Friday, November 9, 2012

Naked Capitalism: A Global Roller Coaster


From Argentina to Greece: A Global Roller-Coaster

By Diana Tussie, founding director of the Latin American Trade Network. Cross posted from Triple Crisis
In October 2012, a Cayman Islands-based fund, NML Capital Limited, controlled by Elliot Management (EM) won a court order in Ghana to seize the Argentine teaching ship Libertad. The fund claimed that Argentina owed it $350 million, and offered to let the ship leave if Argentina’s government put up a $20 million bond to be forfeited. EM´s CEO is Paul Elliot Singer, who specializes in piling up insolvent country debt. Singer is a major donor to the Republican Party.
If the court order goes into effect, Argentina would be prevented from discriminating between restructured bondholders and holdouts, thus potentially preventing the next payment due in December and leading to a technical default. Everyone who had accepted restructuring would be entitled to better terms if the funds’ demands are met. If the EM demands are accepted, the ruling will be a tipping point in the financial order.
Greece`s creditors are very much of the same kind. That means that their motivations and preferences are to a surprising level similar as well. If anything, the time elapsed and the geographical distance between these cases make even clearer how creditors are similarly contributing to the unfolding of these crises. In the Argentine case, those creditors were foreign banks, the IMF, and thousands of debt bond holders. In the Greek case, they are against foreign banks, the IMF, the European Central Bank and institutional investors such as mutual and hedge funds.
In 2001 Argentina was left to fend for itself when the administration of G.W. Bush, anxious to leave its mark on global finance, let markets (and creditors) take care of themselves. In 2012, by contrast, Greece cannot be cordoned off so easily. European governments and the IMF have high and growing stakes in the country. Naming Ms. Lagarde as new director has if anything confirmed the bet to keep the IMF relevant by remaking it into the assistant of Europe’s regional financial gendarme (ECB and Germany, mostly) while lobbying non-Europeans for funds to enlarge its lending capacity. We have indeed come a long way in just a decade, as the IMF moved on from promoter of financial deregulation in the developing world to protector of creditors inside the industrialized one.

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