Argentina’s Ambassador to the United States, Jorge Arguello, used this column last week (“Vulture Funds and Their Myths About Argentina”) to attack a recent essay of mine regarding his government’s continued refusal to respect the terms of its contracts with American lenders and businesses, more than 100 U.S. court judgments upholding those contracts, and the judgments of World Bank tribunals. He would have your readers believe that the demands imploring his Government to respect U.S. and international law come simply from disgruntled investors. The fact is, the U.S. Government – including the Obama Administration and both houses of the U.S. Congress – as well as federal District Court and Circuit judges have repeatedly demanded that Argentina meet its legal obligations. Moreover, in recent months, our Government has taken the extraordinary steps of suspending Argentina’s eligibility under the General System of Preferences tariff schedule and opposing all loans to Argentina from the World Bank and Inter-American Development Bank. Instead of meeting its obligations, Argentina hides behind a consistent refrain of lame excuses. I feel obliged to respond to the egregiously false charges and distortions contained in Ambassador Arguello’s June 22 article.
To be clear, Argentina defaulted on $81.8 billion of sovereign debt in 2001, which at the time was the largest sovereign debtdefault in history. More than a decade later, Argentina still owes $15 billion to its creditors worldwide, including $3.5 billion owed to Americans. With more than $45 billion in reserves, Argentina has the means to pay, but simply refuses to do so. It is no wonder that foreign investment in Argentina remains far below its regional peers, even at a time when Argentina is imploring international oil companies to partner with it to explore private oil fields recently expropriated by the Argentine government. Ambassador Arguello’s essay reminds the world that Argentina will say and do nearly anything to avoid fulfilling its legal obligations. As one Circuit Court judge stated, Argentina engages in “a diplomacy of default.”
Claim: Argentina “recognized its debt and duly paid it.”
The ambassador here refers to debts owed to the IMF. He fails to mention here the $15 billion still in arrears to private creditors, as well as billions more in arrears for loans from the governments of the Paris Club, including the United States.
The ambassador claims that Argentina has carried out a “complete restructuring of its debt.” In fact, half of its foreign creditors, representing one-quarter of its defaulted loans, refused to accept the 2005 restructuring offer. They had sound reasons for doing so. The Argentine government issued a unilateral take-it-or-leave-it exchange offer of 27 cents on the dollar, as compared to a typical restructuring offer of at least 40 to 50 cents on the dollar. In June 2010, nine years after the default, Argentina came back and offered the equivalent of 35-cents on the dollar. The $15 billion still outstanding represents what remains owed to lenders who asserted their legal right to decline thatoffer. U.S. courts had repeatedly upheld the claims of those lenders.
Claim: Argentina has reached an agreement on 92% of the liabilities in default, implying that those settled are satisfied with the settlement and the others are unreasonable.
Half of the debts were held by Argentine investors, who had no choice but to accept their Government’s paltry offer. Many foreign lenders who accepted were small investors, including more than 100,000 Italian pensioners without themeans to wait for a fair resolution. Others had been left strapped by the 2008-2009 financial crisis and also were unable to wait any longer. Those who remain are simply asserting their legal rights to fair repayment. Those rights were fully acknowledged by the Argentine Government in provisions in its bond offering that explicitly conferred on its lenders the protection of U.S. laws and courts, should Argentina default. To date, Argentina has refused to honor 104 U.S. federal court judgments totaling more than $7 billion.
Numerous times, the U.S. district Court and the Second Circuit have criticized Argentina and its lawyers for non-compliance. U.D. District Judge Thomas P. Griesa has written, for example, that “Argentina must pay its bonds. To me it is incomprehensible that it isn’t doing this … More incomprehensible is that I am put in the position to order them to do it, they don’t do it and they have appealed everything in order to waste time and not to comply.”
Claim: Argentina has not breached its international obligations to respect the findings of World Bank tribunals, but rather is merely waiting for the owners of those judgments to comply with Argentine domestic law.
Argentina has refused to comply with the findings of the World Bank’s arbitral body for disputes between governments and foreign direct investors, the International Center for Settlement of Investment Disputes (ICSID). As of January 2011, 10 percent of all ICSID findings involved holdings against Argentina, and 21 percent of pending cases involve Argentina. Whenever Argentina has lost, it has appealed the rulings to its own courts, which repeatedly hold that judgments against the Argentine government are contrary to Argentina’s public interest. This does not include the damagessought by Repsol after Argentina audaciously expropriated the majority stake in the Spanish-owned YPF, without compensation.
In March 2012, President Obama, in a Presidential Proclamation, noted that Argentina “has not acted in good faith in enforcing arbitral awards in favor of United States citizens.”
The European High Commissioner Catherine Ashton recently noted that the YPF’s expropriation “adds to a number of problematic decisions taken by Argentina over the past few years in the areas of import restrictions and investment policy.” She implored the Government of Argentina to “ensure compliance with its international commitments on the treatment and protection of investments originating from the European Union.”
Claim: U.S. debt holders are increasingly isolated.
American lenders have the support of the U.S. Government as well as other governments whose citizens also had not been repaid. Moreover, world opinion is consolidating against Argentina’s various violations of international rules. For example, in April, the Department of Justice, the U.S. Treasury, and the State Department wrote in a court document that they “continue strongly to maintain that Argentina immediately should normalize relations with all of its creditors, both public and private.” And despite the pledge made by G20 members at the recent summit in Los Cabos, Mexico, to not impose new trade barriers before the end of 2014, Argentina continues to enact protectionist measures. Just last week, the U.S. Government demanded an immediate halt to Argentine import restrictions, following a suit in May by the EU against Argentina’s protectionist policies. Argentine protectionism is also subject to a 40-member World Trade Organization complaint (including the U.S., EU, Japan, Korea, Mexico and Panama); and the WTO recently issued three reprimands regarding Argentina’s trade policies and boycotts of imports.
Claim: Argentina is a good example of a country that has restructured its debt. It has shown that economic growth is the key determinant of a country’s ability to repay its debt obligations.
Argentina’s debt policies have sharply reduced foreign direct investment to that country. Its contempt for U.S. court judgments now prevent the country from borrowing in international capital markets, since funds raised would be seized to meet its legal judgments. In response, Argentina so drastically expanded domestic bank reserves, to enable its banks to finance the Government’s continued borrowing. The result is the world’s highest inflation rate. In recent months, public officials in Great Britain, Spain as well as our own country have raised questions about Argentina’s continued membership in the G20. In its latest annual report, the Moody’s ratings agency noted, “In contrast to most Latin American nations, which have achieved greater levels of political consensus in recent years, Argentina's susceptibility to event risk -- the probability of a sudden change in ratings -- remains high.” As the Eurozone faces the possibility of sovereign debt defaults, Argentina offers the outstanding example of everything to avoid in such a crisis.
Shapiro is co-chair of the American Task Force Argentina, chairman of the economic advisory forum Sonecon, LLC, and former Under Secretary of Commerce in the Clinton Administration.