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SPEECH BY THE SECRETARY GENERAL OF THE OAS, MR. JOSÉ MIGUEL INSULZA
28th Meeting of Consultation of Ministers of Foreign Affairs

Welcome to the House of the Americas. A Meeting of Consultation such as this constitutes the most prominent forum in our Hemisphere for debating and reporting on an issue as important as the one we address today.

We are gathered here as a result of circumstances that have been dragging on for well over a decade, affecting one of the member states of our Organization, while being at the same time a matter of great concern for the Hemisphere as a whole.

The situation triggered by speculative funds acting against the Argentine economy not only threatens the financial stability of that sister country. It also wreaks havoc with the sovereign debt restructuring mechanisms that have been developed over time, with the acquiescence of international lending agencies, to enable numerous countries to overcome their debt crises and embark once again on a path to growth.

Here we are up against a three-fold paradox.

For decades already, the world has become familiar with the limited liability system, whereby an enterprise or corporation that files bankruptcy proceedings is liable only to the extent of its capital. Under no circumstances does the collection of its debts affect the wealth of its shareholders. National legislations throughout the world establish mechanisms enabling their enterprises gradually to pay their creditors in an orderly fashion and even resume their activities under terms that provide them with a fresh opportunity, while protecting shareholders and depositors from harm. In the case of large corporations, the limited nature of their liability has been rendered even more explicit, giving rise to the supposedly almost sacrosanct term “too big to fail," which suggests that the huge number of interested parties, shareholders, or depositors; the spillover of losses to other enterprises; the number of jobs lost; and the overall impact on the economy make it imperative to bail out those companies.

In the global economy, no such limited liability exists. The only possibility open to sovereign states for restructuring their debt is to reach collective agreements with their creditors, with the support of the international system. This arrangement makes it possible to reconcile the demands of creditors (many of whom have already made substantial profits thanks to the high interest charged) with the need of countries to grow so as not to harm their populations, especially the most vulnerable segments, as well as pay back the restructured debt.

Nevertheless, for some unwelcome players in this global economy, the possible bankruptcy of a State, with the enormous damage to its citizens, and in particular the poorest, that default entails, is never "too big." On the contrary, for them, such a crisis always represents a business opportunity.

That is why such funds are described, factually rather than pejoratively, as vulture funds: they hover tirelessly over the global economy, ferreting out its shortcomings, with a view to buying companies in their death throes and dismantling them; buying doubtful loans for a pittance; or exploiting a country's difficulties in borrowing abroad and buying up its high-yield bonds. And who cares whether the current government of that country was not the one that contracted the debt, that the borrowing was a consequence of erroneous policies, or that poverty will increase. Buying for 10 and making 1000 is what "vulture funds" are all about, regardless of the damage dealt to a country and its population.

They buy cheap and earn a fortune. However, until recently, we used to think this was a high-risk business. Now it turns out that this is not the case.

In a memorable speech at the Summit in Monterrey, Mexico, in January 2004, the President of Argentina, Néstor Kirchner, said:

"...private creditors (should) accept that, just as they at one point earned huge interest, of 30% a year, covering them against losses, earning in one year what others earn in 30, they took on a huge risk that today they must come to terms with. That was, indeed, the size of the risk they took on. It is a rule of serious capitalism that high interest compared to the international mean indicates that the investor opted for risk at the expense of security."

"During the worst crisis in my country," the President added, "my job was to be governor of the province of Santa Cruz and to move my country's funds to the U.S. Federal Reserve at 1% annual interest, while there were people investing in my country for 30% per year, earning in one year what we hoped to earn in 30. The goal of someone earning high interest is risk, not the security of the investment. That being so, it is neither moral nor rational to argue for the protection of someone who managed his funds as if he were visiting a casino." (end of quote)

The message being sent now is that those who gamble in international financial speculation can commit whatever excesses they like, because they will always be protected in the same way as those who act prudently and accept cleaner and socially more humane and supportive rules of the game.


The second facet of the paradox is that efforts to establish a sovereign debt restructuring system that protects the legitimate interests of bondholders while at the same time ensuring that countries are not prevented by the overwhelming weight of their debt from growing and attending to the most pressing needs of their citizens, have now been undermined by a decision that declares that a creditor who accepts a renegotiation and a creditor who does not accept one must be repaid at the same time.

The Friend of the Court ("Amicus Curiae") document, presented by the Government of the United States to the Second District Court of Appeals, puts this more clearly than I can:
“The District Court´s interpretation of the pari passu provision could enable a single creditor to thwart the implementation on an internationally supported restructuring plan… Allowing creditors recourse to such an enforcement mechanism would have adverse consequences on the prospects for voluntary sovereign debt restructuring, on the stability of international financial markets and on the repayment of loans extended by international financial institutions.” (end of quote).

In other words, who is going to enter into negotiations to receive a portion of the original debt, if successful negotiation by others will enable him to collect the debt in full through the courts?

But the worst facet of the paradox is that, even though the governments of all our countries and the international organizations we have founded agree that an unjust aberration is being perpetrated, so far there are no signs of the tools needed to correct it. I trust that this Meeting of Consultation will serve that purpose.

Ministers and Delegates: I wish to end my remarks by once again citing Néstor Kirchner's words in Monterrey:
"While accepting that our debt is a core problem, we take a position that we are interested in reaffirming today: we cannot pay in such a way as to undermine the prospects of economic growth and governability by generating more poverty, hunger, exclusion and social conflict. We did that already and the result was that we placed the country on the brink of institutional breakdown and social disintegration. … Nobody stands to gain if the growth of our economy is stifled. Lack of growth would prevent us from paying even our commitments to international organizations; lack of growth would kill our hopes..."

One year later, in 2005, Argentina was to achieve the first renegotiation of its debt, followed by a second renegotiation in 2010, and it has been paying its debts, thanks to the growth of its economy. Let us help ensure that those hopes continue to be realized.

Thank you

Reference: S-006/14