The Argentine debt restructuring was Argentina's debt restructuring process that began on January 14, 2005, and allowed it to resume payments of 76% of the US $ 82 billion in failed state bonds in 2001 in the depths of the worst economic crisis in the nation's history. The second debt restructuring in 2010 carried the percentage of the bonds under a form of repayment of up to 93%, although the ongoing disputes with detention remained. Holders of bonds participating in the restructuring pay payment of approximately 30% of the face value and the deferred payment terms, and begin to be paid on time; the value of their almost worthless bonds also began to increase. The remaining 7% of the bondholders then won the right to be paid back in full.
As part of the restructuring process, Argentina drafted an agreement whereby payments will be handled through a New York company and governed by United States law. Holdout holders find themselves unable to seize Argentine sovereign assets in the settlement, but realize that Argentina has been eliminated to provide a situation of disagreement and instead assumes all bonds to be repaid on the pari passu (equivalent) term that prevents the treatment privileges among bondholders. Holdout holders therefore seek, and win, an order in 2012 that forbids Argentina from paying 93% of the re-negotiated bonds, unless they simultaneously pay 7% of their full amount due due. Together with the rights of the agreement on a future offer (the "RUFO") clause, this creates an impasse in which 93% of the negotiated holders can not be paid without paying 7% holdouts, but any payments to holdouts will potentially (according to Argentina) payment due 93% due to full payment of value as well; a sum of about $ 100 billion that Argentina could not afford. The court ruled that because Argentina itself had drawn up the treaty, and voted for the terms to be filed, it can now not claim that the provision is unreasonable or unfair, and that this can not be done by affirming the sovereign status because the command does not affect the sovereign asset, decided that Argentina should not give preferential treatment to any group of bondholders over other groups when making payments.
Furthermore, although Argentina wants to repay some of its creditors, the assessment prevents Argentina from doing so, being forced to repay all its creditors, including holdouts, will total about $ 100 billion. Therefore the country is categorized as a selective default by Standard & amp; Poor's and in restricted default by Fitch. The verdict affects New York's law, Argentine bonds; Argentine bonds issued under Buenos Aires and European laws are not affected.
The proposed solution includes seeking RUFO clause relief from bondholders, or waiting for the RUFO clause to expire at the end of 2014. The dilemma raises international concerns about the ability of small minorities to prevent the restructuring of debts of non-compliance. , and the decisions that led to it were widely criticized both in the United States and internationally. Although the media widely reported that the default ended with payments to the major bondholders in early 2016, during Mauricio Macri's presidency, several hundred million dollars on unpaid bonds remained unpaid, resulting in continued litigation. In November 2016, Argentina announced that it had repaid additional creditor of US $ 475 million.
Video Argentine debt restructuring
Overview
Argentina's financial crisis
Around 1998 to 2002, the Argentine economy experienced a severe recession. On 26 December 2001, Argentina failed to pay the total external debt of US $ 93 billion; about $ 81.8 billion in failed bonds, 51% were spent over the three-year period. Foreign investment fled the country, and capital flows to Argentina almost ceased entirely from 2001 to 2003 (although later recovered). The exchange rate of the currency (formerly one 1-to-1 parity between the Argentine peso and the US dollar) drifted, and the peso devalued rapidly to almost 4-to-1, resulting in a sudden rise of inflation to more than 40% and a drop in GDP real value of 11% in 2002.
Large-scale debt restructuring is required immediately, as high-interest bonds become unpaid. The Argentine government faces a tough challenge trying to refinance its debts. Creditors (many of them private citizens in Spain, Italy, Germany, Japan, the United States, and other countries, who have invested their savings and pensions in debt bonds) denounced defaults; this includes holders of bonds from Argentina alone, estimated to form about a quarter of the affected bondholders.
The economic recovery finally enabled Argentina to offer large-scale debt swaps in 2005 and 2010; first brought 76% of the bonds out of default and the second one, 91.3%. The terms of debt exchange are not accepted by all private bondholders; holders of about 7% of the defaulted bonds - known as "holdouts" - continue to seek full payment. The IMF initially lobbied for exemption until Argentine lump-sum payments to the IMF in January 2006. Individual creditors around the world, representing about a third of this group, were mobilized to seek payment after a default. Among the most prominent are the Argentine Task Force, the association of Italian retail bond holders; and Mark Botsford, holders of private US retail bonds; and Kenneth Dart, who failed to be aborted in 2003 to be paid $ 724 million for bonds purchased in 2001 for $ 120 million. Dart abandoned US citizenship in 1994 for tax avoidance purposes, and his interests in Argentina became the focus of tax evasion allegations in 2013. Italians have become the largest group of foreign retail investors in Argentinian bonds when during the 1990s, banks in their countries purchased $ 14 billion in bonds and then resold them to nearly half a million investors; most refuse the first swap but accept the latter.
