Sovereign Piracy
I realise that many of you may see this as something of a specialist rant, if you will, but bear with me.
I was provided with a link to a rather fascinating document about the matter of sovereign piracy.
Sovereign piracy, in this particular case, does not mean state-approved “privateers” raiding Spanish ships, but rather people behaving in a piratical manner towards sovereign debt:
Sovereign Piracy lays bare the recent efforts of vulture investor Elliott Associates to holdup the Government of Peru. When Peru tried to restructure its Brady Bonds Elliott launched global litigation to tie up the money and force Peru into default. A Brussel’s court brought Peru to its knees and forced it to settle with Elliott. Elliott’s leverage was based on its novel interpretation of the so-called pari passu clause which requires a debtor’s creditors to rank equally.
Basically, the thrust of the piece is that despite pari passu being well understood as a legal term, that all unsecured creditors should be treated equally, as yours would be if you were declared bankrupt, if a state is declared bankrupt (also known by the slightly less embarrassing term of “defaulting on loans”) then pari passu means the exact opposite. Everybody gets treated equally, but some (like the IMF) are more equal than others.
The article also implies that it’s perfectly acceptable for a developing state to default from time to time as a result of development efforts.
It would probably surprise no-one that my attitude towards this piece can be summed up in one word: “bullshit”.
The idea that a sovereign state is somehow exempt from the constraints that bind the rest of society together because it’s the state, while still be responsible for enforcing those exact constraints upon themselves is laughable.
It’s roughly akin to the police being allowed to commit burglary with impunity while stopping everyone else from committing burglary.
And furthermore, the idea that the IMF (which often instigates loans to governments purely because they know they’re a preferred creditor) should get preferential repayment is equally stupid. If the IMF knew they could get a caning every time they bailed out a bunch of feckless incompetents, they’d be less likely to bail out feckless incompetents, and if feckless incompetents knew they wouldn’t get a bail out for sure, maybe they would be less like to indulge in vanity projects and stupid economic policies that couldn’t pay their own way.
Unlike the learned authors of the article, I think that treating creditors equally would have a very useful tempering effect on the bumbling idiots who run countries.
Quite often, into the ground.
November 8, 2011 at 09:51
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“roughly akin to the police being allowed to commit burglary with
impunity”
Ah, so exactly the way the EU police forces operate, then? You know, those
ones that are immune from any and all legal sanction for their actions.
- November 6, 2011 at 19:39
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The IMF are basically a “bank” of last resort, a country will not get a
“loan” from them until the country have tested the regular borrowing markets
and found them to be unsustainable eg 200% interest rates for 2 year
bonds.
Being a lender of last resort (and lets not forget they have NO money, only
funds sought from member states ie money out of YOUR pocket) they try their
hardest to ensure the loan is repaid. They can therefore write in pretty much
any conditions on the loans that they please including preferential
payment.
In some respects I find it comforting that at least one “bank” is treating
MY money carefully, though I do have a great deal of sympathy with your
bumbling idiots comment.
- November 6, 2011 at 19:10
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I agree with TJ. We live in ‘interesting times’ as the Chinese
claim.
Logic, reason and common sense have been relegated and surrealism
raised to the highest standard (along with Political Correctness).
Private
Fraser in Dad’s Army had a phrase for it, “We’re doomed!”
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November 6, 2011 at 12:29
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“…if a state is declared bankrupt (also known by the slightly less
embarrassing term of “defaulting on loans”)…”
Not quit true, Anna. A country can technically default but still be
solvent. The term is widely misunderstood and most folk take it to mean the
inability to make any further repayments of interest or principal. This is not
the case. A default is simply a breach of the terms of the bond repayments.
You can miss a repayment or two, find yourself in default, yet still have
plenty of cash in the treasury. Of course it won’t do the country’s credit
rating any favours….
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