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U.S. on Its Own, Once Again, at OAS Meeting on Argentinean Sovereign Debt

By Alexander Main | CEPR Americas Blog | July 9, 2014

Once upon a time, the U.S. government ran a very tight ship at the Organization of American States (OAS), a multilateral institution created by Washington at the start of the Cold War.  Though the OAS’  1948 Charter calls on its members to uphold democracy and respect the principle of non-intervention, for decades the U.S. supported military coups against democratic governments and intervened militarily around the hemisphere without serious opposition from within the regional body.  In 1962, the U.S. rallied a majority of member states behind a resolution to suspend Cuba’s membership in the organization and, in the years that followed, was successful in preventing the OAS from taking action against U.S.-backed Latin American dictatorships.

Until recently, the U.S. could systematically rely on the support of a solid group of rightwing allies at the OAS to defend its agenda.  But, as a result of the region’s far-reaching political shift to the left, the tide has clearly changed.  At the OAS General Assembly in 2009, the U.S. reluctantly joined the rest of the organization’s member countries in lifting the suspension on Cuba’s OAS membership.  After Honduras was expelled from the OAS following the June 2009 military coup in Honduras, the majority of members resisted U.S. efforts to restore the country’s membership until June of 2011 when deposed president Manuel Zelaya was finally allowed to return.  And in March of 2014, after working with the rightwing government of Panama to force an OAS discussion on opposition protests in Venezuela, the U.S. came up worse than empty handed.  Though the U.S. sought a resolution condemning the government of Venezuela and calling for OAS mediation, the member states – minus the U.S., Panama and Canada – backed a resolution that declared “solidarity and support” for Venezuela’s “democratic institutions” and for a process of dialogue already underway.

Last week the U.S. once again stood alone, backed only by the rightwing government of Canada in its opposition to an OAS resolution supporting Argentina in its fight against vulture funds and the ruling of a judge in New York.   As Argentina news hounds and CEPR readers are well aware, the U.S. District Judge in New York, Thomas P. Griesa, ruled that Argentina would have to pay two hedge funds, aka vulture funds, the full value of Argentinean debt that the funds had bought for around twenty cents on the dollar. Griesa didn’t seem to care that 93 percent of the holders of the country’s defaulted debt had signed on to restructured debt agreements in 2005 and 2010.  In order to enforce his decision, Griesa’s ruling blocked Argentina from paying interest to the holders of the restructured bonds without first paying off the vulture funds.

As this decision would create a dangerous, far-reaching precedent – effectively calling into question any country’s sovereign right to restructure its debt – the U.S. Supreme Court was widely expected to oppose Griesa’s ruling when the case came before it in June.  Instead, the Court refused to hear the case, leading to international consternation and outrage.  At the OAS, senior foreign ministry officials from Latin America convened on July 3^rd for a special meeting on the issue, and all those present – except for the U.S. and Canada – expressed support for the Argentinean government.  Brazil’s minister of foreign affairs, Luiz Alberto Figuereido, said that Brazil was “worried about the future impact of this precedent” created by the U.S. court decision. Luis Almagro, the foreign minister of Uruguay, said that the decision wasn’t good for sovereign states or for “any international financial entity or for any multilateral credit organization, because if at some moment they are negotiating the restructuring of any country, they can’t put up with this sort of competition [from vulture funds]. ”The OAS resolution [DOC] approved by every country but the U.S. and Canada was unreservedly supportive of Argentina, expressing:

1. Its support to the Argentine Republic so that it can continue to meet its obligations, pay its debt, honor its financial commitments and through dialogue arrive at a fair, equitable and legal arrangement with 100% of its creditors.
2. That it is essential for the stability and predictability of the international financial architecture to ensure that agreements reached between debtors and creditors in the context of sovereign debt-restructuring processes are respected by allowing that payment flows are distributed to cooperative creditors in accordance with the agreement reached with them in the process of consensual readjusting of the debt.
3. Its full support to achieving a solution that seeks to facilitate the broad Argentine sovereign debt-process.

The U.S., out in the cold yet again, said in a footnote that: “the United States cannot support this declaration, and notes that the issue remains in the judicial process in the United States.”

“I do not quite understand the U.S.’ position”, Argentinean foreign minister Hector Timerman declared after the OAS meeting.  He noted, with a touch of humor, that for the first time ever both the IMF and the Socialist International supported Argentina in its legal battle with the vulture funds. In a June 24 op-ed, CEPR’s Mark Weisbrot discussed the evidence that the U.S. administration may have contributed to the Supreme Court decision not to hear the Argentina case and what the reasons might be:

So why didn’t the Supreme Court hear the case? It could be that the court was influenced by a change of position on the part of the U.S. government, which may have convinced it that the case was not that important. Unlike France, Brazil, Mexico and Nobel Prize winning-economist Joseph Stiglitz, the U.S. government did not file an amicus brief [PDF] with the Supreme Court, despite its filing in the appellate case. And – here is the big mystery – neither did the IMF, even though it has publically expressed concerns about the impact of that ruling.

On July 17, 2013, IMF Managing Director Christine Lagarde submitted notice that the fund would file an amicus brief with the Supreme Court. But then the IMF board met and, somewhat embarrassingly, because of objections from the U.S., decided against it. This could be why the Supreme Court did not invite a brief from the U.S. solicitor general, and ultimately did not hear the case. But who is responsible for Washington’s reversal?

As in an Agatha Christie novel, there are numerous suspects who could have done the deed. The vulture fund lobby – a well-connected group led by former Clinton administration officials– known as the American Task Force Argentina, spent over $1 million in 2013 on the case. Then there are the usual suspects in Congress, mostly neo-conservatives and the Florida delegation, who want a different political party in power in Argentina after this fall’s elections.

July 9, 2014 - Posted by aletho | Economics, Timeless or most popular | Argentina, Latin America, United States