Background issues and disagreements
After default, Argentine bondholders sued to pay 100% of the face value of their bonds. Among bondholders is a vulture fund, which speculatively earned US $ 1.3 billion of total bond value in the secondary market for pennies on the dollar after default in 2001. Vulture funds also have a large number of credit default swaps (CDS) against Argentine bonds. This creates further incentives to not only trigger a default against Argentina; but also to damage the value of the bond itself, because CDS will pay at higher rates if the bond fails to drop to a very low value.
Vulture funds persist for full payment through litigation (hence their general description as holdout holders, or "holdouts"). Their legal tactics include seeking orders to attach future payments to other bondholders by forcing Argentina to settle. Similar strategies have been successfully pursued previously by vulture funds against Peru and a number of African countries, as well as against US corporations such as Delphi Automotive, who were forced to pay Paul Singer Elliott Management Corporation, a return of more than 3,000% on corporate bonds failed during the 2008 recession. NML Capital Limited, Cayman Islands' main vulture fund based in this dispute, is also owned by Singer. NML paid $ 49 million in the secondary market for bonds worth $ 832 million in 2014. Its Argentinean group, American Task Force Argentina, is the most prominent and most financed opponent of the restructuring of Argentine bonds, spending more than $ 7 million lobbying the US Congress and being the top contributor campaign for this number; the most prominent, former head of the Western Hemisphere Subcommittee Connie Mack IV (R-FL), became the main sponsor of the bill in 2012 designed to force Argentina to pay NML nearly $ 2 billion before losing the Senate's offer that year. Their lobbying campaign also extended to Argentina, where NML Capital financed an NGO led by Laura Alonso, a congressman affiliated with the right-wing PRO party.
In August 2013, the Argentine Government lost the US appellate court case and was told it would have to pay back the full face value for the freeze. Courts in Europe have supported Argentina on the basis of the same requirements. The third debt restructuring offer for the remainder of ownership with conditions similar to that of the 2010 swap was announced on August 27, 2013. However, meeting the full value demand of vultures funds is a problem for Argentina, because although the bonds held by vulture funds are a small part. of the total (1.6%), such settlement would lead to lawsuits from other bondholders who demanded to be paid under the same terms under the "RUFO" clause agreement, effectively release the settlement by allowing all full payment of the bondholders, and creates an uncollectible liability up to $ 120 billion more than at present.
As a result, Argentina still can not raise funds in international debt markets for fear that the money collected will be seized by an unclear lawsuit; their country's risk-borne cost premiums remain more than 10%, much higher than comparable countries. As a result, Argentina has repaid debts from central bank reserves, has banned most retail purchases of dollars, limited imports, and ordered companies to repatriate money held overseas. Nevertheless, between 2003 and 2012, Argentina fulfilled repayment of debt payments of $ 173.7 billion, of which 81.5 billion were collected by bondholders, 51.2 billion by multilateral lenders such as the IMF and World Bank, and 41 billion by Argentine government agencies. Public foreign debt in foreign currencies (especially in dollars and euros) fell from 150% of GDP in 2002 to 8.3% in 2013.
Maps Argentine debt restructuring
History of debt restructuring
Restructuring first (2005)
In 2001, Argentina failed to pay its foreign debt. In January 2005, the Argentine government offered the first debt restructuring to affected bondholders; nearly 76% of the failed bonds (US $ 62.5 billion) were thus exchanged and taken out of default. The exchange offers long-term nominal, quasi-par, and discounted bonds - the latter with a much lower nominal value (25-35% than the original). The majority of the Argentine bond market subsequently became based on GDP-related bonds, and investors, both foreign and domestic, scored record results amid new growth. One of the biggest single investors in Argentinian bonds after this development is Venezuela, which bought a total of more than $ 5 billion of restructured Argentine bonds from 2005 to 2007. Between 2001 and 2006, Venezuela was the biggest single buyer of Argentine debt.
In 2005 and 2006, Banco Occidental de Descuento and Fondo ComÃÆ'ºn, owned by Venezuelan bankers Victor Vargas Irausquin and Victor Gill Ramirez, bought most of the Argentine bonds and resold them to the market. The banks bought Argentine bonds worth $ 100 million and resold the bonds for a profit of about $ 17 million. People who criticized Vargas said he made a $ 1 billion "back room deal" with Argentina's bond swap as a sign of his friendship with Chavez. The Financial Times interviewed financial analysts in the United States who said that banks had profits from the resale of bonds; the Venezuelan government is not profitable.
