Thursday, July 31, 2014

Argentina in Default

After talks between Argentine officials and bondholders in New York failed yesterday, Argentina appears to have gone into default for the second time in 13 years.

La Nacion reports that Economy Minister Axel Kicillof, speaking to reporters at the Argentine consulate in New York late last night, confirmed that last minute attempts to strike a deal had been scrapped. Shortly before his announcement, Standard & Poor’s declared Argentina to be in “selective default.”

Fortunately for Argentines, current conditions are very different from the 2001 default. While the country has experienced a decline in growth and is battling high inflation, its economy is far stronger than it was 13 years ago and the debt represents a much lower percentage of its GDP (7 percent vs 40 percent in 2001, according to economists cited in the Christian Science Monitor). In his remarks, Kicillof urged the country to keep calm, emphasizing that “tomorrow will be another day and the world will keep turning.”

As Bloomberg Businessweek points out, technically Standard & Poor’s new rating gives holders of restructured bonds the right to demand full repayment immediately, but this is unlikely to happen.

The main winners from Argentina’s default are investors who hold so-called credit default swaps, which act as a kind of insurance and provide payment in the event of a default. BBC Mundo notes that many in Argentina suspect that the holdout “vulture funds” that have been battling the country in court over the past several years stand to gain considerable profits from these deals.

The Center for Legal and Social Studies (CELS), a Buenos Aires-based civil society group that has framed Argentina’s position against the holdouts as one based on established international human rights norms, has continued to press its case. In a letter signed by one hundred human rights organizations worldwide and released yesterday, the group argues that the holdout battle is an “expression of the injustice inherent in the global financial system.” The fact that the UN is currently drafting a set of new Sustainable Development Goals to follow up the Millennium Development Goals, CELS asserts, provides an opportunity “to promote the creation of a mechanism[ …] to resolve unsustainable debt scenarios in line with human rights principles.”

Meanwhile, there is still hope that Argentina and its debt-holders can make an arrangement through intermediaries. The Wall Street Journal reports that Kicillof hinted that a so-called “private sector solution” remains on the table, which would involve Argentine bankers giving a $250 million guarantee to the holdouts. These in turn would have an incentive to ask a U.S. judge for a stay in the enforcement of Argentina’s debt obligations until the end of the year.

News Briefs
  • Yesterday, El Salvador became the fifth country in Latin America to recall its ambassador to Israel for consultation, joining Ecuador, Brazil, Chile and Peru. Haaretz reports that Israeli Foreign Ministry spokesman Yigal Palmor described the decisions of these countries as “encouragement for Hamas,” saying: “Israel expects countries that oppose terrorism to act responsibly and not to hand terrorists a prize.” Bolivia’s Evo Morales, who already broke off diplomatic relations with Israel alongside Venezuela in 2009, announced yesterday that Bolivian border officials would henceforth require Israelis to first obtain a visa to enter the country.
  • Following Colombian President Juan Manuel Santos’ warning that the FARC are “playing with fire” by continuing infrastructure attacks and may jeopardize the future of the peace process, a senior rebel negotiator responded directly in an interview with The Guardian. According to the FARC’s Marco Leon Calarcá: “[T]hey're playing with fire when they try to eliminate our leaders with bombings. That could make us leave the table, because it would be clear they had no political will to reach agreement.”
  • La Silla Vacia has an analysis of Santos’ recent shift in tone, which comes just as negotiators are at their most tense moment and both sides are tackling the controversial issue of responsibility for abuses. As the news site notes, the peace talks in South Africa and Northern Ireland saw similar escalations at this point as well.
  • As noted in yesterday’s post, the Brazilian Forum on Public Security released a new poll on police attitudes towards reform and best practices in law enforcement in the country, “The Opinions of Brazilian Police on Reform and Modernization of Public Safety,” (.pdf). Out of the 21,000 officers of the various police forces in the country that responded to the survey, roughly half supported the creation of a new, civil police force to replace Brazil’s state-level military police, as O Globo reports. As UOL notes, the poll found that 76.1 percent of military police officers support the demilitarization of their branch. Speaking at the forum’s annual meeting in São Paulo yesterday, Brazilian Justice Minister José Eduardo Cardozo admitted that there has been a shortage of resources for citizen security efforts in the country. But according to Estadão, he described as part of a larger scarcity of resources “for every issue.” El Pais reports that Cardozo also claimed that the Rousseff government plans to keep in place a federal/state/local police integration strategy adopted during the World Cup.
  • Two letters from Human Rights Watch to Brazilian lawmakers and São Paulo Governor Geraldo Alckmin this week have focused attention on torture and inhumane treatment of prisoners and individuals in police custody in the country and in São Paulo state. HRW documented 64 cases of alleged abuses since 2010 nationwide, 40 of which amounted to torture, as O Globo and the AP report. As a remedy, the group urges senators to pass a proposal that would require suspects to appear before a judge within 24 hours of their arrest, allowing them to report abuses against them and deter a reliance on confessions obtained through torture. In response to HRW’s concerns about impunity for extrajudicial executions in São Paulo, Folha de S. Paulo reports that the state government released a statement saying: “All complaints are thoroughly investigated, and if irregularities are proven, those responsible face civil and criminal penalties.”
  • The AP reports on a funeral service held in Guatemala on Wednesday for 31 Ixil Mayans killed in a massacre in Quiche province in 1982, the perpetrators of which have never been prosecuted.
  • Reuters takes a look at a bill passed earlier this month which aims to make it easier to track aid money in Haiti, and also calls on the U.S. to hire more local contractors. It is currently awaiting president Obama’s approval.
  • While Uruguay has been praised internationally for its progress on marriage equality, marijuana regulation and abortion decriminalization, it still has some important shortcomings when it comes to human rights. Writing for Foreign Policy, Debbie Sharnak has a good overview of these, which include historic marginalization of Afro-Uruguayans, last year’s Supreme Court decision which effectively reinstated amnesty for dictatorship-era abuses, and an upcoming ballot initiative to lower the age of criminal responsibility from 18 to 16, which is widely popular. Not included, but worth mentioning, is a forced drug treatment bill that passed in the Senate last year and is being debated in the lower house. As I have pointed out, forced treatment is both ineffective and in violation of human rights norms, and ultimately shows Uruguay has work to do yet on drug policy.
  • Police in El Salvador arrested a Spanish Roman Catholic priest yesterday on charges that he colluded with gang members to smuggle cell phones and drugs, and get them favorable treatment in prison. Another priest in his parish has said that the arrest is reprisal for his work involving mediation of gang conflicts. Also arrested as part of the same investigation were 12 police officers, two judges, three court employees, according to the AP. News site El Faro reports that another suspect detained by officials is an alleged member of the Perrones drug trafficking network.
  • Ramon Guillermo Aveledo, secretary of the opposition Democratic Unity Roundtable (MUD) coalition in Venezuela, announced yesterday that he was stepping down from his post. In his resignation letter, Guillermo made a veiled swipe at his critics in the MUD, saying he had fallen victim to a government plot that had been “lustfully embraced” by senseless elements. As the AP notes, his decision to enter into UNASUR-mediated talks with the government in April was attacked by many in the opposition.
  • The U.S. State Department yesterday announced that it had imposed travel restrictions on U.S. travel for “a number of Venezuelan government officials” linked to human rights abuses in the crackdown of anti-government protests earlier this year. Reuters reports that State Department spokeswoman Marie Harf said authorities were refraining from identifying the individuals publicly due to visa record confidentiality restrictions.

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