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 âprivateersâ 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 Brusselâs court brought Peru to its knees and forced it to settle with Elliott. Elliottâs leverage was based on its novel interpretation of the so-called pari passu clause which requires a debtorâs 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 âdefaulting on loansâ) 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 itâs 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: âbullshitâ.
The idea that a sovereign state is somehow exempt from the constraints that bind the rest of society together because itâs the state, while still be responsible for enforcing those exact constraints upon themselves is laughable.
Itâs 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 theyâre 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, theyâd be less likely to bail out feckless incompetents, and if feckless incompetents knew they wouldnât get a bail out for sure, maybe they would be less like to indulge in vanity projects and stupid economic policies that couldnât 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.