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IMF urges changes in sovereign bonds' contracts, following Argentina's case

Tuesday, October 7th 2014 - 06:04 UTC
Full article 40 comments

The International Monetary Fund on Monday urged changes in sovereign bond contracts as Argentina remained mired in a US court battle with holdouts or “vulture funds” years after its massive debt restructuring. Read full article

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  • chronic

    Sounds about right. The application of fuzzy feel good, liberal ideology to market dynamics. Massive fail. lol

    Don't borrow it fi you're not going to pay it back. It's that simple.

    Oct 07th, 2014 - 07:24 am - Link - Report abuse 0
  • Orbit

    Let me have a stab at this...

    “In the event of a restructuring of the bonds, a simple majority of bondholders will be required to accept the terms of the restructuring. Should the majority accept, then the decision is binding for all bondholders. By purchasing these bonds you accept this clause.”

    Where do I collect the hundreds of millions of legal fees (lawyers etc) and taxpayers money (international bodies etc) I have saved everyone? I will accept 10 cents on every dollar saved.

    Oct 07th, 2014 - 08:10 am - Link - Report abuse 0
  • reality check

    So basically a bond may not actually be worth what it says it is?

    You don't invest in them, you gamble on them, like shares?

    If that's the case, stop calling them bonds and call them what they are, risks!

    Oct 07th, 2014 - 08:23 am - Link - Report abuse 0
  • chronic

    3. EXACTLY.

    Oct 07th, 2014 - 09:53 am - Link - Report abuse 0
  • Captain Poppy

    Let's not get too far out here.....all investing carry's risk. Anyone who had Enron bonds knows that. While I agree, bonds are supposed to be safer and government bonds the safest hence their low returns, they still carry risk of non payment and no equity position as a secured creditor after a bankruptcy.
    However do not take this statement as support of roadkills.

    Oct 07th, 2014 - 10:09 am - Link - Report abuse 0
  • Klingon

    Exactly #5 The holdouts want their money, well they can go chase the investment bankers who advised them it was a good idea to buy bonds from a multiple time defaulter.

    Oct 07th, 2014 - 11:23 am - Link - Report abuse 0
  • Captain Poppy

    However Klingon I am not supporting Argentina's position. The holdouts are well within the law to enforce payment and they should as long as their position is legal. If Argentina wanted a real deal on restructuring it should have been accomplished in a bi-lateral means nor uni-laterally and with ALL the creditors. Creditors are not evil contrary the South American believe and talking points (funny though how they keep going back to borrow more money). I know you are not an android, fall in line Kirchnerite Argentine, but the question started arising; What did Argentina do with all those billions that are not being paid back?

    Oct 07th, 2014 - 12:30 pm - Link - Report abuse 0
  • yankeeboy

    The people of Argentina need to be taught a tough lesson. I am glad NML is getting the ball rolling.

    I can't wait until next year.
    I can't wait

    Oct 07th, 2014 - 12:38 pm - Link - Report abuse 0
  • bushpilot

    Does the IMF ever promote an “international system” where corrupt governments are discouraged from selling bonds? Because by skimming all the monies raised, the bonds won't be able to be paid back?

    The IMF should be making it harder for a government to default, not easier.

    The IMF should be promoting an “international system” where monies raised by bonds actually raise a country's GDP, so the bonds can be paid back.

    What is the IMF doing? Protecting deadbeats. Great institution.

    Oct 07th, 2014 - 12:41 pm - Link - Report abuse 0
  • Z-ville

    @9
    The IMF is not a bond trader. They want to have a system where sovereign debt can more readily be restructured because it eases the burden on the IMF to bail out countries that are “under water” financially.

    But the more easily sovereign countries can “restructure” this type of debt (meaning they can weasel out of paying it back), the less likely they are to be able to borrow in the first place. Who's going to buy bonds that are no longer guaranteed by anything that actually matters?

    Oct 07th, 2014 - 01:07 pm - Link - Report abuse 0
  • owl61

    @7... Trying to explain the significance of well drafted collective action clauses and of pari passu clauses is lost on some who actually think the IMF has been liberal in its treatment of debtor nations. Argentina is in a legal mess because its original bond language was poorly drafted. Undoing the Argentine legal mess may not now be viable via a strictly “legal” solution, but sometimes the law is, in deed, an ass. It's an unfortunate situation for the people of Argentina.

