Selected editorial excerpts from the U.S. press:
ARGENTINA DANCES WITH DEFAULT (The Wall Street Journal, New York)
Argentina has earned its status as the world's most downwardly mobile nation, and now the Kirchner government seems ready to further damage its economy and the well-being of its citizens. Instead of negotiating a deal with its creditors after recent losses in U.S. courts, Argentina is dancing with another default and trashing America's legal system to boot.
Argentina has until Wednesday to make an interest payment to bondholders or it will officially default for the second time in 13 years. Argentina claims it is willing to pay bondholders who agreed to take less than 30 cents on the dollar in a debt restructuring after its 2001 default. But federal Judge Thomas Griesa has said Argentina can't pay those holders without also paying so-called holdout bondholders who refused to accept the 30 cents and have won a series of U.S. court cases against Argentina. Buenos Aires refuses to pay the holdouts.
Instead, President Cristina Kirchner's government has spent a month running an extraordinary public campaign vilifying the holdouts as well as Judge Griesa and U.S. courts. The hard-to-avoid conclusion is that Argentina is preparing the political ground for a default that it plans to blame on the evil gringos to the north.
"A lot of officials in the United States say its judicial branch is independent," declared Argentine cabinet chief Jorge Capitanich recently. "But it is not independent of the vulture funds because its decisions show clear partiality."
Argentine officials Axel Kicillof and Hector Timerman used a July 3Organization of American States meeting to denounce the U.S. and call for removing debt restructuring from U.S. courts to some international body that they imagine would be more favorable to government deadbeats. "Default is not an Argentine problem, restructuring is not an Argentine problem, it is a world problem, it is a problem of global capitalism, of the system in which we live," declared Mr. Kicillof.
The charge that U.S. courts are corrupt takes some nerve coming from a country that tramples property rights on a whim. Recall Argentina's seizure of the local assets of Repsol, the Spanish oil company.
Argentina had the full run of American legal appeals all the way to the Supreme Court. And it even had the support of the Obama Administration, believe it or not, against U.S. creditors. The Administration feared the precedent for U.S. interests abroad if a foreign government was forced by U.S. courts to pay the holdout creditors.
Argentina's arguments for failing to negotiate are flimsy. It claims it can't afford $15 billion in potential new debt payments, but in private meetings with Judge Griesa's special master it has sometimes conceded that the real number is closer to $10 billion.
Argentina says even that amount is too burdensome because it would slash its foreign-exchange reserves. But the country recently settled some $16 billion in claims with Repsol and the Paris Club of creditors with little impact on reserves by issuing new bonds or stretching out payments.
The holdouts say they view those deals as a model and are more than willing to accept a combination of cash and new bonds. Argentina responds by saying even that would be a terrible new debt burden, but it has plenty of capacity to issue new debt since its debt to GDP ratio is down to about 40 percent thanks to the commodity boom of the last decade.
Argentina's other excuse is that under a so-called Rufo ("rights upon future offers") clause it would have to pay every bondholder whatever it pays the holdouts, further exploding its costs. But the Rufo clause has several legal escape valves if Argentina really cares, starting with the fact that the clause bars voluntary side debt deals. Argentina has been court-ordered to make (involuntary) payments to creditors it doesn't want to make.
Whatever the cost of paying the holdouts, it would pale besides the damage from another Argentine default. Argentina would miss the chance to build on its Repsol and Paris Club settlements by putting all of its creditor disputes to rest. Its public and private borrowing costs would rise, perhaps for many years to come.
Default is so nonsensical that it raises the question of whether Mr. Kicillof is inviting it as a way to prod the International Monetary Fund and American liberals to accelerate their campaign to put debt negotiations in the hands of a new global bureaucracy. This would give more leverage to debtors and politicians at the expense of financial markets and U.S. courts -- which might suit an erstwhile leftist economist professor like Mr. Kicillof, who seems to think default could make him a political hero and carry no costs.
The best outcome for all parties, and especially Argentina, is still for Buenos Aires to negotiate in good faith and avoid default. But if it refuses, Judge Griesa deserves support from everyone who cares about the integrity of U.S. financial markets for upholding the law and American property rights.