Wednesday, September 9, 2015

Top economists call for support on ‘vultures’

Foreign Minister Héctor Timerman speaks at a meeting of the G77 plus China group yesterday.

Varoufakis and Piketty among group calling on Europe to back tomorrow’s vote at UN

ATHENS—European states should vote in favour of a new legal debt framework for sovereign debt restructuring at the United Nations General Assembly tomorrow, 19 leading economists said yesterday in an open letter.

The move will help prevent the actions of “vulture” funds in distressed economies, a group of world renowned economists, including French author of Capital in the Twenty-First Century Thomas Piketty, former Greek Finance minister Yanis Varoufakis and University of Texas at Austin professor James Galbraith, said in a document that highlights the actions Argentina has taken against the creditors.

The economists warned that if the General Assembly fails to approve the new legal framework any country could be blocked from restructuring its debt in the future.

The UN voted last year overwhelmingly in favour of a proposal to create the framework as part of an initiative that was only rejected by the United States, the United Kingdom, Japan, Canada, Australia and Germany.

Although few countries voted against, 41 chose to abstain — including most European states.

After six months of meetings and summits, the UN committee agreed in July on nine principles that sum up the main points to be included in the framework, which will now be voted on at the General Assembly.

“Abiding by such principles would have avoided the pitfalls of the Greek crisis, in which political representatives gave in to creditor demands despite their lack of economic sense and their disastrous social impact. This public interest resolution must be supported by all European states and brought into the public debate,” the economists wrote in the letter.

“Individual states acting alone can’t negotiate reasonable conditions for the restructuring of their debt within the current political framework”

The economists said Argentina stood at the “forefront of the efforts” to create a new framework as it has been “fending off vulture funds” since it restructured its debt in a process that began in 2005. Without a new legal set of tools to protect countries from the holdouts, any indebted country could be blocked from restructuring its debt, the economists agreed.

“Establishing a legal framework for debt restructuring, allowing each state to solve its debt problems without risking financial collapse or the loss of its sovereignty, is a matter of great urgency in promoting financial stability,” the economists wrote. “Yesterday Argentina, today Greece, and tomorrow perhaps France as well.”

The economists questioned European countries for failing to have a clear position over the debt framework, asking for their “fundamental” support for the UN resolution to be passed tomorrow.

“European countries have kept away from the process and didn’t express support for the creation of the committee,” they said. “Europeans must reaffirm that democratic rights, rather than the dictates of the market, are at the heart of international governance. We call all European states to vote in favour of the resolution.”

Argentina refused last year to heed United States Judge Thomas Griesa’s orders to pay the holdout hedge funds, led by NML and Aurelius, at the same time as it pays bondholders who participated in the debt exchanges following the country’s historic 2001 default. That order came after the US Supreme Court declined to hear Argentina’s appeal of Griesa’s ruling and settlement talks went nowhere.

Key principles

Among the principles agreed to in July that will be voted on tomorrow, the UN committee said sovereign immunity on debt restructuring is a right of states before foreign domestic courts and exceptions should be restrictively interpreted. Argentina has long argued that stance during its legal battle with holdout creditors.

At the same time, the committee said sovereigns also have the right to design their macroeconomic policy, including restructuring its sovereign debt. That principle extends to restructuring, which should not be frustrated or impeded by any abusive measures, and that should take place as a last resort for the country.

There must be “good faith” by the country and by all its creditors to engage in “constructive” debt restructuring negotiations, according to the committee, with the goal of a “prompt and durable reestablishment of debt sustainability and debt servicing” as well as achieving the support of a critical mass of creditors through a constructive dialogue regarding the restructuring terms.

The committee also concluded that sovereign debt restructuring agreements approved by a majority of a state’s creditors can’t be affected by other states or a non-representative minority of the creditors such as the “vulture” funds, who must respect the decisions adopted by the majority,

“These nine principles reaffirm the preeminence of political power in handling economic policy,” the economists said.

The letter was not only signed by Piketty, Varoufakis and Galbraith but also by Heiner Flassbeck, Martín Guzmán, Jacques Gébéreux, Steve Keen, Gabriel Colletis, Michel Husson, Benjamin Lemoine, Mariana Mazzucato, Robert Salais, Bruno Théret, Xavier Timbeau, Gennaro Zezza, Giovanni Dosi, Engelbert Stockhammer, Ozlem Onaran and Francois Vatin.

G77 meeting

Foreign Minister Héctor Timerman attended a meeting of the G77 + China group at the United Nations headquarters in New York yesterday and said he expects “a large majority of favourable votes” on the new legal debt framework for sovereign debt restructuring.

“This initiative is a clear example of a resolution designed both for developed and developing countries which have faces, are facing or will face a debt crisis,” Timerman said. “It will be a highly valuable tool that will allow debt restructuring to be carried out with more transparency, efficiency and equity.”

Herald staff