    @8...Tell the many Argentines who lost most of their savings in 2001 and tell the numerous small business owners who lost their businesses in the fallout of the 2001 default and are now driving cabs that they need to be “taught a lesson.” Your head is so far up your egocentric ass you can't clearly see the obvious. The Argentine middle classes have suffered tremendously from government mismanagement, just as much of the middle class USA is now beginning to suffer from the hideous concentration of wealth that government mismanagement has caused in their country (not to mention Spain, Greece, Iceland, etc where unemployment is at historical highs).
    Ask not for whom the bell tolls. It tolls for thee and me.

    Oct 07th, 2014 - 01:24 pm - Link - Report abuse 0
  • Holdout.from.Germany

    Disenfranchise creditors would mean that no one would lend money to states.

    Oct 07th, 2014 - 01:46 pm - Link - Report abuse 0
  • yankeeboy

    11. The difference between the USA and Argentina is that we don't keep electing one inept corrupted gov't in one after another. Obama has been a total failure, in 2010 the USA changed the House in 2014 we'll change the Senate and in 2016 I doubt we'll elect someone with no experience again and for sure it won't be a big gov't/collectivist.

    For 3-4 generations Argentinians have gotten poorer and dumber each and every generation. They deserve everything they have coming to them for believing that Peronism, Collectivism or whatever you want to call it somehow works. At this rate they'll bypass Venezuela in 2015 for the worst run economy in the world.
    They deserve everything they've got coming
    and more

    Oct 07th, 2014 - 01:47 pm - Link - Report abuse 0
  • Sergio Vega

    Yes, the main change must be:
    ”If a country borrow money (soveriegn debts) then it must pay to the lender on time and all the debt as was contracted......If not, its assets will be embargoed to cover the sovereign debt wherever it can be held......Sovereign debts have no exception of duty, on the contrary it are compulsory because it´s state money so it stand for the credibility of that country”.

    With this change all problem it´s solved and no doubt about the payment of sovereign debts...

    Oct 07th, 2014 - 01:49 pm - Link - Report abuse 0
  • chronic

    In a commodity republic without a history of the successful discharge of their debts - such as rotting roadkill - I propose the following:

    Don't borrow money.

    If you do, make the issuance of bonds subject to a plebliscite requiring a simple majority of the qualified electorate.

    The threshold for issuance is then sufficiently high as to bar this from being a casual matter.

    And in the future - when their is talk of repudiation of the debt - the citizenery can't justifiably claim that they were victimized by a government that wasn't legitmate or that didn't represent the state's insterests.

    Having said that: Pay your debt, rotting roadkill.

    Oct 07th, 2014 - 02:50 pm - Link - Report abuse 0
  • owl61

    This is not a serious forum so I will exit except to comment upon yankeeboy's persistent and perverted view of world politics (shared by others here), specifically that the Arg people deserve the poverty and hardship their inept government has brought about. Is the same true of the people in the US? Spain? Iceland? Greece? North Korea, etc etc
    The US government of Kennedy/ Johnson/Nixon/Georgie Bush embarked upon and/or maintained an inept, corrupt foreign policy that has precipitated the decline of US hegemony (moral, economic and political) and wasted millions of lives by their administrations' foolish (corrupt) intervention in Vietnam and Iraq; and continuing today with inept foreign policy in the Mideast . Moreover, via Reaganomics and a largely compliant fat cat Congress a domestic policy was charted that ensured (and reveled in by the 1%) a disastrous unequal and unfair distribution of wealth. We in the US are still suffering the consequences of inept corrupt governance as is much of the “free” world. Do we citizens deserve this? Get a life.

    Oct 07th, 2014 - 03:49 pm - Link - Report abuse 0
  • yankeeboy

    16. The drivel you've posted in your short time here has been mostly inaccurate.
    So don't worry we won't miss you.

    Oct 07th, 2014 - 04:00 pm - Link - Report abuse 0
  • Conqueror

    @2. From argieland's 'government'.
    @3, 4. Quite.
    @8. Agreed.
    @9. Some sense. I suggest a system where a 'state' wishing to raise funds by issuing bonds should hand over ownership and control of assets to a 'trusted' third party. Taking into account the present case, what did argieland have worth US$93 billion in the year of the bond issue? It's called collateral. The assets should be 'suitable'. For instance, they should be removable, in 'acceptable' condition and wholly owned. An example would be the aircraft of the argie air force. Fly them all out to the territory of the third party. Then the vessels of the argie navy. Anything bought with prior loans could not be included. Army equipment. All stuff that argieland would want back. No collateral, no bond issue.
    @12. There's a good idea.
    @14. We seem to have similar ideas.
    @16. No, sorry. Argies will say anything.
    @17. The position of the IMF should be akin to that of a pawnbroker. But with no control over the 'pawned' assets.

