The sovereign state of Argentina is currently facing an unjust and vicious attack by US financial companies and the US state, which is threatening to drive that country into bankruptcy.
In August 2013 a US court ordered the government of Argentina to pay $1.5 billion in principal plus interest to two U.S. financial companies, NML Capital and Aurelius. The court also ordered all financial institutions to furnish information regarding all global assets of Argentina, including accounts held by entities of the Government of Argentina and by individual state officials. Its purpose is to enable this information to be used to seize assets covering the claims of the two financial companies and others involved. The Argentine government appealed against the court ruling to the US Supreme Court, but the US Supreme Court declared, on June 16, 2014, that the order of the lower court would stand without a hearing.
This is yet another example of the escalating anarchy and violence that US imperialism is imposing on the nations and peoples of the world, whereby internationally recognized and established laws, rules and regulations governing relations among different countries are violated with impunity, organizations such as the United Nations are treated with contempt and only the powerful private interests of finance capital headquartered in the United States are recognized.
The source of the dispute lies in Argentina’s 2001-02 default on roughly $100 billion in bonds. Those bonds were part of the state debt incurred by Argentina, mainly during the years of the anti-popular, pro-US military dictatorship and subsequent neo-liberal regimes, including the purchase of military equipment from the U.S. and Europe. The 2001-02 default led to debt swaps in 2005 and 2010, in which international financial institutions agreed to swap the old bonds for new ones at a lower restructured value.
Defying the restructuring and sensing an opportunity to make a big killing, NML Capital and Aurelius bought old bonds at a price of just over 20 cents on the dollar and then demanded full payment for the old bonds, refusing the deal to swap them for the new bonds. For example, NML Capital purchased the majority of their Argentine bonds from June-November 2008, paying an estimated $48.7 million for over $220 million in the old bonds. The U.S. Supreme Court has now declared that the old bonds are worth $832 million with payment due immediately.
According to estimates by Morgan Stanley, bond holders who accepted the 2005 offer have received returns of about 90 per cent due in particular to a coupon linked to gross domestic product growth, which significantly increased the amount actually received. Despite this, the holdout bond holders led by NML Capital changed tactics and filed law suits (based on the pari passu, or equal treatment, clause in bond contracts) in New York’s lower court, tying up any future payments on restructured bonds to payment in full to holdout bond holders. This was reported even by international financial experts to be a shocking interpretation of the clause, hitherto unheard of in debt structuring. Yet, on 18 November 2013, the United States Second Circuit Court of Appeals ruled in favour of NML Capital.
The Supreme Court decision triggers the secondary order that all other holders of debt must be paid in full as well and not at the restructured amounts. It opens the door for other owners of old Argentine bonds not included in the debt restructuring to demand full payment estimated at around $15 billion. Also, if Argentina acquiesces to the U.S. court and pays face value for un-restructured bonds, the U.S. court has told Argentina that it must extend full payment to the restructured bond holders that accepted the 2005 or 2010 debt swaps. This is due to the court’s modified and expanded interpretation of the "Rights upon Future Offers" clause in the law. With the bloated interpretation, the amount in this case balloons to over $120 billion. If followed, this ruling would make settlement of Argentina’s debt restructuring impossible and preclude other state bankruptcies and debt restructuring, as powerful companies such as NML Capital are poised to swoop down to buy distressed debt and demand its original value with the backing of the U.S. state machine.
The U.S. court has threatened that "Third parties (banks in this case) who make payments on behalf of the Government of Argentina to bond holders which participated in the two debt swaps (2005 and 2010) will be punished and viewed and treated as being in contempt of law if they continue to make such payments and holdouts (NML Capital and Aurelius) are paid in full."
The New York court ruling and threat thus effectively block any further payments on the restructured bonds. As of July 31, the government of Argentina has expressed its inability to comply with the US court ruling, but will be able to continue to pay back the debt at the restructured rate. According to global financial analysts, this will trigger an Argentine default and global financial institutions will be forced to refuse any dealings with Argentina until the default is settled with full payment or another deal is reached, acceptable to the debt owners and U.S. courts.
