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CADTM prompts Argentina to embrace the Calvo doctrine and to follow the example of Ecuador in setting up an integral debt audit
17 October 2014

The Argentine parliament has just passed legislation for launching a debt audit commission. It will look into the debts contracted by the country since the military junta took over in 1976. The Commission, which is yet to take off, is supposed to submit its report within 180 days. The audit can genuinely serve the interest of the people. Thus, CADTM urges the Argentine government to follow the example of Ecuador which set up a commission in 2007 for an audit of the debt incurred between 1976 and 2006.

That commission included members of the public administration and the government, the Ecuadorian and the Amerindian social movements, and also international representatives like the CADTM. On the basis of the commission’s conclusions the Ecuadorian president Correa took two important steps without asking for the creditors’ approval.

The first was in November 2008 when he unilaterally suspended the payment of a part of the public debt deemed “illegitimate”. The second came through in June 2009, when he persuaded the creditors for a 70% debt reduction. This important reduction enabled the Ecuadorian government to save $ 7 billion and thus increase the public expenditure- primarily on health, education and social security.

This debt reduction is very different from Argentina’s case in 2005 and 2010 following negotiations with its private creditors. To attain a reduction of 70% of its public debt contracted with private entities, Argentina restructured with 93% of its creditors giving them new debt securities at a lesser value but without canceling the older ones bought back by the vulture funds.

The latter acquired a part of these old debt securities at a very low price with the intention of compelling Argentina through legal means to pay the full price. Which means that Argentina has to pay the initial sum of the debt (estimated at its nominal value) compounded with interests, penalties plus various legal charges/costs. These vulture funds made no mistakes, as two of them - NML Capital and Aurelius – have obtained a favorable judgment in the US by means of which they earned the right to be reimbursed by as high as $1.3 billion, which implies a 1600% capital gain.

Ecuador on the other hand adopted a different strategy. Based on the conclusions of the audit which revealed the illegitimate portion, the Ecuadorian government refused to negotiate with its creditors and bought back 91% of the debt only at 30% of its initial value. In these conditions, it was difficult for the creditors like the vulture funds to sue Ecuador in the US courts or elsewhere. The collective action clause (CAC) prevented the creditors, who had not sold their securities to the government, from prosecuting the Ecuadorian state as it held 75% of the securities.

If Argentina wants to draw lessons from its past errors, it must:

- Immediately put in place the Audit Commission provided by the Act 26984 adopted recently. Decide on the methodology of its functioning and involve the social movements and experts who have been conducting researches on the illegitimacy of the public debt for years.

- Suspend debt payment in order to carry out, with an active peoples’ participation, an integral debt audit. Once the audit is completed, Argentina should repudiate the part of the debt identified as illegitimate, odious or illegal.

- Take recourse to the Olmos judicial rulingi handed down by the Argentine Supreme Court on 13th July 2000. This judgement identified 477 offences in the development of the argentine debt which blew up during the dictatorship (1976-1983) and kept on mounting during the civilian governments of Raúl Alfonsin and more of Carlos Menem. It also implicated the IMF: “From 1976 to1983, the policies of indebtedness and loans were totally arbitrary. It involves the staffs and the council of administration of the public and private institutions. The existence of an explicit link between the external debt, the flux of foreign capital in the short term, the raised rate of interest in the internal market and the corresponding sacrifice of the national budget since 1976 couldn’t have passed without the notice of the IMF authorities who supervised the economic negotiations of this period.”

- Implement the Calvo doctrine which lays down that in case of a conflict with foreign investors including creditors, the national jurisdiction would be binding to settle the dispute. This doctrine was earlier implemented throughout most Latin American countries but was discarded in favor of external jurisdictions, such as that of the US, once the neoliberal offensive started. The US laws protect the interests of the investors and the creditors. It is important to point out that since the military dictatorship of 1976, Argentina systematically allows the US jurisdiction to settle disputes- thus abdicating partial sovereignty.

- Immediately quit the World Bank tribunal headquartered at Washington, the ICSID (International Centre for Settlement of Investment Disputes) as Venezuela, Bolivia and Ecuador have done. The ICSID is not an international tribunal; it is an international body composed of arbitrary “ad hoc” tribunals. That means that the tribunals, created on a case-to-case basis, do not care about human rights. For the private ‘investors’, they are the preferred legal tools against the States.

According to the CADTM, the mobilization of people only would enable the government to take these steps effectively. The CADTM network supports all social movements in Argentina which fight against the dictatorship of the creditors.