    Oct 07th, 2014 - 04:33 pm - Link - Report abuse 0
  • Leiard

    “In Argentina's case, two US hedge funds scooped up bonds cheaply”

    I was under impression that they paid more for the bonds than the Argentinian government offered.

    Oct 07th, 2014 - 04:55 pm - Link - Report abuse 0
  • Captain Poppy

    Owl are you shitting through feathers again?

    BTW

    Corruption is political leaders using office to steal public funds and enhance one's wealth.

    Oct 07th, 2014 - 05:03 pm - Link - Report abuse 0
  • owl61

    impressive thinking here...

    Oct 07th, 2014 - 06:02 pm - Link - Report abuse 0
  • yankeeboy

    21. Back so soon? So not only are your posts inaccurate you're a liar too?

    Oct 07th, 2014 - 06:31 pm - Link - Report abuse 0
  • Briton

    The way it seems, is that one side wants money, and the other side is trying to tie as many knots as possible and set confusion among everybody,
    so as we /you get so confused tied up in knots that you collapse of heart attack whilst you are waiting for something, anything to happen,

    just glad im not part of this confusing confusion.

    Oct 07th, 2014 - 07:39 pm - Link - Report abuse 0
  • Anglotino

    Yankeeboy

    They never leave.

    CabezaDura, Nostrils all came back too. They just can't help themselves.

    Owl went to take his bat and ball and go home until he realised no one cared.

    Oct 07th, 2014 - 08:43 pm - Link - Report abuse 0
  • JustinKuntz

    Is the IMF Executive Board on this planet?

    You'll find most loan agreements these days have a collective action clause, precisely what they're advocating.

    Current Argentine bonds don't. Its a problem for Argentina but not for future debt restructuring.

    Oct 07th, 2014 - 10:33 pm - Link - Report abuse 0
  • Sergio Vega

    Even I´m very concerned with the Argentine population, the most of those citizens deserve the troubles they are suffering now by electing on the last 3 presidential terms unable politicians to led them up.....
    Unfortunately, in Chile we have the same problem and consequence with the last presidential and legislative election.....we are falling down faster than anyone could happen before the election.....and now we have no where to claim & cry......the damage is done and it´s just starting......from leading the growth in LA now we are the last train wagon in LA.....what a change....!!!

    Oct 08th, 2014 - 12:31 am - Link - Report abuse 0
  • BOTINHO

    Argentina has a history of TWELVE (12) prior Defaults.

    Argentina also has a history of then making decisions arbitrarily, and at the complete risk to it's investors.

    If Mr. Soros wants to invest and then soil his expensive suit pants when his investment is confiscated, reduced by 70 % of the initial value, or defaulted on , then let him.

    The good question raised is where did all that investment money then go ? Nevada, USA, seems to be just the tip of the iceberg.

    Oct 08th, 2014 - 12:49 am - Link - Report abuse 0
  • Enrique Massot

    A can sense a lot of disbelief behind the sarcasm, in response to the above story.

    What the world is becoming? Has the IMF become Cristinista? Is the World Bank who reported Argentina's poverty reduction a pinko? What about the United Nations? Well...we all know those forums are good for nothing, especially when they vote against our friends...they have even dared to launch an investigation on the vultures' potential link with human rights violations!

    Those are signs the world is moving in a different direction, my dear friends. The public opinion has had time in the last four months to become acquainted with the schemes of greedy financiers. Many countries are worried because what happens to Argentina today may happen to them tomorrow. I can see in the horizon international anti-vulture legislation. They were successful in siphoning millions from countries such as Zaire, Congo, Peru. However, Argentina may be the last case where the vultures' scheme is played out.
    Greed got the best of Paul Singer and friends.

