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Tuesday, July 8, 2014

We Holdouts Are Open To Compromise But Argentina Needs To Talk


July 7, 2014 3:47 pm

We holdouts are open to compromise but Argentina has to talk

A debt settlement is affordable and would boost economic prospects, writes Jay Newman
Argentine Vice Economy Minister and YPF's vice auditor Axel Kicillof presents a report of the Argentina's oil company YPF since the intervention, accompagnied by Federal Planning Minister and YPF's auditor Julio de Vido (not in picture) in Buenos Aires on June 1, 2012. Argentine President Cristina Kirchner on May 4, 2012 signed a bill expropriating 51 percent of YPF's stock from Spanish Repsol, its majority shareholder, arguing Repsol had failed to make agreed investments needed to expand domestic production. AFP PHOTO / JUAN MABROMATA (Photo credit should read JUAN MABROMATA/AFP/GettyImages)©AFP
Axel Kicillof, Argentine economy minister
Two weeks ago Axel Kicillof, Argentina’s economy minister, flew to New York to give an inflammatory speech at the UN in which he blamed bondholders and the US legal system for his country’s supposed inability to settle debts owed to thousands of investors.
Among those investors is Elliott Management Corporation, where I work. Our offices are a 10-minute drive from UN headquarters, yet Mr Kicillof flew home without even talking to us. When he gave a similar speech in Washington last week, I offered to meet Argentine officials any time and anywhere while they were in the US. But they quickly returned to Buenos Aires.
For more than 12 years we have tried to convince Argentina to put its 2001 default behind it by negotiating in good faith with the remaining holders of its defaulted debt. I have travelled to Buenos Aires to try to initiate a dialogue. But our requests for talks have been ignored.

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Mr Kicillof is in New York again this week to meet a mediator appointed by the US District Court overseeing this case, and again he has made no plans to meet us. Argentina says it will not even begin to negotiate with creditors unless the court suspends indefinitely a ruling that prevents the country from paying any of its creditors without also paying the holders of defaulted bonds. The court has said that such requests should be a matter for negotiation. Our firm could be persuaded to give Argentina more time if its government took concrete and serious steps towards meeting its legal obligations. But the silence from Argentina is deafening. It does not appear serious about reaching a timely resolution of its debts.
Argentina’s officials propagate the myth that this dispute involves only a couple of hedge funds. In fact, most of the holders of the defaulted bonds are average investors from Argentina, Italy and elsewhere. Many were retirement savers who paid full face value. Our firm began buying Argentine bonds long before its default. We joined thousands of others in declining Argentina’s coercive bond-exchange offers, which imposed steep losses on holders. As the International Monetary Fund noted: “No constructive dialogue was observed and the authorities presented a non-negotiated offer.”
In the contract Argentina signed in 1994, it promised to rank its payment obligations on the original bonds equally with any new external debt, and to submit to the jurisdiction of US courts. Without these promises, a country that had earned a reputation as a serial defaulter could not have borrowed on such attractive terms.
Capital markets depend on enforceable contracts. As an appeals court judgment in this case put it: “Our decision affirms a proposition essential to the integrity of the capital markets: borrowers and lenders may, under New York law, negotiate mutually agreeable terms for their transactions, but they will be held to those terms.”
Argentina says that if it complies with the court’s orders, other holders of Argentina’s defaulted bonds will file similar claims amounting to $15bn – depleting its foreign exchange reserves, which are only $30bn. This $15bn figure has never been substantiated; independent analysts put the number at half that. But this is beside the point. We and several other holders of Argentina’s defaulted debt have made it clear that we would accept part of any settlement in bonds and other financial instruments, meaning that Argentina’s foreign reserves would not be materially affected.
This is the model Argentina followed in recent settlements of $6bn with Spanish oil company Repsol and $10bn with the Paris Club of sovereign creditors. Neither deal strained its reserves; together they added only about 2 percentage points to the debt-to-output ratio, which stands at a modest 40 per cent. These agreements brought Argentina closer to regaining access to international capital markets. But that day will never arrive until it settles with the holders of its defaulted debt. Such a settlement is not only affordable – it would reduce borrowing costs, saving businesses and the government billions of dollars. It would also attract investment, boosting the country’s economic prospects.
If Argentina’s ministers had met me, I might have put it this way. Defiant speeches have not helped the country move on from the 2001 default. A single honest discussion could relegate it to the past.
The writer is a senior portfolio manager at Elliott Management Corporation