Wednesday, August 20, 2014

Argentina/US: Update--Buenos Aires Responds, Fails to Acknowledge Debt Default

According to The Latin American Tribune, the United States “should assume its responsibility for the illegal acts” of the federal judge who has found in favor of hedge funds demanding 100 cents on the dollar for Argentine bonds bought in the wake of Buenos Aires’ 2001 default, the South American nation’s government said Tuesday (August 19).

Washington has not formally responded to Argentina’s August 7 filing with the International Court of Justice asking the UN tribunal to resolve “a controversy between the Argentine Republic and the United States,” Foreign Minister Hector Timerman told a press conference.

Decisions by US District Court Judge Thomas Griesa “violate the Republic of Argentina’s sovereign determination to restructure its external debt,” the Argentines said in their brief to the ICJ.

Griesa’s order prohibiting a New York bank from distributing interest payments due to bondholders who accepted the restructuring is preventing Argentina from fulfilling its obligations to those creditors, according to the legal brief.

U.S. officials’ anonymous comments to the press rejecting ICJ jurisdiction in the matter do not constitute an official position, Timerman said.

The ICJ can only hear the case if Washington agrees to accept the court’s jurisdiction, and Washington is under no obligation to respond, sources at The Hague tribunal told EFE earlier this month.

Buenos Aires decided to take the issue to the ICJ after learning that officials in the US Departments of State and Treasury had been instructed not to discuss the debt litigation with their Argentine counterparts, Timerman said.

COMMENT: Argentina defaulted on roughly $100 billion in debt in December 2001, the largest sovereign default in world history, amid a financial meltdown and economic depression.

More than 92% of Argentina’s creditors accepted steep haircuts in 2005 and 2010 debt re-structurings.

Among the holdout creditors are several hedge funds, led by Elliott Management Corp.’s NML Capital Ltd unit and Aurelius Capital Management, that sued Buenos Aires in the US courts for full payment on bonds they bought at large discounts in 2002.

In 2012, Judge Griesa ordered Buenos Aires to pay the litigants more than $1.3 billion. 

Argentina’s appeal of the decision reached the US Supreme Court in June, but the justices declined to hear the challenge.

Buenos Aires then deposited $539 million with a New York bank to cover interest payments due on June 30 to holders of restructured debt, but Judge Thomas Griesa's has barred the bank from distributing those funds until Argentina settles with the hedge funds.

President Cristina Fernández’s administration says that full payment to the hedge funds would lead other holdout bondholders to demand the same, creating a potential liability of some $15 billion, equivalent to half of Argentina’s foreign-exchange reserves.

Judge Griesa has overstepped his authority by blocking the interest payments to holders of the restructured debt, Timerman said.

He also asserted that the hedge-fund litigants have made a total of $10 million in campaign contributions to US lawmakers as part of a campaign to harm Argentina’s interests.

Elliott Management’s founder and CEO, Paul Singer, is a major contributor to Republican political candidates and a range of causes.

The origins of the debt problem go back to Argentina’s 1976-1983 military regime, which presided over a 465% expansion in public indebtedness.