From Prof Danny Leipziger.
Sir, Jay Newman’s admonition that Argentina needs to engage its creditors has a hollow ring to it since it comes from a “vulture fund” that has gone to extraordinary lengths to gain the upper hand on Argentina (“Argentina must start talking to its creditors”, Comment, October 8). This is not to absolve Argentina from its responsibilities, but rather to take issue with the country’s policy priorities as presented by one side of a legal drama surrounding the 2001 debt default and subsequent round of partial payments to extinguish those debts.
Argentina faces a whole host of challenges, including reining in its fiscal spending, abandoning its artificial exchange rate regime that has the peso wildly overvalued, and reverting to an open system of trade rather than import restrictions and export taxes. Where to begin is the policy dilemma; however, the real problem is a political one. There is simply no appetite by the incumbent administration to deal with its woes. Indeed, it prefers to engage in political warfare with parts of the media and continue to degrade independent institutions while in power. Ironically, in the matter of debt repayment, the government has a point, insofar as any deal with holdout creditors on superior terms than those accepted by the majority of creditors would open a legal can of worms. As in any debt rescheduling or debt default, there will be recalcitrant actors, which is why collective action clauses have been added to prevent a minority from derailing the necessary decision of the majority.
It is indeed odd that Mr Newman pleads his case simultaneously in the FT and the New York courts. The verdict of the courts is pretty clear; however, in the realm of policy priorities, dealing with those firms that bought defaulted-on debt in the hope of making a profit must surely rank fairly low on the impressive list of actions that Argentina needs to take to restore its economic house.
Danny Leipziger, Professor of International Business and International Affairs, George Washington University
Managing Director, The Growth Dialogue, Washington, DC, US
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