When Bad Things Happen to Good Sovereign Debt Contracts: The Case of Ecuador

The lesson from abundant history is that, despite decades of constructive innovations in international loan and bond contracts involving sovereign financial obligations, lawyers, bankers, analysts and investors are best advised to operate under no illusions: Sovereigns are indeed sovereign. To those who harbored the hope that Argentina’s bad behavior as a sovereign debtor was a major exception that would not soon be repeated, the case of Ecuador’s latest default on shaky claims of the “illegitimacy” of some of its obligations demonstrates that while the absence of sovereign willingness to pay remains rare, it is not rare enough. These rogue sovereign debtors can be effectively restrained only by the forceful actions of other sovereigns, bilaterally or multilaterally, but in this case, in a repetition of attitudes shown toward Argentina since 2002, the international official community not only failed to condemn Ecuador’s actions, but actually expressed verbal and provided financial support. The government in Quito gathered no plaudits from the many national and international NGOs that have been campaigning for the massive forgiveness of developing-country debt, but at least this attitude is understandable: the case of Ecuador did not lend itself to arguments in favor of repudiation on “odious debt” or any related grounds. Above all, the country provides a useful, cautionary tale of the bad things that can happen to good sovereign debt contracts

Should Argentina Be Welcomed Back by the Capital Markets?

The question of whether financial intermediaries and institutional investors in the U.S. and Europe should welcome Argentina back to the global capital markets is certainly relevant -- especially for those with short memories who may be tempted by the high yields on offer to rush in without a full understanding of the significant risks involved. At first sight, it would appear that Argentina has come a long way from its troubled past. However, it would be naïve to rush to the conclusion that Argentina is a creditworthy or relatively safe place in which to invest. To begin with, under both the late Néstor Kirchner and the current President Fernández-Kirchner, the government has spent its enormous revenue windfall, such that in fact there are hardly any extra fiscal resources available to support the existing –- or any new –- public indebtedness. Serious allegations have been made about the accuracy and integrity of official inflation data in Argentina, casting doubt on all kinds of economic indicators that use price indexes as a deflator. If inflation has indeed been running closer to 25% than to 10%, then the government's fiscal, monetary and exchange-rate policies are unsound and destabilizing. Moreover, key institutions of relevance to investors have been undermined by government actions, such as the national statistical agency (INDEC), the central bank, and the country's pension funds. The controversy over the true rate of inflation is part of a larger picture of lack of transparency in Argentina. The country is the only member of the G-20, and one of the very few in the world, that refuses to abide by its treaty obligations to the IMF, which include allowing the Fund to inspect its books and evaluate the country’s economic performance and policies -– especially its exchange-rate policies under the IMF's Article IV Consultation process. Argentina is also the only G-20 member government that is in default on its loan obligations to its fellow members -– and it has been in default to them for nearly a decade. An eventual restructuring of these debts by the Paris Club will likely force today's investors to have their own bonds restructured as well, given the Club’s principle of "comparable treatment." The country is the G-20 member with by far the most U.S. court judgments against it and the most investor claims and arbitral awards against it at ICSID, the world’s premier dispute-resolution center. Argentina is likewise the only G-20 member that has been put on probation by the Financial Action Task Force (FATF), an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. Many allegations of corruption have been made but never investigated, and the FATF highlights the impunity that prevails in Argentina. In sum, despite the allure of high yields, investors and financial intermediaries are well advised to approach Argentine fixed-income and equity investment and trading opportunities with extreme caution, because they embody substantial market and default risks

The Origins of Argentina\u27s Litigation and Arbitration Saga, 2002-2016

The voluminous and protracted litigation and arbitration saga featuring the Republic of Argentina (mostly as defendant or respondent, respectively) established important legal and arbitral precedents, as illustrated by three cases involving Argentina which were appealed all the way up to the US Supreme Court and were settled in 2014. At first glance, the scale of Argentina-related litigation activity might be explained by the sheer size of the government’s 2001 default, the world’s largest-ever up to that point. However, its true origins are to be found in the unusually coercive and aggressive way that the authorities in that country went about defaulting on, and restructuring, their sovereign debt obligations. The mass filing of arbitration claims, in turn, was prompted by Argentina’s radical and seemingly irreversible changes to the “rules of the game” affecting foreign strategic investors, which broke with binding commitments prior governments had made in multiple bilateral investment treaties. In sum, a major deviation from best practices as understood and settled in the early 2000s, which codified how economic policy adjustments are to be made in a way that minimizes damage to the investment climate, preserves access to the international capital markets, and promotes rapid and sustainable economic growth, lies at the root of Argentina’s litigation and arbitration saga which came to an end during 2016

A Critique of Sovereign Bankruptcy Initiatives

International finance, sovereign debt, sovereign default

The role of professional economists in the financial markets

Economists have always been interested in the workings of the financial markets, but most of them neither seek nor get the opportunity to work in a financial institution as a professional economist. Here we detail how (a minority of) economists became involved in the financial markets, and what that professional involvement has entailed, in order to come up with implications for economists who are considering working in the financial markets as well as for the universities that provide training for future economists.Economists; financial markets; education

The Constructive Role of Private Creditors

International finance, sovereign debt, sovereign default

Argentina: The Root Cause of the Disaster

International finance, sovereign debt, sovereign default

Random Delays and the Synchronization of Chaotic Maps

We investigate the dynamics of an array of logistic maps coupled with random delay times. We report that for adequate coupling strength the array is able to synchronize, in spite of the random delays. Specifically, we find that the synchronized state is a homogeneous steady-state, where the chaotic dynamics of the individual maps is suppressed. This differs drastically from the synchronization with instantaneous and fixed-delay coupling, as in those cases the dynamics is chaotic. Also in contrast with the instantaneous and fixed-delay cases, the synchronization does not dependent on the connection topology, depends only on the average number of links per node. We find a scaling law that relates the distance to synchronization with the randomness of the delays. We also carry out a statistical linear stability analysis that confirms the numerical results and provides a better understanding of the nontrivial roles of random delayed interactions.Comment: 5 pages, 5 figure