My Point of View Based Upon Law, Finance, and Politics
Tag Archives: debt restructuring
By Arturo C. Porzecanski* The Argentine government’s current attempt to force investors to accept a punishing debt-restructuring plan puts the country at risk of yet another sovereign default on foreign-law, foreign-currency debt. The attempt validates the massive loss of confidence that took place last August, when local and foreign investors ran for the exits in […]
Professor Porzecanski makes credible arguments in the post. He demonstrates using a historical timeline the build up a lack of confidence in the Argentine economy. Once again, the intelligent economic and political policy that the country deserves takes back seat to cult politics. Investor confidence evaporated more with each victory of the A. Fernandez-C Fernandez de Kirchner ticket. Once they officially set in the country’s highest office, investor confidence hit bottom and remained there. The country’s spiral into the now too familiar position of being on the brink of default terminated before the coronavirus crisis existed.
The winds of political change blew hard in the direction of the Peronists leading up to the election. The general electorate votes for the candidate who promises to restore credibility and respect in the Argentine way of doing things. Rational economic policy sits in the back seat of the car of rationality. The average Argentine believes his country’s eternal economic meltdown is the result of the imposition of unfair lending practices and policies.
I am puzzled as to why the IMF would lend (again) the country money.
In December 2001 the world saw Argentina voluntarily walk away from its debt obligations. In a storm of nationalistic rhetoric the country defaulted on billions of dollars of sovereign debt. The massive default caused the Argentine economy to collapse. The difficult economic times drove more than half of the country’s population below the poverty line. Not surprisingly; international lenders and institutions have been reluctant to again lend money to the country. It must be stated that since the default Argentina has reached agreements with about 90% of the bondholders. The investors have been offered a small percentage of their original investment and had their defaulted bond exchanged for new ones. The country has twice restructured the new debt. Some of these exchange bondholders had to believe that receiving something for their investment was better than receiving nothing. They might be right, but only to a limited extent.
It did not come as a surprise to the commentators and experts that investors would eventually grow weary and suspicious of Argentina’s constantly restructuring its debt. These restructurings were basically forced upon the exchange bondholders. The restructure terms clearly favored Argentina. In October 2009 Japan’s finance minister criticizedthe South American country over its debt restructuring scheme(s). He accused Argentina of not negotiating in good faith with it creditors. Has Argentina ever respected the interests of its bondholders?
Photo Eduardo Di Baia, AP
About 10% of the original bondholders decided to sue to recover their complete investment(s). In a earlier post I discussed the torturous and never-ending path of the litigation. I also considered the significance of Argentina’s latest appeal in the 10 year legal battle with the 2001 bondholders. I believe that the courts have finally reached their limits with Argentina’s refusal to pay on money judgments while continuing to litigate the same legal arguments over and over. The courts are aware of President Fernandez’ public declarations that Argentina will never pay “vulture funds.”
On February 27, 2013 the U.S. Court of Appeals for the 2nd Circuit (Court) heard oral arguments on Argentina’s latest appeal. The presiding judges made it clear that they were not there to interpret the terms of the bond contracts but to enforce them. The Court dispensed with any notion that Argentina might have had about litigating de novo the underlying case. The issue before the court centered on the federal court’s imposed repayment scheme. The attorney for the Argentine Republic intimated that his client would be amenable to payment but under a different scheme. This limited and qualified suggestion of a possible settlement of the payment issue intrigued the Court. The judges directed appellant (Argentina) to file its plan for the cancellation of the plaintiffs’ judgments. The order was as follows:
At oral argument on Wednesday, February 27, 2013, counsel for the Republic of Argentina appeared to propose that, in lieu of the ratable payment formula ordered by the district court in its injunction and accompanying opinion of November 21, 2012, Argentina was prepared to abide by a different formula for repaying debt owed on both the original and exchange bonds at issue in this litigation. Because neither the parameters of Argentina’s proposal nor its commitment to abide by it is clear from the record, it is hereby ordered that, on or before March 29, 2013, Argentina submit in writing to the court the precise terms of any alternative payment formula and schedule to which it is prepared to commit.