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U.S. Response to Debt Debacle: Don't Cry for Argentina
The Washington Diplomat / October 2013

By Larry Luxner

In June, Cecilia Nahón, Argentina’s ambassador to the United States, implored Congress to ignore the “libelous campaign” being waged against her government by “greedy financial vultures” bent on strong-arming the Argentine Republic and its good-faith creditors.

In 2012, Nahón’s predecessor here, Jorge Argüello, said the investors had set up a “lobby” façade to “make millions for what they had gotten for mere pennies.”

And two years ago, former Argentine envoy Alfredo Chiaradía urged U.S. lawmakers to trash the proposed Judgment Evading Foreign States Accountability Act of 2011, saying it was “blatantly wrong” that his country had refused all efforts by creditors to negotiate some $1.3 billion in disputed debt and that the congressional act, which failed, would “provide vulture funds with support for their coercive actions against indebted countries.”

But in the end, all three diplomats’ pleas fell on deaf ears in both Washington and New York.

On Aug. 23, the Second Circuit Court of Appeals in Manhattan handed the country’s long-frustrated bondholders a solid victory. The three-judge panel dismissed Argentina’s warning that “cataclysmic repercussions” would result if U.S. investors — led by New York billionaire Paul Singer, CEO of Elliott Management — were to collect on debts unpaid since Buenos Aires infamously defaulted on $100 billion back in 2001.

After that default, more than 90 percent of the nation’s investors agreed to take a steep hit on their bonds in a debt-restructuring scheme, but the remaining 7 percent refused to settle. After Argentina’s economy tanked, some of those investors, mainly hedge funds, swooped in to buy up debt for pennies on the dollar and then sued to be repaid in full (plus interest). The Manhattan court said the investors were entitled to that money.

“What the consequences predicted by Argentina have in common is that they are speculative, hyperbolic and almost entirely of the Republic’s own making,” the panel concluded. Calling Argentina a “uniquely recalcitrant debtor,” it added: “Our role is not to craft a resolution that will solve all the problems that might arise in hypothetical future litigation involving other bonds and other nations.”

But the ruling could have repercussions on future litigation involving indebted, often developing nations, paving the way for investors to go after their debt more aggressively. It could also have serious consequences for Argentina’s economy, which could slip back into default. That’s because Judge Thomas Griesa came up with a workaround to enforce the court’s decision. He said that financial firms that process Argentina’s payments to all of its bondholders can’t exclude the litigious holdouts, meaning banks could stop funneling Argentina’s bond payments and investors would be out of luck — again.

In response, Argentine President Cristina Fernández de Kirchner upped the ante, skirting the ruling by offering all bondholders the chance to swap securities issued in the United States for new bonds issued in Argentina under the same terms.

This latest maneuver means that the long-running legal saga is far from over. Enforcement of the recent ruling is on hold while an appeal heads to the Supreme Court, although in the past the court has refused to hear similar cases.

For now, though, Robert Raben couldn’t be happier with the verdict.

“This unanimous, well-reasoned decision is a victory for the rule of law and the enforcement of contracts in the United States,” said Raben, a former U.S. assistant attorney general who’s executive director of an obscure Virginia-based coalition known as American Task Force Argentina (ATFA).

In a press release issued the same day as the New York court’s ruling, Raben lashed out at the government of President Fernández, whose late husband — President Néstor Kirchner — eventually offered Argentina’s creditors new bonds that initially paid less than 30 cents on the dollar.

“In order to raise billions of dollars at inexpensive rates in the U.S. financial markets, Argentina promised in its bond contract to submit to the jurisdiction of U.S. courts, adhere to New York law and waive its sovereign immunity,” Raben said. “Since defaulting on those bonds in 2001, Argentina has ignored those promises, waged a vicious campaign against its creditors and resisted every attempt by creditors to engage in good-faith negotiations.”

But Argentina says it’s AFTA that is waging a vicious campaign.

On its website, ATFA has posted photos of Fernández and Iran’s former president, Mahmoud Ahmadinejad, under the banner: “Argentina and Iran: Shameful Allies” along with a tagline, “A Pact With the Devil?” — an ad that’s appeared in prominent publications around town. An article linked to the photo condemns the Fernández government for its recent establishment of a “truth commission” with Iran, whose purpose, says ATFA, is to whitewash Tehran’s responsibility for the 1994 AMIA Jewish community center terrorist attack that killed 85 people and injured more than 300.

