July 31, 2014

Dear Member of Congress,

We note with concern the recent developments in the court case of Argentina vs. NML Capital, etc. The District Court’s decision – and especially its injunction that is currently blocking Argentina from making payments to 93 percent of its foreign bondholders — could cause unnecessary economic damage to the international financial system, as well as to U.S. economic interests, Argentina, and fifteen years of U.S. bi-partisan debt relief policy. We urge you to act now and seek legislative solutions to mitigate the harmful impact of the court’s ruling.

For various reasons, governments sometimes find themselves in situations where they cannot continue to service their sovereign debt. This was Argentina’s situation at the end of 2001. After years of negotiations, Argentina reached a restructuring agreement with 93 percent of the defaulted bondholders, and has made all agreed-upon payments to them.

The court’s decision that Argentina cannot continue to pay the holders of the restructured bonds unless it first pays the plaintiffs mean that any “holdout” creditor can torpedo an existing agreement with those bondholders who chose to negotiate. While individuals and corporations are granted the protection of bankruptcy law, no such mechanism exists for sovereign governments. As such, the court’s ruling would severely hamper the ability of creditors and debtors to conclude an orderly restructuring should a sovereign debt crisis occur. This could have a significant negative impact on the functioning of international financial markets, as the International Monetary Fund has repeatedly warned.

Those who invested in Argentine bonds were compensated with high interest rates, to mitigate the risk of default. There are inherent risks when investing in sovereign bonds, but the court’s ruling creates a moral hazard, by allowing investors to obtain full repayment, no matter how risky the initial investment.

The plaintiffs in the case purchased Argentine bonds on the secondary market after default, often for less than 20 cents on the dollar. While these actors could have accepted the restructuring and still made a very large profit, they instead have fought a decade-long legal battle, seeking exorbitant profits in excess of 1,000 percent and creating financial uncertainty along the way.

The recent developments will also directly impact the United States and its status as a financial center of the world economy. While much of the developing world’s debt is issued under the jurisdiction of New York law and utilizing New York-based financial institutions, the court’s ruling will make it more likely for sovereign governments to seek alternate locations to issue debt. Britain and Belgium, for example, have already passed legislation aimed at preventing this type of behavior from “holdout” creditors.

In addition, the court has put restrictions on New York banks, preventing them from distributing regularly scheduled interest payments to holders of the restructured bonds. Already, banks have faced lawsuits from investors, creating greater uncertainty for U.S.-based financial institutions.

Argentina has expressed a willingness to negotiate, and has recently reached agreements with the Paris Club as well as claims by international investors.

We hope that you will look for legislative solutions to prevent this court decision, or similar rulings, from causing unnecessary harm.

Sincerely,

Robert Solow, Nobel laureate in Economics, 1987, MIT Professor of Economics, emeritus

Dani Rodrik, Albert O. Hirschman Professor in the school of Social Sciences at the Institute for Advanced Study in Princeton, New Jersey

Branko Milanovic, Luxembourg Income Study Center, the Graduate Center CUNY, former Lead Economist in the World Bank’s research department

Andrew Allimadi, United Nations, Department of Economics and Social Affairs

Gar Alperovitz, University of Maryland

Eileen Applebaum, Center for Economic and Policy Research

Mariano Arana, Universidad Nacional de General Sarmiento

Leonardo Asta, Università degli Studi di Padova

Venkatesh Athreya, Bharathidasan University

Dean Baker, Center for Economic and Policy Research

William Barclay, Chicago Political Economy Group

Jairo Alonso Bautista, Universidad Santo Tomas

Gunseli Berik, University of Utah

Alexandra Bernasek, Colorado State University

Cyrus Bina, University of Minnesota (Morris Campus)

