A sovereign debt story: Republic of Argentina vs NML Capital

An interesting piece by T Sabri Oncu (former CAFRAL chief economist). He points to this recent case of NML capital (hedge fund) suing Argentina Govt over payment of debt. This blog pointed to another piece which shows how an Act in US allowed US financial firms to sue sovereigns in US courts over debt payment issues.

NML capital (along with others) has taken advantage of  this act to sue Argentina:

Argentina got a skeptical reception at the United States (US) Supreme Court as the justices considered whether two banks must turn over details about the country’s assets as part of a multibillion dollar fight over defaulted government bonds”, reported Bloomberg on 21 April 2014. On that day, the US Supreme Court justices heard the arguments of Argentina and owners of the defaulted bonds led by NML Capital − a Cayman Islands-based unit of billionaire hedge fund manager Paul Singer’s Elliott Management Corporation. The justices are expected to rule by late June or early July. This case is one of the many cases before the US Supreme Court in which Argentina is one of the parties. It is regarding the information NML is seeking from Bank of America and Banco de la Nacion Argentina about assets held by Argentina and its officials worldwide.

Although this case is about the historic Argentine default of 2001, the beginning of the debt accumulation that led to this default may be traced back to the “National Reorganization Process” (NRP) of the military dictatorship from 1976 to 1983. The NRP was the Argentine version of the familiar reorganisations of social life into a free market around the globe since the early 1970s and is similar in nature to the reorganisation of Chile from 1973 to 1990 or Turkey from 1980 to 1983 by their respective military dictatorships.

The author goes into history of Argnetina’s debt woes. He points how the reforms after each episode has created only further problems:

Now, the moral of the story: a country needs to be very careful in reorganising its economy into a free market and integrating it with global financial markets.

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