    Oct 08th, 2014 - 03:35 am - Link - Report abuse 0
  • Anglotino

    “Many countries are worried because what happens to Argentina today may happen to them tomorrow.”

    I haven't seen that. Which countries are worried?

    “I can see in the horizon international anti-vulture legislation.”

    Impossible. You can't prevent people buying and selling debt. Vultures are an Argentinean term and would need go be fully defined. What is a vulture?

    I know my country doesn't have to worry about this.

    Oct 08th, 2014 - 07:39 am - Link - Report abuse 0
  • yankeeboy

    28. Whew, That's not what I am seeing at all. I am seeing every civilized country calling on Argentina to abide by the court rulings and pay their debt.
    I am surprised after 40 years in Canada your Rg brain washing is still intact.

    Or maybe you've always been a stupid commie.

    Oct 08th, 2014 - 11:27 am - Link - Report abuse 0
  • Conqueror

    @26. Have you thought what to do with Bachelet? Given the change in direction, execution seems to be an idea!
    @28. Wow! An argie pillock. Who would have thought? Said it before and I'll say it again. Anything illegal? Anything immoral? Compare to an argie government US$93 billion scam. Fortunately, the people of the world will not permit something as corrupt and criminal as argieland to guide the future.

    Oct 08th, 2014 - 05:04 pm - Link - Report abuse 0
  • Pontefractious

    Whatever you do, just remember it's a free market. Free in the sense that if I am a bank or investor I am free to not to invest in deals I don't like. The reason why there is no provision in pari passu clauses to handle holdout investors/lenders is because no-one wants it. No-one wants to be in a position where they are dictated to by a majority of banks or bondholders. Make an anti-holdout mechanism a standard part of documentation and I think the only investors/lenders will be those who don't understand the implications of the clause. All the serious players will stay on the sidelines. And that hilites the problem with our multinational institutions - they are populated for the most part by ivory tower academics safely isolated from reality.

    Oct 08th, 2014 - 07:38 pm - Link - Report abuse 0
  • Leiard

    Capitanich rejected evil IMF forecast for Argentina

    http://www.cronista.com/economiapolitica/Capitanich-rechazo-el-mal-pronostico-del-FMI-para-la-Argentina-20141008-0084.html

    Oct 08th, 2014 - 08:04 pm - Link - Report abuse 0
  • Doggy Rap

    This conpletely destroys any confidence I may have had in IMF.

    They don't know that since 2005, 205 out of 211 sovereign bond contracts have a collective action clause that authorises a supermajority of bond owner to force holdouts to accept the conditions the supermajority has accepted.

    Without holdouts, 'pari passu' simply means that all creditors must be treated equally.

    Jeeez, the clowns they employ in the IMF.

    Oct 12th, 2014 - 09:32 pm - Link - Report abuse 0
  • Pontefractious

    @34 - a very timely comment - however, enthusiasm should perhaps be modified by lack of success of these clauses when it really counted - I would refer you to:
    https://canada.pimco.com/EN/Insights/Pages/Collective-Action-Clauses-No-Panacea-for-Sovereign-Debt-Restructurings.aspx
    which is titled “Collective Action Clauses: No Panacea for Sovereign Debt Restructurings.”

    Oct 13th, 2014 - 12:46 am - Link - Report abuse 0
  • Doggy Rap

    @ 35 Pontefractious

    (The name of the author of the survey is Ratna Sahay, not 'Shay' as the pimco article spells it). Find it here: http://www.imf.org/external/np/pp/eng/2012/060512.pdf
    - - -
    To have any effect the collective action clauses (CACs) must be in the original bond contract(s) - there were 152 different series of Argentine bonds covered by the 2005 and 2010 restructurings and they did not contain CACs.

    The stable has burned down and the horse is dead, when the CAC is in the restructuring document.

    Both the Argentine restructuring prospects and contracts (2005 and 2010) contained collective action clauses, but the holdouts did not accept the restructurings, and thus the CACs was of no use.