Argentine government and people angrily react to the US Supreme Court ruling
The government and people of Argentina have strongly condemned the US court ruling, requiring their country to pay $1.5 billion to U.S. finance capitalists. Argentine President Cristina Fernández has asserted that the U.S. courts have endorsed "a form of world domination based on speculation to put countries and populations on their knees." Referring to US finance capitalist NML Capital’s $48.7 million speculative purchase of old Argentine bonds, which the U.S. Supreme Court now says are worth $832 million with payment due immediately, President Fernández said on national television, "A profit of 1,600 per cent in dollars over just a few years. I don’t think even organized crime gets that rate of return in such a short time."
The people of Argentina have come out on to the streets strongly opposing the US court order, supporting their government’s argument that Argentineans today cannot be held responsible for those debts, some of which trace their origin all the way back to the country’s brutal military dictatorship and the "Dirty War" against the people.
The domination of US finance capital threatens the entire global financial system and the sovereignty of nations
NML Capital and other similar US based finance capitalists have a history of buying discounted debt and then using litigation to force repayment at a much higher value. They used the same strategy on debt from Congo-Brazzaville and Peru.
The direction of globalization of the economy and the domination of US finance capital results in repeated economic crises in various sectors and countries. The resulting anarchy and turmoil generates possibilities for finance capital to make a killing, not just its average or falling profit. Under arrangements demanded and dominated by U.S. imperialism, the situation is becoming extremely chaotic and dangerous. For example, it has been reported that the US Treasury has imposed a $9 billion fine on the French bank BNP Paribas for dealing with U.S. blockaded Cuba, Iran and Sudan, contrary to U.S. law but not French, European or international law. This is threatening the global banking system, necessary for the realization of trade among countries.
Observers of the Argentine situation fear that the U.S. Supreme Court decision will produce an increase in hold-out bondholders, who reject negotiated debt swaps. This strategy has been reported to be highly profitable for the finance capitalists in some cases, and analysts believe that the present US court ruling implies even greater earnings for them, since litigation costs will be lower now that a precedent has been established.
Many countries all over the world are reported to be feeling greatly intimidated by this activity of the US finance capitalists with the full support of the US administration and judiciary. They have come out in defence of Argentina and opposed the US imperialist pressure and blackmail. At a meeting of Foreign Ministers of the Organisation of American states on July 3, 2014, a declaration was issued expressing support to the Argentine government in achieving a solution that seeks to facilitate the broad Argentine sovereign debt-process. All member states with the exception of US and Canada signed the resolution.
The attack on Argentina by the US finance capitalist companies, fully backed by the US state, is one more example of how US imperialism uses its dominant position to ride rough-shod over the sovereign rights of other nations and impose the most barbarous kind of sanctions and pressures on them, especially those nations that wish to pursue their own economic and social course, free from imperialist interference and dictate. It does this primarily through the dominance of the US dollar as well as through its superior military might.
The power of the U.S. judicial system in the service of select private capitalist interests stems in part from the dominance of the U.S. dollar as the reserve currency within the U.S. imperialist system of states. The U.S. dollar is the dominant reserve currency used in most international transactions and is bought and held by foreign governments and monopolies. The U.S. state can issue and sell new money at will for use to pay for its military and other operations, and service its outstanding debt, which now stands at $17.5 trillion. As long as global institutions keep using the U.S. dollar in most transactions, hold it in reserve and purchase newly issued U.S. money then U.S. imperialist domination, and anarchy and chaos will continue. Nations and regional groupings of nations throughout the world are increasingly coming together to find an alternative to the U.S. currency for their transactions and other banking needs and break out of this stranglehold.
The US imperialists seek to impose their dictate over other sovereign nations throughout outright military intervention, using their superior military might, as they have done in Iraq and Afghanistan and are threatening to do in the case of Cuba, the DPRK, Iran and other countries. They also do this by instigating various sectarian forces to create anarchy and instability and justifying “regime change” as in the case of Egypt, Libya, Syria, Ukraine as well as by trying to divide nations along sectarian lines as in Iraq at the present time.
The example of Argentina must serve as a lesson for the Indian people as well. The Indian rulers are extremely keen to enter into strategic and financial partnerships with the US imperialists, as part of pushing ahead with its own aim of becoming a global imperialist power. This is a course that is fraught with grave dangers for the sovereignty of our people, our economic self reliance, our relations with our neighbouring countries and for peace and security in our region.
The nefarious activities of US imperialism and its finance capital must be thoroughly condemned and opposed by the people of India and all over the world.