It took
the American Gregory Makoff, a specialist in sovereign debt, seven years
to write a book on a painful and fundamental topic for Argentina.
“I thought it would take me two years, but
it was so complicated and at the same time so fascinating
that I kept going,” he told
Clarín
.
The result was
Default, the historic court battle over the restructuring of Argentina's $100 billion debt”
(Georgetown University Press), which will be released this Thursday for sale in the United States.
“It is an
untold story
from which you can learn a lot,” he explains.
Graduated in physics and political science from
MIT
, with a doctorate from the University of Chicago, Makoff worked for 21 years – most of them at Salomon Brothers – as a
debt restructuring advisor
in Jamaica, Colombia, Brazil, South Africa, Nigeria, among others. other countries.
He was also
a US Treasury official
where he had to deal with the issue in Puerto Rico.
Since 2015 he has been writing on sovereign debt as a non-resident senior fellow at the
Center for International Governance Innovation
in Canada and a senior fellow at the Mossavar-Rahmani Center for Business and Government at
Harvard University's Kennedy School.
The book, which will be presented this Thursday at the Council of the Americas in New York, is a detailed account of the Argentine nightmare linked to defaults and restructuring,
beginning with the 2001 crisis
, the negotiations with the IMF and the
restructuring of the debt in 2005
and the following decade of
judicial battle with the bondholders
that ended up setting an enormous global precedent: the precautionary measure imposed by Judge Thomas Griesa in 2012, which prevented the country from making payments to bondholders who had accepted previous exchanges while refused to pay all of its creditors and for which
two years later the country fell into default again.
The story in the book closes with the agreement reached by the government of Mauricio Macri with the bondholders in 2016.
President Javier Milei now has to negotiate with the International Monetary Fund, another important actor in the Argentine saga.
“
I see Milei as a product of Argentina's failure to recover from the default of 2001
,” says Makoff, and hopes that there will be a political and social consensus in the country to definitively get out of the debt crisis.
You might think that it is a story full of overwhelming numbers, but no: with more than a
hundred interviews
with the protagonists, transcripts of hearings, public reports and official documents, Makoff reflects the climate of the negotiations, the tensions in the meetings, the rudeness, the political ups and downs of the country and
how Judge Griesa was losing patience with the Kirchner government.
Gregory Makoff, American academic author of the book "Default", about Argentine debt.
-You affirm that the fight between Argentina and the bondholders is one of the most significant episodes in the history of sovereign debt litigation. Because?
-There were hundreds of cases in the world.
But the scope and duration of the Argentine court battle were extraordinary and the sentences significant.
That the issue reached the Supreme Court of the United States or the decision to impose the injunction by Judge Griesa was something that happens once every 100 years.
It was something extraordinary because of the volume, the intensity and the ferocity.
But it was important basically because of that critical failure.
-Your book covers 15 years of debt history. What was the worst moment?
-It was after the default of July 2014 (when Cristina Kirchner's government could not be forced to pay the bondholders after a long negotiation that failed in New York) because at that time it was 13 years after the default of 2001 and everyone The bonds were in default again.
They were back at square one and, as the elections approached, no one was talking to each other and everything broke down.
Argentina was not in a good place, the creditors were not in a good place either.
It was a really dramatic point in this story, when everything really fell apart.
-And the best moment?
-It depends on which side you're on.
On the Argentine side, we could mention Néstor Kirchner's announcement of the restructuring on February 25, 2005 and “the enormous and brave battle against the creditors, which the Government has won and for which thousands and billions have been saved” ( Makoff imitates the former president).
That was the triumphant success of his administration.
But the 24% who didn't join ended up being a problem that lasted much longer than anyone expected.
For Argentina there was a second highlight, when President Cristina Fernández de Kirchner reopened the negotiation and achieved a success rate that reached 92% of bondholders.
Argentina was really a winner, they had a great agreement with 92%.
The remaining 8% didn't matter so much.
For the bondholders, however, the best moment was when Judge Griesa imposed the precautionary order that forced the Government to pay all the bondholders and not just those who had restructured before.
"There is a new agreement on a set of principles on which people want more stability, as opposed to more money from the Government in the short term"
Gregory Makoff
-In Argentina there is the image of Judge Griesa as someone who was too harsh on the country and who was obsessed with the case. What do you think?
-I don't think that's really correct.
He protected Argentina very strongly in the first years through the 2005 restructuring. He blocked the creditors and even yelled at them: “Sometimes it is better to get something than nothing,” he told them.
They brought
pari passu
(equal conditions) in 2004, he did everything Argentina wanted during 2005 and then he got tired, frustrated and angry.
So the book is a study of him changing, getting very angry and punishing Argentina.
If Argentines want to understand who he is and why he made that extraordinary ruling against the country in 2012, this book really tells that story.
Furthermore, in the end, during Mauricio Macri's government, the negotiating team of Luis Caputo and Santiago Bausili acted reasonably, Judge Griesa quickly lifted the court order, and Argentina finally obtained a great agreement.
So he is an interesting character and in no way was he against Argentina.
-What lessons from all this history should Argentina and its creditors learn?
-I would say that the world has learned, both the creditors and the IMF, that it is very difficult to make these agreements without a voting system for bonds.