    Oct 13th, 2014 - 04:24 am - Link - Report abuse 0
  • Enrique Massot

    Of course, the CAC clauses are not enough guarantee against rogue judges like Griesa who may not give a dam and rule against them.
    There needs to be more solid anti-vulture rules to finally get ride of those parasites so that the capital can turn more into production than speculation.
    The world is slowly walking towards that. See from Jubilee Debt Campaign:

    “The United Nations General Assembly has passed a resolution to create new legal rules to stop financial speculators like vulture funds from undermining debt restructurings. The motion, passed by 124 votes to 11, has decided that the UN will create “a multilateral legal framework for the sovereign debt restructuring processes”. At present, there are no rules regarding how to restructure the debts of countries when they can no longer be paid, leading to prolonged debt crises and expensive bank bailouts, and an open door for vulture funds extortion of countries in debt crisis.”

    The future looks rosy.

    Oct 13th, 2014 - 04:39 am - Link - Report abuse 0
  • Doggy Rap

    @ 35 Pontefractious

    Let me clarify this expression in #36: “152 different series of Argentine bonds” these were the bonds issued 1994 through 2001, which were all included in the restructurings 2005 & 2010.
    - - - - - -
    @ 37 Enrique Massot

    It is extraordinarily stupid to call the hedge funds “vultures”.

    Why?

    Because vultures feed on corpses' rotten meat.

    If hedge funds are vultures, which feed on Argentina, what is Argentina? a corps with rotten meat.

    It is extraordinarily stupid to call the hedge funds “vultures”.

    Oct 13th, 2014 - 05:03 am - Link - Report abuse 0
  • Pontefractious

    @37 Enrique - It is common among those who do not understand the legal process or the role that the law plays in society to blame the judge when a decision comes down that they do not like. Judge Griesa is in no sense a rogue. He is administering the law correctly in a case where all of the parties to the original contract selected US law and US courts for the purpose of resolving conflicts. His decisions have been appealed to the Supreme Court which has declined to reverse them, a further indication if you need one that the decisions are correct.
    Something else that I think perhaps you do not understand is that lenders/investors resist anything that makes it easier for borrowers to avoid complying with their contracts. Why would they want to smoothe the way for sovereign debtors to restructure their debt ? Sovereign debt decision makers are politicians. Politicians will always be looking for the easy way out. Give them an inch and what ever distance they take you can assume it will be considerably in excess of what you intended. If you start writing restructuring procedures into loan documentation you can assume that instead of treating restructuring as a last resort when all else fails, the borrower will consider restructuring a right and take advantage of it whenever they think it will solve a problem. We then take the focus away from where it ought to be, which is that all borrowers, be they sovereign or private sector, should pay their debt service as agreed in the contract, and lenders/investors should do everything possible to make it difficult for borrowers to do otherwise. And if borrowers don't like those conditions the solution is very simple - don't borrow !

    Oct 13th, 2014 - 12:38 pm - Link - Report abuse 0
  • Enrique Massot

    #39 Pontefractious
    I appreciate the opportunity of responding to a well-constructed, educated argument from a bondholder's standpoint.
    On your first point: Argentina has failed to comply to Judge Thomas Griesa's ruling simply because of the risk of triggering the RUFO clause contained in the exhange bonds.
    Griesa was inflexible enough to refuse even a stay until Dec. 31, the date after which Argentina could have negotiated payment to the litigants without the RUFO risk.

    Second: “Sovereign debt decision makers are politicians.” Yes. So a judge's decision does not happen in a legal vacuum.
    A large part of the borrowing for 25 years before the 2001 collapse was just borrowing more to pay debt, in horrendous conditions for the country.
    Nestor Kirchner and Cristina Fernandez set up to change that, based on restructuring the debt and generating resources to pay. Most creditors accepted those conditions.
    So the direction Argentina has taken since 2003 is 180 degrees from the direction it followed for most of its history since independence, away from default situations. It is not, as many try to depict, more of the same behaviour.
    Those holding about 7 per cent of the debt refused the exchange. Those holding 1 per cent---the vultures--sued and won, threatening to derail the whole debt restructuring process.
    By doing so, they cornered the Argentina government. Cristina Fernandez could have chosen to sign engagements to pay more--in the future--defuse the situation and leave the issue to a future government, as so many Argentine decision makers did in the past. To her credit, she has chosen to face the music right now in spite of the risks.
    Bankruptcy for individuals and corporations, as well as debt restructuring processes, recognize shared responsibility between lenders and borrowers.
    That is, in a nutshell, the civilized way to solve the current crisis to everybody's advantage.

    Oct 13th, 2014 - 03:04 pm - Link - Report abuse 0

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