Josh Bivens, Economic Policy Institute

Peter Bohmer, The Evergreen State College

Korkut Boratav, Turkish Social Science Association

Elissa Braunstein, Colorado State University

Jorge BUZAGLO, University of Goteburg

Jim Campen, Americans for Fairness in Lending

Carlos A. Carrasco, University of the Basque Country

Sergio Cesaratto, University of Siena

Kyung-Sup Chang, Seoul National University

Kimberly Christensen, SUNY/Purchase College

Michael Cohen, New School for Social Research

Brendan Cushing - Daniels, Gettysburg College

Omar Dahi, Hampshire College

Carlo D’Ippoliti, University of Rome

Peter Dorman, Evergreen State College

Amitava Dutt, University of Notre Dame

Dirk Ehnts, University of Oldenburg

Gerald Epstein, University of Massachusetts, Amherst

Susan Ettner, University of California, Los Angeles

Jeffrey Faux, Economic Policy Institute

Massoud Fazeli, Hofstra University

Andrew Fischer, International Institute of Social Studies

Jeffrey Frankel, Harvard Kennedy School

Roberto Frenkel, CEDES Argentina

Kevin Gallagher, Boston University

Chris Georges, Hamilton College

Reza Ghorashi, Richard Stockton College

Jayati Ghosh, JNU New Delhi and Ideas

David Gold, New School University

Neva Goodwin, Tufts University

María Florencia Granato, Corporación Andina de Fomento

Martin Hart-Landsberg, Lewis and Clark

Conrad Herold, Hofstra University

P. Sai-wing Ho, University of Denver

Andreas Hoth

Gustavo Indart, University of Toronto

Joseph Joyce, Wellesley College

J K Kapler, University of Massachusetts Boston

Martin Khor, South Centre

Gabriele Koehler

Andrew Kohen, James Madison University

Nikoi Kote-Nikoi

Pramila Krishnan, University of Cambridge

David Legge, La Trobe University

Henry Levin, Columbia University

Mah hui Lim, South Centre

Rodrigo Lopez-Pablos

Robert Lynch, Washington College

Arthur MacEwan, University of Massachusetts Boston

Jeff Madrick, The Century Foundation

Cheryl Maranto, Marquette University

Ann Markusen, University of Minnesota

Julie Mattahei, Wellesley College

Kathleen McAfee, San Fransisco State University

Elaine McCrate, University of Vermont

Hannah McKinney, Kalamazoo College

Thomas Michl, Colgate University

William Milberg, New School for Social Research

Larry Mishel, Economic Policy Institute

Mritiunjoy Mohanty, Indian Institute of Management

Nicolás Moncaut

Tracy Mott, University of Denver

Michael Murray, Bates College

Luiz M Niemeyer, Pontifical Catholic University of São Paulo

Machiko Nissanke, SOAS University of London

Manfred Nitsch, Free University of Berlin

Jose Antonio Ocampo, Columbia University

Carlos Oya, University of London

Marco Palacios, El Colegio de México

Antonella Palumbo, Roma Tre University

Dimitri B. Papadimitriou, Levy Economics Institute of Bard College

Mark Paul, University of Massachusetts Amherst

Lorenzo Pellegrini, International Institute of Social Studies

Lucia Pittaluga Fonseca, Universidad de la República (Uruguay)

Renee Prendergast, Queen’s University- Belfast

Mark Price, Keystone Research Center

Alicia Puyana, Facultad Latinoamercana de Ciencias Sociales

Charles Revier, Colorado State University

Joseph Ricciardi, Babson College

Malcolm Robinson, Thomas More College

Leopoldo Rodriguez, Portland State University

John Roemer, Yale University

David Rosnick, Center for Economic and Policy Research

Antonio Savoia, University of Manchester

John Schmitt, Center for Economic and Policy Research

Stepphanie Seguino, University of Vermont

Anwar Shaikh, New School for Social Research

Kannan Srinivasan

James Stanfield

Eduardo Strachman

William K. Tabb, Queens College

Ezequiel Tacsir, United Nations University

Philipp Temme, Free University of Berlin

Frank Thompson, University of Michigan

Chris Tilly, University of California, Los Angeles

Mario Tonveronachi, University of Siena

Lawal Tosin

Chiwuike Uba, African Heritage Institution

Bunu Goso Umara

Leanne Ussher, Queens College, CUNY

Rolph van der Hoeven, International Institute of Social Studies

Irene van Staveren, International Institute of Social Studies

Matías Vernengo, Bucknell University

David Weiman, Barnard College

Mark Weisbrot, Center for Economic and Policy Research

Thomas Weisskopf, University of Michigan

John Willoughby, American University

Yavuz Yasar, University of Denver

A. Erinc Yeldan, Yasar University

Erhan Yildirim, Cukurova University

Ben Zipperer, University of Massachusetts, Amherst