Anyway, the Argies got away with stiffing most of their creditors while the Greeks did not. Despite the fact the both countries were represented by my friends at Cleary Gottleib, the outcomes were quite different and it would appear that the futures might be as well. It's simple to understand; Greece was never about Greece, it was all about the EU and given the timing, the EU was not about to allow Greece to throw a spanner into the works of keeping Europe in one piece by engaging in a life or death battle over a couple of billion Euros that was coming from Euroland anyway. The Argies had no such difficulty; they were on their own which was a good thing.
At this point, a bit of background. Up until very recently, most international debt obligations were governed either by U.S. (mostly New York) or English Law. There were a couple of reasons for this. Firstly, the lenders had most of the leverage and secondly, the denomination of the currency used in the transactions was primarily dollars and most if not all dollar transactions were cleared through New York. Has the attractiveness of emerging market debt increased due purely to greed on the part of the lenders (yield whores--heard that before?) sovereigns were able to negotiate financing not only governed by their own laws but often in their own currencies for those adventurous bankers out there, and with the jurisdiction of their own courts. If anything went wrong, the creditors were at the mercy of the debtors and that is exactly what happened in Greece.
It's kind of funny if you think about it. Greece, which is in bad shape is none-the-less clear as a legal matter with the international banking community but of course not as a preferred creditor. Argentina, which is in far better shape--but not for long--is effectively shut out from international markets now that judgements have been entered against it and affirmed in appellate courts. Why? because of the right of attachment on any and all assets, including the proceeds of new borrowings, in almost all of the financial centers in the world. In addition, only a complete moron of a banker--and we do have some of those--would consider a transaction that wasn't governed by either New York or English law or ANY law except that of Argentina. But what about the obligations involved with the seizure of the good ship Liberdad? Well, to get the assets you first have to find them and that is not an easy task made even more difficult by a curious law passed in the United States in 1977 called the Sovereign Immunity Act.
I will not go into the twists and turns or the history of this thing but the operative portion of the statute sets out, as a general rule, a sovereign is immune from suit except under the provisions of the statute but if satisfied, that the assets of a sovereign are available for the settlement of claims except for things like embassies and military equipment (the Liberdad?) wherever located. It also states that monetary assets of central banks are immune from attachment if the assets belong to the central bank and NOT to the sovereign. It is here, for me at least, that things get interesting.
The law presumes that all central banks are independent like our Federal Reserve. This is clearly not the case. The Argentine central bank does nada without the ok of the government. This type of relationship is not new: indeed, it was not too long ago when the mother of all central banks, The Bank of England was an arm of the Treasury although it tended, or rather was allowed to act in an independent manner. For many years I have argued--without success--that assets held by a central bank, in for example an account at the Federal Reserve of New York were subject to attachment unless the central bank, having the burden of proof, could show
1. It was independent of the government, and
2. The assets in question belonged solely to the central bank and none to the government.
Part of the problem is of course that the Fed wants no part of such an argument and wants no part of being Piggy in the Middle in fights between creditors and obligors. A valid position to be sure but when a state like Argentina can abrogate agreements, defy court judgements and orders and hide assets in plain sight, why should we, or any other state for that matter become complicit in allowing this to happen? The parties in the case of the Liberdad aren't going away. If there is a better case to test my theory I can't think of it. The consequences could be far-reaching; I so hope the theory will be tested.
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