G-77, Vulture Funds and a Default Workout Mechanism

Vulture Man: NML Capital's Paul Singer v. Argentinian President Cristina Fernandez.

File this under: dream on, buddy. A few weeks ago I discussed the quandary faced by Argentina as a US court prohibited it from paying off restructured loans until it had compensated holdouts. To Argentina and the latter's critics, these are "vulture funds" who picked up defaulted debt for a few cents on the dollar, refused to participate in debt restructuring, and succeeded in using American courts to wangle a huge payday. Martin Khor of the South Centre, which my country and most other developing countries contribute to, offers this recap:

The vulture funds want their pound of flesh.  The main fund, NML Capital, would make an estimated 1,600% profit. Argentina’s President Cristina Kirchner refused to bow to these funds.  If she did, the country might have to also repay all the creditors the full value, which is US$120 billion, and that is impossible to do.

This incredible turn of events has caused outrage among many public interest groups and anger among developing countries’ governments.  The South Summit of the G77 in June in Bolivia criticized the vulture funds and called for a proper global debt restructuring mechanism. Finance Ministries of developed countries have been concerned as well.

After all, developed countries like Greece also went through debt restructuring, in which private creditors agreed to take a loss, a few years ago. Accepting the court decision as the new template would make it quite impossible for any country to restructure their debts, since the now emboldened vulture funds would pounce, and of course even more investors would imitate the behavior of such funds, since there is big and easy money to be made.  

The disorder caused by the American court has set into motion measures aimed at ensuring orderly debt workouts for sovereign defaults:

Influential Financial Times commentator Martin Wolf has supported Argentina in its battle with the vulture funds, even saying that it is unfair to the real vultures to name the holdouts such since at least the real vultures perform a valuable task! At the end of August, the Swiss-based International Capital Market Association, a group of bankers and investors, issued new standards aimed at reducing the ability of holdout investors to undermine debt restructuring.

Which brings us to the logical solution: why not create a restructuring mechanism for sovereign defaults? It makes sense, but the problems are manifold. First, LDCs want to house this mechanism at the UN which countries like the US, its ostensible host nation, deplores. Second, LDCs being the ones likely to experience financial distress lack the political-economy clout to push for the creation of such an organization unlike, say, the US promoting the G-20. So, we remain stuck in no-man's land:

On 9 September, the Group of 77, representing developing countries, succeeded in promoting a resolution at the United Nations General Assembly which recognized that a state’s efforts to restructure debt should not be impeded by hedge funds that seek to profit from distressed debt. The General Assembly, by a vote of 124 in favour, 11 against and 41 abstentions, also decided to set up a multilateral legal framework for sovereign debt restructuring by the end of 2014, to increase the stability of the international financial system.

A global system for debt restructuring will be a systemic solution, since countries with debt crises can have recourse to an international court or system and would not need to do debt restructuring on its own. Although the developing countries as a whole championed the resolution, there will now be an uphill battle to get it implemented, since the United States, Germany and the United Kingdom (which are key countries in global finance) were among those which objected.

Another resolution, initiated by Argentina and others, is now being considered by the UN Human Rights Council, aimed at setting up legal frameworks to curtail vulture funds’ activities and for sovereign debt restructuring. One good thing is that the UN, which is a universal body in which developing countries have a greater say in decision-making, is now at the center of the debt discussion. The negotiations ahead to set up a global system will be tough but well worth it since preventing and managing a debt crisis is now a priority for a growing number of countries.  

IMHO the developing countries are well-intentioned and their proposal generally makes sense. However, the reality remains that the UN General Assembly is a totally lame body in comparison to the Security Council. Ditto for the Human Rights Council. It is here where LDCs' lack of clout in global economic governance becomes obvious. The US, for instance, is hindering quota (voting rights) reform at the IMF. Things are not that much better at the World Bank where the US still gets to choose its president.

As it was at the G-77's creation, the UN General Assembly is a pretty useless venue to clamor for global economic governance reform that is LDC-friendly, and I am afraid things are not much different this time around. The rich countries will not play ball, and the poor countries are not strong enough to take it away from them after all these years.

Happy 50th Birthday G-77! (Well, Sort Of)

We kicked out S Korea after it joined the OECD rich country club, but its UN chief attended anyway.

 Most of you are probably thinking, those guys are still around? The G-77 was forged during a time when developing countries began to recognize their shared interests and desired to make them better known at international organizations. Even now, it remains the premier grouping among developing countries at the UN General Assembly even if it receives minimal press attention. To commemorate its fiftieth birthday, the G-77 recently held an event in Bolivia. Being perfectly honest, the G-77 has often degenerated into a mouthpiece for anti-Americanism, which is obviously not developmental in itself. Nor has it been a significant forum in developing a common platform for the Global South.

