Vulture verdict underscores the urgency of a new debt strategy: Audit, not more swaps, to stop paying what we do not owe

In its 23rd August decision, the New York Second Circuit Court of Appeals once again confirmed the mistakenness of the strategy adopted by the Argentine government to address the issue of public debt. By accepting each and every one of the so-called vulture funds` arguments in their effort to collect what they never invested, the Court highlighted the urgent need for a thorough change in Argentine strategy.
The government has let itself become trapped in a terrain that by definition is unfavorable to the people of Argentina. It is a strategy that has proved costly and will continue to inflate the bill if not corrected. By ignoring the manifest illegitimacy of debt claims that are now in the claws of recognized vultures (as well as other debt collectors), and continuing to accept the unconstitutional jurisdiction of foreign courts such as that of New York, the government delusively believes that the rules of the market will work in defense of human rights and national sovereignty.
The New York Court makes it very clear when it affirms that its decision favours the integrity and status of that city´s financial markets, insofar as it strictly requires, without any consideration to the contrary, that "debtors, including foreign debtors, pay their debts."[1] However much we reject the implications of this decision for Argentina, and possibly for other peoples who also suffer from the actions of these speculators, no one should have expected anything different.
Unfortunately, the two measures announced last night by Argentine President Cristina Kirchner only aim to deepen the strategy that has turned our country into a "serial payer" - as she herself confirmed -of debt claims whose legitimacy has never been established. Neither once again lifting the “Lock Law” that ostensibly impeded payment on those bonds that did not enter into the 2005 swap, nor offering to exchange bonds that now face legal obstacles to continue to be paid in New York, for bonds that would be paid in Argentina under Argentine law, resolves the debt problem for the Argentine people.
Since the beginning of the Kirchner decade, the Argentine government's debt strategy has been based on the unquestioned acceptance of all claims, the renewal of submissiveness to foreign courts, and the search for conditions that permit us to pay up and keep paying, with the declared aim of regaining access to and better terms with the international capital markets, in order to gain new loans.
Although it has not achieved the desired objective, as the President also said last night, between 2003 and 2012 Argentina has made over 173 billion dollars in debt payments. This is more than any previous government and the equivalent, at today´s official exchange rate, of one and a half times the annual national budget, or seven times the revenue collected via the controversial tax on earnings in 2012. Argentina also continues to accumulate expensive lawsuits - and negative judgments – and despite all that has been paid and all the propaganda about “de-indebtedness”, the debt is growing rapidly, having reached the official sum of 209 billion dollars as of the end of 2012.
It is this "willingness to pay" that the government continues to defend with each and every action, whether in the face of demands by so-called vulture funds, Paris Club governments, the IMF, ICSID or through its repeated offers of generous restructuring. And because it is the government that has effectively paid off more debt than any other, even at the expense of both the needs of the Argentine people and a new and considerable domestic borrowing through the use of pension monies and numerous other state and para-state funds – it is precisely this that has stirred up so much anger. Rather than respond to the heart of the matter, the Argentine government is reacting incensed that the Court of Appeals has labeled the country a "recalcitrant debtor.
A new and more effective strategy must start from a different premise: the defence and promotion of human rights over the claims of capital, as relevant domestic and international law demands.[2]
It must begin by acknowledging the debt’s fraudulent origins and then acting accordingly. The government complains of an "inherited" debt that emanates from the dictatorship and the subsequent adjustment and restructuring processes that included the bonds issued during the height of the neoliberal, Menemist ‘90s, with the draconian conditions that now serve the vultures as a golden plate. However, it now paradoxically boasts of paying back instead of questioning that same debt, whilst ignoring among other things, Judge Ballester’s verdict in the renowned "Olmos Case" as well as all the other ongoing court cases in Argentina which denounce the illegitimacy and illegality of the debt claims that Argentina religiously pays (as well as those it has yet to pay). Performing a public and participatory debt audit and investigating these complaints would be a much more effective strategy than begging for the uninterested help of the U.S. government, the IMF or even God –before that country’s Supreme Court.
In the same vein, the government must question the unsubstantiated claim of the New York Court that Argentina "has voluntarily submitted itself to the jurisdiction of (their) district authority."[3] Instead, the need to respect and strengthen our own national sovereignty and jurisdiction must be recognized as required by our Magna Carta. Undoubtedly, the proposal announced Monday night to swap those bonds that were issued in 2005 and 2010 under New York laws, for similar bonds issued under national jurisdiction, is an important recognition of the gravity of this problem. Nevertheless, Argentina´s eagerness to please the markets is perpetuated further in recent contracts such as the YPF-Chevron agreement and in the numerous bilateral investment protection treaties which today implicate the state in multi-million-dollar law suits in nonlegal forums such as the ICSID.
To comply with the ruling recently upheld by the New York Court of Appeals would assuredly mean an unacceptable increase in the social debt to the Argentine people. By itself, the USD 1.3 billion hedge fund demand (not including interest arrears) now confirmed pending unlikely U.S. Supreme Court action, is equivalent to 124% of this year’s national housing and urban development budget, or 59% of the entire allocation for social welfare and promotion.[4]
Argentina is thus right to reject any such payment, and the international community must support its right to protect the public. Together, they need to act effectively to stop systematic abuses of capitalist financial power, starting with the so-called vulture funds.
But it is equally necessary that both the international community and the government of Argentina recognize that the country has every right and all the required evidence, to denounce and nullify both the illegitimate debt contracts that have been imposed against the will and rights of the Argentine people, as well as the renunciation of sovereignty and jurisdiction made ​​under the extorsive pressure of the same lenders who today find backing whether in the courts of New York or London, the ICSID arbitration panels or any other platform where the private interests of a few, outweigh the human rights of an entire people. Only then can we move towards a truly legitimate justice and reparations for the damage that has already been done.


Buenos Aires , August 27, 2013

[1]“Our decision affirms a proposition essential to the integrity of the capital markets:  borrowers and lenders may, under New York law, negotiate mutually agreeable terms for their transactions, but they will be held to those terms.  We believe that the interest – one widely shared in the financial community – in maintaining New York’s status as one of the foremost commercial centers is advanced by requiring debtors, including foreign debtors, to pay their debts.”  Decision 12-105(L), U.S. Federal Court of Appeals, Second Circuit, in NML, Ltd. V. Republic of Argentina, 23rd August 2013, p. 24-25.
[2]See for example, the “Guiding Principles on External Debt and Human Rights”, UN General Assembly, A/HRC/20/23.
[3]Idem, Decision 12-105(L), p. 5
[4]The amount budgeted nationally in 2013 for housing and urband evelopment is AR$ 5.9 billion, and that for social welfare and promotion is AR$ 12.4 billion.  At the oficial exchange rate of AR$5.6/USD, the payment confirmed to the vulture funds would be around AR$7.3 billion.