October 31, 2014
Defiant CFK tells BRICS Argentina will not default debt
President invites holdouts to take part in open debt swap, promises earnings of up to 300%
Addressing leaders of the so-called emerging BRICS economies in Brazil, President Cristina Fernández de Kirchner said Argentina will not declare a default at the end of the month due to its long-term legal battle with holdouts, whom she invited to take part in the country’s current debt swap thanks to which they would obtain a 300 percent profit.
At the same time, Fernández de Kirchner asked the international community to “join efforts” to back Argentina in its case against “vulture funds” and to work to establish “a new financial order”, while she reassured the country’s commitment to paying its debts.
The president made the statements on the same day as the hedge funds published a paid advertisement in local and international newspapers titled, “Time is running out for Argentina.”
“Argentina paid its debt on June 30 and will continue to do so. Default means not paying and can only be declared by a country that doesn’t pay, as has happened before,’’ Fernández de Kirchner said.
Fernández de Kirchner revealed the country’s current offer to holdouts is for them to take part in the debt swap, with which they would gain 300 percent instead of the 1.608 percent they seek. Meanwhile, she said the legal dispute depend mainly on the RUFO clause, which says that the government cannot voluntarily offer better terms to bondholders than what it offered in the 2005 and 2010 swap until the end of the year.
“In dollars they would get a 300 percent profit. We aren’t saying we won’t pay them nothing, we want to pay but on fair terms. A new financial world order is needed. Argentina won’t fall into default because we want to pay our debts,” Fernández de Kirchner said. “Hedge funds were never investors in Argentina and they never lend us money. They bought bonds eight years after the default.”
After a string of adverse US court decisions, the country has exhausted its legal options to get around a 2012 ruling by Griesa that it pay holdouts in full, US$1.33 billion plus accrued interest. Until it pays up, or reaches a deal with the holdouts, Griesa will prevent Argentina from servicing restructured debt. That means it could go into default by a July 30 deadline for a coupon payment.
When Argentina in late June deposited a coupon payment worth about U$539 million with the government’s transfer agent, Bank of New York Mellon (BONY), Griesa blocked any onward transfer. Since then the bank has faced competing demands: from Griesa’s court order, from investors who want their interest payment and from Argentina, which says the money no longer belongs to it.
“The resources transferred are owned by creditors that entered the 2005 and 2010 debt swaps. Banks should take responsibility for not transferring those resources,” Fernández de Kirchner said. “They don’t know what to do with those funds so there have been different dispositions. Citibank was allowed to pay but not BONY, Euroclear and Eurobank. We are talking about irrational interpretations.”
Fernández de Kirchner also asked the international community to take action and back Argentina in its legal dispute, while she said the country is facing a “strong speculative attack from hedge funds.”
“We need to put an end to this sort of international looting of finances, as they are doing today with Argentina. We call all the countries that have a commitment with our people and our history to join efforts in this new crusade to have a new political, economic and financial organization,” Fernández de Kirchner said.
Running out of time
Argentina is running out of time to broker a debt deal and avoid another painful default, holdout investors suing the country for full repayment on their bond holdings said yesterday in a new paid advertising published in local and international media.
The American Task Force Argentina (ATFA), a lobby group founded by the head of NML Capital, Paul Singer, published the ad saying it would be willing to accept bonds as part of an agreement with Argentina, as they had previously said. Nevertheless, ATFA said the country is actually “choosing” a default scenario and “setting the bases for a new default.”
“The country has till the end of this month to reach an agreement with its creditors as part of a settlement process following a ruling by the (New York) justice,” the text reads in tune with last week’s advertisement that also questioned the Argentine position in a legal dispute that has put the country’s restructuring of sovereign debt in the international spotlight.
“These creditors have requested to meet Argentine authorities in several opportunities, but they refused to,” the group says adding the federal government has decided instead to attack US courts and creditors. That, ATFA considers, is a show of “no serious commitment.”
“But what is more worrying is that Economy Minister Axel Kicillof has stated that entering a default would be preferable to reaching an agreement with creditors,” the ad said, adding that if Argentina prevents a default scenario “benefits would be huge.”
—Herald with Télam, DyN