Selected editorial excerpts from the U.S. press:
ARGENTINA: SOLO DEADBEAT (The Wall Street Journal, New York)
The government of Argentina has done it again. By flouting the rule of law and vilifying foreign investors, President Cristina Kirchner succeeded Wednesday in driving the country into its second default in 13 years. This isn't the global financial disaster predicted by some on the left, but it is sad news for the people of Argentina.
Wednesday's default suggests the country will remain a pariah to many of the world's investors, which means increased costs for public and private Argentine borrowers. But you'd never know it from the way Buenos Aires responded to orders from a U.S. court to honor the bond contracts that Argentina agreed would be governed by U.S. law.
Argentine Economy Minister Axel Kicillof showed up Wednesday to meet with court-appointed mediator Daniel Pollack and holdout creditors who never accepted a restructuring of the country's debt. Mr. Pollack proposed several ways to avoid default that were acceptable to bondholders, but Mr. Kicillof wouldn't consider them. He seems to prefer default as a political statement.
Presiding over a slow-growth, high-inflation economy that her policies have created, and with an election to choose her successor in 14 months, Ms. Kirchner is trying to revive her party's political fortunes by heaping scorn on U.S. "vultures" -- hedge funds -- and on the U.S courts. This week her Cabinet Chief Jorge Capitanich claimed the real issue is the "precariousness of the U.S. justice system," assailed the judge and mediator, and said Argentina would take its case to the International Court of Justice in The Hague. You know, that well known world financial center.
Sovereign debt markets have shrugged off the Argentina news. That's because most bond contracts have different language on the equal treatment of creditors and allow a super-majority of bondholders to set the terms of a restructuring, regardless of what the holdouts want. Even the restructured Argentine debt hasn't lost that much value as investors expect a negotiated resolution. To those investors we'd say caveat emptor as they rely on the whim of the world's most unreliable politicians.
More threatening is the attempt to use Argentina's rogue behavior to revive the discredited notion that we need a global bankruptcy court for deadbeat nations. As if investors would be more eager to lend if they could be assured that dispute resolution would be more politicized and less reliant on established legal precedent.
The International Monetary Fund, always seeking new missions to justify its existence, is nominating itself for this new role. The IMF has been warning that the U.S. ruling on Argentina might give holdout creditors too much power, apparently unaware that holdouts enjoy less power under most other bond contracts.
Default is a problem for Argentina. It will only become a problem for the world if politicians empower a new bureaucracy to roll over U.S. law. And the people who would suffer most are those in emerging nations who would pay more to borrow from investors given even less assurance of repayment.