Still, the latest event proved noteworthy in a few respects. First, UN Secretary-General Ban Ki-Moon (is it just me or does he sound like a Sanrio character?) attended our shindig:

Mr Ban Ki Moon in his opening speech said the G77 and China had given the South a global voice, and the Group provides an immense contribution to the UN. He told President Morales that he appreciated his vision of Living Well, as development based on living well is humanity living in harmony with Nature and with each other. The Secretary General said the SDGs [sustainable development goals] require Global Partnership and the G77 has a key role to ensure its effectiveness. The Group should press for a fair trade regime, technology transfer and so on. The G77 and China plays a key role in the UN to formulate a post 2015 Development Agenda.

Aside from the Bolivian president, Argentina's Cristina Fernandez, also took to the mic together with other stalwarts of the Latin left:

With regard to the economic order, [she] said a crisis currently persists and affects many countries of the world, “my country had been affected before, this is happening is not capitalism, it is a complete and utter distortion, qualify as anarcho-capitalism.”

[S]he finished by thanking all present [for their] intervention and President Evo Morales, for the invitation “if we do not we should remove in time” [then] good “because we have to call to reach a new world order to continue living.” Prior to the president [of] Argentina, the presidents of Venezuela, Nicolás Maduro; Cuba, Raul Castro and Uruguay, José “Pepe” Mujica, urged the G77 to move toward a new world order more just and equitable.

Speaking of the Uruguayan leader, he also went all ecological on us:

Uruguay's austere president is urging world leaders to fight a "culture of waste" in which poor nations try to emulate richer countries rather than live in balance with the environment.Speaking in Bolivia on Sunday to a summit of the Group of 77 and China, Jose Mujica calls the growth in consumerism "a trap" that will produce material gain at the cost of human development. Mujica is a former guerrilla leader and he has won attention for his no-frills lifestyle as Uruguay's president, including driving an old Volkswagen Beetle and living on a simple flower farm.

This being the G=77...and China, Vietnam took the opportunity to use this venue to decry Chinese imperialism via the PRC's expansive territorial claims in the South China Sea:

China rebutted Sunday night accusations made by Vietnam over the South China Sea, urging the Vietnamese side to immediately stop all the disruptive and destructive acts against China's legal operations in the sea. At the conclusion of the Group of 77 (G77) plus China summit in Bolivia, Le Hoai Trung, Vietnam's permanent representative to the United Nations, claimed that China operated a drilling rig "in the exclusive economic zone of Vietnam" and sent warships to drive away Vietnamese vessels, which "infringed Vietnam's sovereignty and territorial integrity."

While I certainly sympathize with the G-77--unlike South Korea we are the poor countries who stayed poor--I despair at the actual political clout we have. Reform at the IMF and World Bank remains stalled. The UN Security Council's permanent members are still the victors of WWII. We again issued a call for a new world order, but that's been the refrain for, oh, forty years now. So much has happened, but nothing's really changed I fear as the G-77 has become yet another "talk shop" with a slightly different cast of characters dominated by Latin blowhards and the like.

Saudi Arabia, Probably the UN's Worst Crybaby

This must take the cake for the worst tantrum in international relations for the year: Saudi Arabia's movers and shakers have, in recent years, been lobbying hard to become one of the ten rotating members of the UN Security Council. Then, having secured this berth just recently, the country pulls out:

A decision of such magnitude would have to have been taken by King Abdullah or Crown Prince Salman, said a Saudi analyst who asked not to be named. "Saudi Arabia has been working on (getting onto the Security Council) for the last three years. They trained diplomats, male and female, the cream of the Foreign Ministry, our best talented youths. Then somebody made the decision suddenly to pull out," he said.

Until the Saudis winning selection as a temporary security council member for 2014-2016, no country has ever turned down such a selection. Having done the oozing and schmoozing, Saudi Arabia is acting out over three pet issues not going its way: tougher sanctions on Syria to support Sunni rebel groups it funds; tougher sanctions on its would-be hegemonic rival in the Middle East (Shi'ite) Iran's alleged nuclear weapons program; and the continuing stalemate in Israel-Palestine negotiations:

The failure "to find a solution to the Palestinian cause for 65 years" had led to "numerous wars that have threatened world peace," the foreign ministry said. It also criticised the UN's "failure" to rid the Middle East region of weapons of mass destruction, including nuclear weapons [take that, Iran...and Israel too!]. And it accused the UN of allowing the Syrian government "to kill its own people with chemical weapons... without confronting it or imposing any deterrent sanctions".

Saudi Arabia likely believes it is locked in a contest for its very survival. Not only is the Islamic-Jewish invoked here but also the Sunni-Shi'ite schism. That the US is not willing to "act tough" is the cause of Saudi calls for UN reform, whereas before the Yanks were presumably viewed as being more accommodating of Saudi wishes:

Unlike in the past, when Riyadh's frustration was mostly directed at Russia and China, it is now also aimed at Washington, its oldest international ally, which has pursued policies since the Arab Spring that Saudi rulers have bitterly opposed [...]

