MacroScope

Vultures swoop on Argentina

February 29, 2012

Holdouts against a settlement of Argentina’s defaulted debt are opening a new front in their campaign for a juicy payout more than a decade after the biggest sovereign default on record.

Lobbyists for some of the investors who hold about $6 billion in Argentine debt are in London to persuade Britain to follow the lead of the United States, which last September decided to vote against new Inter American Development Bank and World Bank loans for Buenos Aires.

Washington believes Argentina, a member of the Group of 20, is not meeting its international obligations on a number of fronts. Apart from the dispute with private bond holders, Argentina has yet to agree with the Paris Club of official creditors on a rescheduling of about $9 billion of debt. It has refused to let the International Monetary Fund conduct a routine health check of the economy. And it has failed to comply with the judgments of a World Bank arbitration panel.

In short, Argentina is not playing by the rules of the international game, says Rob Shapiro, a former U.S. under secretary of commerce, who is now co-chair of the Argentina Task Force America.

According to its website,  the group’s aim is to “vigorously pursue” a “just and fair” reconciliation of the Argentine government’s default in December 2001 on some $95 billion of debt.

Its members and supporters include the delightfully named Montana Women Involved in Farm Economics (WIFE). Another is New York hedge fund Elliott Associates, which has bought distressed debt issued by a number of developing countries and sued them for repayment.

In 2000 Peru paid Elliott $56 million to settle a four-year fight after the hedge fund refused to accept the restructuring terms on offer.

Holders of more than 92 percent of Argentina’s debt took big losses when they participated in bond swaps in 2005 and 2010, but so-called vulture funds are not alone in holding out for more. Disgruntled Italian retail investors who punted on Argentina for its high yields are also playing a long game.

“We have no view at all as to what the outcome of negotiations should be — that is, what a payoff or what a resolution would look like – only that the process proceed in good faith,” Shapiro told reporters.

Argentina has been locked out of the international capital markets since it defaulted. Its economy is growing fast, but if it runs into trouble the standoff could come back to haunt it.

Nancy Soderberg, the group’s other-co chair and another senior official from the Clinton administration, added: “We’re not trying to isolate Argentina. We just want them to be responsible.” She penned a piece in Britain’s Daily Telegraph on Wednesday to make her case.

Whether Britain will back the United States in voting against new multilateral loans remains to be seen.

Relations between London and Buenos Aires are heading for the deep freeze as the 30th anniversary of the Falklands War approaches. An Argentine minister called on Tuesday for a boycott of UK imports, a day after two British-linked cruise ships were barred from docking in an Argentine port.

Britain’s search for oil off the South Atlantic islands, and its refusal to open talks on sovereignty, has inflamed passions in Argentina. The British government could be tempted to poke Argentina in the eye and vote with the United States.

But Britain has not forgotten how Washington kept its diplomatic distance during the Falklands war. One of the gripping scenes in the movie ‘Iron Lady’ shows Margaret Thatcher discussing Britain’s resolve to recapture the islands with U.S. Secretary of State Alexander Haig. He questions why Britain would care about islands thousands of miles away. Thatcher, quietly seething, asks why America cared about Japan’s attack on Pearl Harbor. She then offers him some tea: “Black or white?”

 

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