“To date, no one has been brought to justice for this crime due to the Argentine government’s mishandling of the AMIA investigation,” it said. “Nevertheless, Argentine prosecutors, the U.S. government and Interpol have publicly accused the Iranian government of directing the attack and using the terrorist group Hezbollah to carry it out. The Kirchner government’s deal with Tehran gives Iran — the world’s leading state sponsor of terrorism — more diplomatic clout and threatens to absolve its leaders of responsibility for the attack.”

The war of words (which undoubtedly has made the publications receiving both sides’ ad dollars quite happy) didn’t stop there. In full-page advertisements titled “Greed Without Limits” and appearing in both the Washington Post and Politico, the Argentine Embassy denounced ATFA for the “unscrupulous and libelous utilization” of the AMIA blast.

Advertisements taken out by Nahón’s embassy in major U.S. newspapers accused heartless rich investors of “using blood spilled in the worst terrorist attack suffered by Argentina to blackmail the country.” Blackmail has, in fact, been one weapon in this quixotic battle, with Paul Singer, the ringleader of the hedge fund holdouts, resorting to desperate measures to recoup his money.

Last October, Singer managed to get an Argentine naval ship detained in Ghana after a local court there ruled in favor of NML Capital, a unit of Elliott Management. NML Capital demanded $20 million in return for releasing the ARA Libertad.

The bizarre crisis — which at one point involved Argentine sailors pulling guns on Ghanaian officials who tried to board the ship — was resolved two months later, when the United Nations ordered Ghana to let the ship go, arguing that Libertad’s status as a military vessel gave it immunity. (Five years earlier, a group of bondholders unsuccessfully tried to seize Argentina’s presidential plane during a U.S. maintenance stop. Singer’s hedge fund has also gone after the personal bank accounts of the president, her late husband and members of her administration.)

The liberated ARA Libertad arrived in January at the Argentine port of Mar del Plata, where its crew received a hero’s welcome that was personally attended by Fernández, who told crowds at the harbor that “we’re going to keep on fighting because no one’s going to get anything out of Argentina with extortion.”

Indeed, the Argentine Embassy’s advertisements countering ATFA’s claims strike a similar chord of defiance and bitterness.

“ATFA is spearheaded by vulture funds that bought Argentine distressed debt in the secondary market for the sole purpose of suing Argentina in U.S. courts for sums hundreds of times higher than what they paid,” one of its ads claims. “ATFA’s latest libelous campaign reveals the unscrupulous methods employed by ATFA, which did not hesitate to utilize the [AMIA] attack to satisfy its own financial greed.”

But ATFA has not just attacked Argentina on the financial front. It has tenaciously gone after the country on everything from press freedom to narcotics trafficking to its dealings with Iran.

Asked why it embarked on a media blitz to discredit Argentina on the Iran issue, Raben told The Diplomat in an email: “We believe that Argentina’s refusal to abide by U.S. court judgments and its contempt for U.S. laws is directly linked to its lawlessness in other areas, which has been well-documented. Argentina’s recent growing ties with Iran are an excellent and relevant example of this.”

Since 2007, ATFA has spent roughly $4 million on lobbying efforts. The group is headed by Raben, a former Capitol Hill staffer with 20 years of experience as a lawyer. The organization’s co-chairs are Florida foreign policy expert Nancy Soderberg — a former alternate U.S. representative to the United Nations with the rank of ambassador — and Robert J. Shapiro, chairman of private consulting firm Sonecon LLC. (Huffington Post learned that the group’s chairs earn their consulting fees in part by writing op-eds bashing Argentina.)

ATFA’s website lists nearly 30 current members and supporters ranging from the Conservative Hispanic Society and the National Black Chamber of Commerce to the Pennsylvania Farmers Union and Nebraska Taxpayers for Freedom.

“ATFA is a coalition of institutional investors, agricultural organizations, taxpayer groups and others that has convened to advocate for a just resolution of Argentina’s default,” Raben explained. “For years, Argentina has refused to negotiate with investors who have rightfully declined its unilateral, take-it-or-leave-it offers. Instead, it has defied more than 100 court judgments ordering it to pay its bills. ATFA has helped to bring this destructive behavior to light and has urged the United States to defend U.S. courts and U.S. investors in this case.”

