Home' Trinidad and Tobago Guardian : August 3rd 2014 Contents SBG18 NEWS
SUNADY BUSINESS GUARDIAN www.guardian.co.tt AUGUST 3 • 2014
Argentina s first bond, issued in 1824, was
supposed to have a life span of 46 years. Less
than four years later, the government defaulted.
Resolving the ensuing standoff with creditors
took 29 years.
Since then seven more defaults have followed,
the most recent this week, when Argentina
failed to make a payment on bonds issued as
partial compensation to victims of the previous
default, in 2001.
Most investors think they can see a pattern
in all this, but President Cristina Fernandez de
Kirchner insists that the latest default is not
like the others.
Her government, she points out, had trans-
ferred the full US$539 million it owed to the
banks that administer the bonds. It is America s
courts, because the bonds were issued under
American law, that blocked the payment, at the
behest of the tiny minority of owners of bonds
from 2001 who did not accept the restructuring
Argentina offered them in 2005 and again in
2010. These "holdouts," balking at the 65-per
cent write-off that the restructuring entailed,
not only persuaded a judge that they should be
paid in full but also got him to freeze payments
on the restructured bonds until Argentina pays
up.Argentina claims that paying the holdouts
was impossible. It is not simply that they are
"vultures," as Argentine officials often put it,
investors who bought the bonds for cents on
the dollar after the previous default and now
are holding those who accepted the restructur-
ing---accounting for 93 per cent of the debt---
for ransom. The main problem is that a clause
in the restructured bonds prohibits Argentina
from offering the holdouts better terms without
paying everyone else the same. Since it cannot
afford to do that, it says, it had no choice but
It is not certain, however, that the clause
requiring equal treatment of all bondholders
would have applied, given that Argentina would
not have been paying the holdouts voluntarily,
but under the courts orders. Moreover, some
owners of the restructured bonds had agreed
to waive their rights. Had Argentina made a
concerted effort to persuade the remainder to
do the same, it might have succeeded.
Lawyers and bankers have suggested various
ways around the clause in question, which will
expire at the end of the year. Argentina s gov-
ernment was slow to consider these options or
to negotiate with the holdouts, however, hiding
instead behind indignant nationalism.
Fernandez is right that the consequences of
America s court rulings have been perverse,
unleashing a big financial dispute in an attempt
to solve a relatively small one. Hers is not the
first government to be hit with an awkward
verdict, though. Instead of railing against it, she
should have tried to minimise the harm it did.
Defaulting has helped no one. Now none of
the bondholders will be paid, Argentina looks
like a pariah again and its economy will remain
starved of loans and investment.
Happily, much of the damage still can be
undone. It is not too late to strike a deal with
the holdouts or to back an ostensibly private
effort to buy out their claims. A quick fix would
make it easier for Argentina to borrow again
internationally. That, in turn, would speed devel-
opment of big oil and gas deposits, the income
from which could help ease the country s money
More important, it would help to change per-
ceptions of Argentina as a financial rogue state.
During the past year or so, Fernandez has seemed
to be trying to rehabilitate Argentina s image
and resuscitate its faltering economy. She settled
financial disputes with government creditors
and with Repsol, a Spanish oil firm whose Argen-
tine assets she had expropriated in 2012. This
week s events have overshadowed all that.
For its own sake, and for everyone else s,
Argentina should hold its nose and make a deal
with the holdouts.
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
A US federal judge Friday urged Argentina to resume negotiations
"as promptly as possible" to resolve its debt crisis and said the
South American nation s officials must stop publicly uttering
what he described as "half-truths" that mislead people about
its legal obligations.
US District Judge Thomas P Griesa scolded Argentina at a
hearing, saying the country s obligations to pay U.S. bond holders
who obtained court judgments must be resolved, likely through
negotiations. He said the officials statements all but ignored that
"Half-truths are false and misleading," he said. "Half-truths
do not comply with the law, which requires disclosure of facts."
Argentina entered economic limbo on Thursday after failed
talks. It has been forced into a default that could undermine an
already frail economy if the dispute with American creditors is
not resolved soon.
The Manhattan court has blocked Argentina from making
interest payments to creditors who exchanged their bonds in
2005 and 2010 for bonds of lesser value until it settles with US
hedge funds that claim they re owed about US$1.5 billion.
Argentina s economy minister has said he s willing to hold
Attorney Jonathan Blackman told Griesa that Argentina intends
"in good faith to pursue this dialogue," but its government had
lost faith in court-appointed mediator Daniel Pollack after he
issued a statement on Wednesday saying that Argentina would
"imminently be in default."
The characterisation that Argentina was in default---after
payments to 92 per cent of its bondholders who had exchanged
bonds were not delivered by a Wednesday deadline---upset
Argentine officials, who had argued the nation technically was
not in default because it had made payments to banks, which
obeyed court orders and refused to forward money to bond-
The International Swaps and Derivatives Association, which
represents big banks around the world, rejected the Argentine
position. On Friday, it declared a "failure-to-pay credit event"
for the country, meaning that credit default swaps, or insurance
contracts, on its debt will be paid to investors who had used
the transactions to bet on a default.
Blackman said Pollack s comments on default were "harmful
and prejudicial to Argentina," damaging it in the world s financial
markets, and had spoiled the "feeling of confidence" necessary
Blackman said a negotiated solution covering debt obligations
to all bondholders was necessary because Argentina would owe
over US$20 billion to various bondholders triggered by paying
the US$1.5 billion owed to US hedge funds. Those hedge funds
are led by New York billionaire Paul Singer s NML Capital Ltd.
Robert Cohen, a lawyer for hedge funds, praised Pollack,
saying he had managed to get both sides face-to-face this week
for the first time in 13 years for what "we think have been pro-
Griesa said if Pollack characterized Argentina s status as
being in default, "it could be hardly said to be inaccurate."
Describing Pollack as "completely impartial," Griesa said
there was no reason to replace him and urged a resumption
of talks, saying it was "very important to proceed as promptly
as possible with that."
He said Argentine officials for too long had spoken of their
desire to pay only bondholders who had exchanged their bonds
"as if that were the end of the story," ignoring obligations to
"The republic both in practice and public statements has
attempted to ignore that," he said, describing such behaviour
as "lawless." (AP)
Argentina defaults: Eighth time unlucky
A trash recycler pushes
his cart past a sign that
reads "vultures" in
reference to the dispute
between the Argentine
government and a US
hedge fund, known
locally as "vulture
funds," in Buenos Aires,
Argentina on Friday,
August 1, 2014. The full
graffiti read "homeland
or vultures." The
collapse of talks with US
creditors on July 30 sent
Argentina into its
second debt default in 13
years and raised
questions about what
comes next for financial
markets and the South
US judge scolds nation over debt crisis remarks
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