Saudi concerns that the U.S. decision to avoid [Syria] strikes demonstrated weakness were underscored by signs of a tentative reconciliation between Washington and Tehran, something Riyadh fears may lead to a "grand bargain" on Iran's nuclear programme that leaves Gulf Arab states at a disadvantage. In an earlier sign of mounting Saudi anger, Foreign Minister Prince Saud al-Faisal two weeks ago cancelled his speech at the U.N. General Assembly in what a diplomatic source said was a response to international inaction on Middle East issues.

It has been sharply critical of U.S. policy in the Middle East since the Arab Spring, not only on Syria but also in Egypt, where Washington cut off aid to the military after it ousted a Muslim Brotherhood government that Riyadh saw as a threat. In an interview with pan-Arab daily al-Hayat on Tuesday, Saudi Arabia's ambassador to the U.N. Abdullah al-Muallami described U.S. policy on Egypt as "arm-twisting".

This whiny behavior has more to do with geopolitics than with the unfairness of the UN Security Council setup. I do agree that it's unfair that we continue to accede to the wishes of victors of a conflict that ended almost seventy years ago. However, the Saudis acting in such an immature manner is hardly the sort of thing to get the ball rolling in terms of UN reform.

After all, it's hardly acting in the interests of all members but in its (rather petulant) self-interest. Had its former American buddies given Saudi Arabia its way, I hardly think it would be acting so very immaturely. In any event, the IPE Zone's "Best Dramatic Performance About the Unfairness of the World" award for 2013 goes to Saudi Arabia. No one even comes close.

WAAAAAAAAAAAAAAAAAAAAH!!!

United States' UN Hatred vs Seafarers' Rights

The [UN] Secretariat building in New York has 38 stories. If it lost ten stories, it wouldn't make a bit of difference - John Bolton, US Ambassador to the UN 2005-2006

How much has US thinking changed about prospects for international cooperation, multilateralism and all that good stuff about being a responsible member of the world community? To be honest, not all that much. The infamous Bush appointee John Bolton once said that blowing up the top ten stories of the UN wouldn't make a difference in world affairs. Conservative media certainly hasn't stopped its crusade against the UN. Although Obama and his foreign policy officials are nowhere near as brazen in speech, in practice nothing much has changed. The US remains the only developed country not to sign on to the convention against discrimination against women, has not joined the International Criminal Court, has not joined the land mines ban...the list goes on and on. From keeping Guantanamo Bay open to conducting drone strikes and extraordinary rendition--there is a UN treaty on enforced disappearance the US has deliberately chosen to ignore--America's roguish streak against international law is evident. As I've said, the UN should be anywhere but New York. 

Obama is actually more appalling than Bush in the sense that he pretends to be cosmopolitan and internationalist when, in reality, US foreign policy remains largely unchanged. In hindsight, we should probably appreciate Bush's candour about us being either with the US or against it. Practically speaking, Obama defines American national interest the same way Bush does, but is not as forthright in saying so. Such deception may fool committee members who gave Obama a Nobel Peace Prize for "not being Bush," but I would like to think that we are not so easily deceived.

Recently, the International Labour Organization's (ILO) Maritime Labour Convention [MLC] came into force on 20 August 2013. With 49 countries already signed on, it demonstrates that many states value the contributions of seafarers to making globalization possible. By shifting goods vast distances, they provide an essential service to the world economy. But does the United States value their contributions? To no one's surprise, one of the major holdouts in legislatively ratifying the MLC is the US of A:

Before the U.S. Senate can vote on the issue, however, the administration of President Barack Obama must formally sign the convention and then request the Senate to authorise its ratification. Currently, an inter-agency advisory panel is looking at the specifics.

“The U.S. government believes the MLC is an important addition to protect workers at sea, and we welcome its entry into force for 30 countries this week,” a U.S. State Department spokesperson told IPS. “The United States was actively involved in the negotiations, and we supported its adoption in 2006. At present we are reviewing the convention to determine whether to submit the convention to the Senate for its advice and consent.”

That review is being coordinated by the U.S. Coast Guard. While the Coast Guard did not respond to IPS requests for comment, analysts have suggested that the agency does support ratification, as the MLC offers a potent tool to crack down on ships in U.S. waters that are failing to adhere to international standards. “It will be very important for the U.S. to ratify this convention, as doing so will go a long way towards eliminating substandard vessels from international commerce more generally,” the Centre for Seafarers’ Rights’s Stevenson says. “Further, given the size of the U.S. economy, it is almost impossible to make money operating a major ship without going through the United States.”

It is fair to say that shipborne cargo makes the world go round since it carries 90% of world trade. So, why this self-proclaimed champion for human rights choose to ignore the rights of those who labour to bring so many goods to America? Last I checked, the United States remains by far the world's largest importing nation.

Like "Internet Freedom," I guess this is just another instance of American hypocrisy about so very many things. On binding international treaties, the US is a non-entity. How did that saying go...all hat, no cattle? When it comes to stepping up to the plate by signing on to treaties to observe various rights, America quite frankly doesn't give a damn.