency).

A new "default" headline, therefore, changes almost nothing. All the more so at a time of global calamity such as this.

As Jewish people say though, this too shall pass.

Thanks as always for your time and thoughts. Have a good and restful Sunday; stay warm! (another cold front on its way).