October 1, 2014
Jorge ignacio frechero saysThursday, August 21, 2014
‘Risk of contempt is overblown’
Speaking to the Herald, debt expert and researcher at the CEIPIL international relations think tank, Jorge Ignacio Frechero expressed his belief that the proposal to have Argentina’s restructured debt paid locally is viable but that it would not be feasible for all of the country’s restructured bondholders to participate.
Do you think that the plan can work?
In principle it is viable but it won’t be accepted by the totality of the restructured bondholders, because some of the investment funds are prohibited by their own regulations from holdings bonds that are not under US legislation.
So you don’t agree with those who say that up to 70 percent of the restructured bondholders cannot participate?
You would have to look at the legal details of each bond, and there are some important funds that cannot participate, but the 70 percent number seems a bit brave to me.
Do you consider that there is a risk of an acceleration of debt payments being triggered by the restructured bondholders who elect to not participate in debt payments in Argentina?
Right now it would seem difficult for the 25 percent of the restructured bondholders to request an acceleration because what determines that move is their attitude towards the government, which right now is more of cooperation rather than confrontation.
The bill removes the Bank of New York Mellon (BoNY) as payment agent and names a subsidiary of the Banco Nación as a fiduciary agent. Does that give restructured bondholders options?
Any international bank could be an agent, as long as the payment is processed in Argentina. Even some of the New York banks that were negotiating a private solution to the holdouts or the banks that negotiated the 2010 debt swap. They have an interest in order to gain a commission on the payments.
And what of the risk of contempt of court?
I think that it has been overblown by the media and some of the holdouts themselves and that it is not so serious. There are also few precedents of a state being declared in contempt of court and in any case states enjoy ontological primacy in international matters and have greater leeway in comparison to private actors. In a diplomatic sense I don’t think that there is much of a risk because the relationship between Argentina and the United States is not restricted to the debt discussion. Keep in mind that there are many US companies that are keen to invest in Argentina.
Do you anticipate any of the country’s macroeconomic variables shifting because of this decision?
No, I think that in the long term the variables are not related to the debt and that any worsening of the economic situation would be because of the country’s structural problems and not so much because of any movements in the bond or exchange markets.