But why would organizations like the Kansas Cattlemen’s Association or the Independent Beef Association of North Dakota give a hoot about Argentine debt?

They may not directly, but some U.S. farmers have called the country’s 2001 debt default a manipulative practice aimed at driving down the value of Argentina’s peso — thereby creating an unfair export incentive for farm products such as beef and wheat.

An October 2012 article in the Wall Street Journal called ATFA out on some of its “supporters,” saying that groups representing ranchers, teachers and farmers were “baffled about why the task force listed their organizations as members ‘united for a just and fair reconciliation’ of Argentina’s debt.” In response to the story, Raben said he removed those groups from ATFA’s website.

It’s a messy situation, said a Latin American hedge fund manager who’s been closely following the controversy.

“They’re trying to bring public weight to this situation by painting Argentina not just as a country that doesn’t meet its financial obligations, but that this is affecting other entities. That’s why they throw in the agricultural people. They’re trying to throw in the kitchen sink,” said the hedge fund manager, who asked not to be named.

“From the U.S. government’s point of view, when you have a country like Argentina that has defaulted, they want them to reach an agreement and move on,” he told The Diplomat. “If not, these hedge funds could really create diplomatic problems. They could start going after Argentine assets all over the place.”

The embassy says ATFA has intentionally distorted the facts to serve its own selfish interests.

“In the wake of its 2001 default — and in the midst of its worst economic crisis in history — Argentina made strenuous efforts to negotiate an exchange offer despite the magnitude and extraordinary complexity of its debt, which comprised 152 different bonds issued in seven currencies under several jurisdictions,” it said in a press release.

By June 2004, it said, the Argentine government had presented a tentative restructuring plan, and in 2005 “we made what represented, at that time, the best sustainable offer in a scenario in which there was no financial support from multilateral financial institutions. The offer was designed to avoid putting at risk the pace of Argentina’s economic recovery.”

That offer was accepted by 76.15 percent of the bondholders. The restructuring retired $62.3 billion out of the eligible $81.8 billion and resulted in $35.3 billion in new debt issues. In 2010, a second exchange took place, and Argentina was able to settle about 93 percent of the sovereign debt defaulted nine years earlier.

Yet the embassy says U.S. bondholders represent scarcely 8.3 percent of the total amount of outstanding claims against Argentina brought before U.S. courts.

“Indeed, at least 85 percent of the cases currently before U.S. courts brought against Argentina belong to vulture funds or individuals domiciled outside the U.S. that represent 91.7 percent of the total amount of claims against Argentina,” it charged. “More specifically, out of the 15 bondholders that hold more than $25 million each in claims against Argentina, nine are domiciled in the Cayman Islands and some of these funds belong to individuals like Kenneth Dart (“EM Limited”), who has renounced his U.S. citizenship to avoid paying taxes in this country.”

Argüello, in his 2010 letter to Congress, said, “The notion that Argentina is disregarding the rule of law is nonsensical. The only outstanding debt problem of Argentina that is not close to being solved is the one linked to sovereign debt profiteering.”

Asked if any of its members had ever attempted to speak to Argentine officials directly, Raben said yes — but that it was a waste of time.

“We met with Ambassador Chiaradía in an attempt to convince Argentina to talk to its creditors and resolve its outstanding debts, but nothing came of these efforts,” he said. “Requests to meet with Ambassador Argüello were rebuffed. We have made numerous attempts to meet with Ambassador Nahón, but she has so far not been responsive. This unresponsiveness is consistent with Argentina’s refusal to even sit down with its creditors.”

Raben said he’s encouraged by the Obama administration, which has revoked Argentina’s most favored nation trade status under the Generalized System of Preferences and has also voted to deny the country multi-development bank loans “as a means of encouraging Argentina to settle this issue.”

It’s unclear when Argentina will actually be forced to pay up, though Theodore B. Olson, a former U.S. solicitor general and now a lawyer for Elliott Management, said its “persistent violation of its obligations and its extraordinary defiance of the laws of the United States” have pushed it into a corner. He added: “Argentina is not above the law.”

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