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GUE/NGL MEPs express solidarity with Argentina in its battle with criminal speculators

25/07/2014

GUE/NGL MEPs express solidarity with Argentina in its battle with criminal speculators

Time

DECLARATION

GUE/NGL calls on the EU to act against the vulture funds that are attacking Argentine today.

In a recent decision, the United States Supreme Court decided to refuse to review the dispute between Argentina and a minority of the so called holdouts. Those holdouts are also known as “vulture funds” due to their strategy to acquire defaulted sovereign debt issues at a very low price, only to later demand the totality of the payment via a judicial process. Many of them are anonymous stakeholders acting from fiscal paradises.

GUE/NGL strongly condemns this decision that is violating the sovereignty of Argentina, and that is favouring pure speculators that are not hesitating to condemn peoples to poverty and suffering in order to increase their scandalous profits.

The debt crisis that Mexico faced in 1982 marked the start of the “lost decade” for Latin American development, the period of greatest socioeconomic hardship the region had experienced in all its history, the global financial crisis and its effects (2007-2009) and the crisis of the Euro zone (2008-2012) have highlighted once again several of the profound inconsistencies and inequities that were manifested at that time, both in relation to the organisation of the international monetary system as well as the disproportionate power that the world of finance had acquired vis-à-vis work and production.

It is unacceptable to impose another "lost decade" to Argentina and the region, as it is unacceptable to impose austerity to the European people.

These crises have demonstrated that to avoid profound and lasting economic and social costs, mechanisms for negotiation and resolution are needed on an international level that would facilitate payments and enable proper debt management over time.

The recent decision of the Supreme Court of the US not only creates difficulties-or perhaps makes it impossible-for Argentina to continue servicing its restructured debt, it also strikes at the stability of the international financial system in as much as it constitutes a precedent that can hinder other sovereign debt restructuring processes in the future. Because, if during a voluntary negotiation such as the one Argentina carried out, in which more than 92% of its creditors agreed to swap their defaulted debt (for new bonds with a considerable haircut), any creditor can demand and charge the total owed on that debt, what are the incentives to enter into a similar restructuring in the future?

The decision will surely have negative effects for those who participated in the renegotiation. On the one hand, if Argentine were forced to declare a default, no creditors would get paid. On the other hand, if Argentina opted to pay, it would have to do so to all creditors regardless of whether they participated in the 2005-2010 restructuring or not.

The introduction of collective action clauses (which obligate the minority unwilling to enter into a swap to accept the restructuring terms determined by the will of the majority) is necessary to give the system greater stability in the future, but their true juridical implications are still not known with certainty and can be subject to interpretation. The contentious interpretation of the pari passu clause that is at the origin of this controversy only serves to sow this kind of uncertainty. But also a mechanism for restructuring debt must be designed to take into account the debtors' conditions, including the requirement that debt servicing payments could depend, at least in part, on the macroeconomic conditions upon which the very ability to service debt depends.

Therefore GUE/NGL considers that the EU should support Argentina and should support a quick negotiated outcome to this problem. The EU should also work on the establishment of an international mechanism that allows for the resolution of conflicts of interest caused by sovereign defaults, as international organizations, -for example ECLAC- have been proposing. In the same way that national legislation contemplates mechanisms to keep minority creditors from blocking the will of the majority who are willing to reach an agreement to restructure liabilities stemming from a bankruptcy, states should have a similar juridical framework that makes these same mechanisms viable on an international level.

This is a test case for the international community, as numerous governments and international organisations have let it be known, which reveals a legal vacuum that should lead to the reform of international norms that would allow the common good to be protected from a minority's zeal for extraordinary profits.

As Latin American countries have done, GUE/NGL expresses solidarity with Argentina and calls on the EU to immediately engage diplomatic talks at the appropriate level in order to solve this crisis and win this battle against criminal speculators.

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