Argentina's bonds did not have a "Collective Action Clause" (which allows a supermajority of bondholders to force all holders to accept a restructuring offer) so 76% of bondholders participated and 24% opted for not accepting.
Now all bonds have very strict voting provisions, so if you add 75%, voting for a deal is forcing 100% to accept it.
Due to Argentina's default in 2001 and then due to the problems with Judge Griesa in 2012, the market accepted very powerful clauses, adding to these provisions.
The world changed in direct response to Argentina's problems.
When Ecuador restructured the debt in 2020, they used these new voting schemes and there were no obstacles.
There was no litigation.
And so the world improved a lot from Argentina's difficulties.
-And regarding the relationship with the IMF?
-I think that for Argentina the fights with the IMF after the 2001 collapse were understandable, but in the end, I think it would have been better if it had been close to the IMF to bridge its differences.
The initial response to the crisis was very good, but then the policy declined.
When politics weakens, the crisis returns.
The lesson for Argentina is that things would have been better if the country had worked better with the IMF.
-If we compare the debt crisis of 2001 and the current debt crisis. How far are we from those years?
-It is very difficult for me to compare them because they are economically very different.
There was no hyperinflation, there was an external debt overhang then and now we have a monetary debt overhang.
There is also a much higher poverty rate today.
I am very empathetic and I am hoping for the best for the Argentine people.
I hope that officials from all parties will work together to reach a consensus to resolve this crisis.
It's not simple.
There are things to learn from how Minister Roberto Lavagna led the recovery and stabilized the economy after the 2001 crisis. He was very successful.
But the current crisis is a very different nature and that is why it needs wisdom from the past and creativity from the present.
Today when you look at Argentina you see a lot of disagreement.
So, from the outside, the only thing you want is to see consensus.
-How do you see President Milei's approach to debt management with the IMF?
-I would not give a particular opinion of Milei's plan because we must have a comprehensive vision of all the pieces of the economic puzzle, such as the monetary pieces, the debt, the measures.
But I see Milei as a product of Argentina's failure to recover from the default of 2001. The country never stabilized, for a couple of years under Lavagna's management the economy balanced, there was a boom with good external factors, but the reforms They were never consolidated.
So, there were brief periods of boom and then there was a bust again.
Then the 2001 debt was never resolved until 2016 and then Macri's plan did not work as expected and the crisis began to deepen.
Then COVID arrived and now the country is where it is.
So I think Milei is a product of frustration over the lack of macroeconomic stability in this period that began in 2001. So, as a historian, I see him as a product of a vote against the system because he has the chainsaw.
Certainly, in my book I highlighted the incredible talent of Caputo and Bausili resolving 15 years of litigation.
They were brilliant, but that is their talent for executing plans and is not a commentary on the entire program.
-Do you think that the current program with the IMF will solve all the pieces of the puzzle that you propose?
I hope so.
But I hope that there is a consensus, that there is a better plan on the table and that it passes through Congress.
The country is rewriting its social contract.
It's not just a program, it's a social contract.
It has to be something that people can live with and sustain themselves.
So I'm thinking very long term.
The Government put a plan on the table.
It's a serious plan, but not everyone agrees with it.
The discussions continue and we have to see if it happens or not.
If it is approved we have to see if it works or not.
There is a new agreement on a set of principles on which people want more stability, as opposed to more money from the Government in the short term.
This is what I am observing, I cannot separate which piece goes where, but I hope for consensus and that there are no fights in the streets.
-Many here in Washington believe that the IMF was too soft or tolerant towards Argentina, which has permanently failed to fulfill its commitments. What do you think?
-I think that the IMF always has a difficult task in that sense.
The emergency lender to troubled countries never makes a good decision.
So I think it makes no sense to point fingers at the decisions made in 2001 before the default or the decisions made five years ago.
The only thing that matters are the decisions that are made today.
Today people are reasonable, they work together.
So I think there is a mess, but if Argentina works together and if the Argentine political system can unite and build a consensus, the problem will be resolved.
So I don't have a criticism for policy makers.
What unlocks progress is trust.
Argentina's confidence in itself, abroad and global confidence in Argentina, which derives from consensus and the search for a way forward.
Really, I don't have any criticism.
I just think people are very focused right now and the problem is solvable.
-Do you think Argentina will one day be able to get out of this debt crisis?
-If we go back about 200 or 300 years we see that the United States has been in default, Italy and France were in default.
The whole world was in default, but they move forward.
That's what teachers teach.
Since 1995, Mexico has surpassed it, as well as Peru, Panama, and Colombia.
-And we?
-Argentina fell into default in 2001, in 2014 by court order and in 2020, and is still in serious trouble.
So if Peru can get out, Argentina can too, and it's just a matter of having stable policies, consensus and basic controls on debt accumulation and money printing.
Argentinians are brilliant.
It is a beautiful country, with resources.
This can be solved.
There will be a satisfactory result.
But as a historian I consider consensus as the basic principles of a government and throughout society, not just in one party or another and that seems to be what people want, today.
So I am optimistic about Argentina.
I am incredibly empathetic to the pain people suffer.
Nobody wants to have a 50% poverty rate.
Nobody wants to have inflation like that.
Nobody wants to have crisis after crisis.
Countries have come out of this.
Argentina can get it.