Bondholders who have received a 2005 swap (three out of four do) see their bond value rise 90% in 2012, and this continues to increase strongly during 2013.
IMF repay
During the restructuring process, the International Monetary Fund is considered a "privileged creditor", that is, all debt recognized and paid in full. During 2005, Argentina shifted from constant negotiating and refinancing policies to the IMF for full repayment, taking advantage of the large and increasing fiscal surplus due to rising commodity prices and economic output, with a recognized goal of gaining financial independence from the IMF.
President Kirchner NÃÆ'Â Â stored on December 15, 2005, announced his intention to liquidate all outstanding debt to the IMF, in a single payment of US $ 9.81 billion, originally planned to take place before the end of the year (a similar move was made announced by Brazil two days earlier, and it is understood that both steps should be coordinated).
Argentina under Kirchner administration has reduced its debt to the IMF from $ 15.5 billion in 2003 to $ 10.5 billion at the time of this announcement. The last and greatest part of the IMF debt, approximately $ 9.5 billion, was paid on January 3, 2006. The debt is actually in special drawing rights (SDR, a unit employed by the IMF and counted over one basket of currencies). The Argentine Central Bank requests the Bank for International Settlement in Basel, Switzerland, where part of its reserve currency is deposited, to act as its agent. BIS bought 3.78 billion SDR (equivalent to about $ 5.4 billion) from 16 central banks and ordered its transfer to the IMF. The rest (2.874 billion SDRs or $ 4.1 billion) was transferred from an Argentine account at the IMF, which is deposited in the US Federal Reserve.
Payments were made to cancel repayments of debt payable in 2006 ($ 5.1 billion), 2007 ($ 4.6 billion), and 2008 ($ 432 million). This disbursement represents 8.8% of Argentina's total public debt and lowers Central Bank reserves by one-third (from $ 28 billion to $ 18.6 billion). According to the official announcement, it also saves about a billion dollars in interest, despite the actual savings of $ 842 million (due to reserves in the BIS until then receive interest payments). One of the biggest single investors in Argentine bonds after Venezuela bought a total of more than $ 5 billion of restructured Argentine bonds from 2005 to 2007.
The initial announcement was made in a shocking press conference. President Kirchner said that, with this payment, "we buried the deadly past of immortal and unlimited debt." Many of those present were then called "historic" decisions. The head of the IMF, Rodrigo Rato, saluted, although commented that Argentina "faces a major challenge forward". US Treasury Secretary John W. Snow said the move "shows goodwill" on the part of the Argentine government. Nobel Prize-winning Economist Joseph Stiglitz repeatedly criticized the IMF and supported Argentina's strategy of debt restructuring, but opposed the policy of disindebtment, instead suggesting that the IMF should receive the same treatment as other creditors. Local criticism of IMF debt payments centered around costs, which made funds unavailable for productive purposes in Argentina or to reach agreement with outstanding creditors; and secondly, that the government trades cheap IMF credits for new emissions of public debt at much higher interest rates. Following initial shock and mixed reaction to local market rallies, the MERVAL index grew more in January 2006 than in all of 2005.
The Ministry of Economy reported in June 2005 that Argentina's total official public debt fell $ 63.5 billion from the first half to $ 126.5 billion as a result of the restructuring process; of this, 46% in dollar denomination, 36% in pesos, and 11% in euros and other currencies. Due to the full payment of the IMF debt and some other adjustments, as of January 2006, the total amount decreased further to $ 124.3 billion; bonds not exchanged in 2005 accounted for $ 23.4 billion, of which 12.7 billion had already matured. Central bank reserves exceeded their pre-payment rate on September 27, 2006.
A similar agreement was reached eight years later with the Paris Club creditor countries (the last remaining debt of Argentina still in default other than bonds held by shareholders) on debt repayments of $ 9 billion including fines and interest. Second swap debt: Debt exchange reopened (2010)
Holdout holders
Although approximately 93% of bondholders receive lower payments (typically paying only 30% of the bond's nominal value), minorities holding about 7% of debt (US $ 4 billion), mostly hedge funds and vulture funds, continue to argue in court that they had to pay it off, and handed out full payment, eventually winning their case.
NML Capital Limited, a Cayman Islands-based offshore unit of Paul Singer Elliott Management Corporation, bought much of its holdings in 2008, paying approximately $ 49 million for a series of bonds worth more than $ 220 million; with the next boom in the value of Argentine bonds, this nominal value grew to $ 832 million in 2014. They in turn formed the Argentine Task Force's executing group against the restructuring efforts of Argentine bonds, and sued to order Argentine's ongoing payments to bondholders who have participated in the previous restructuring.
The organizer wins the right to be fully paid
During the 2000s, NML Capital's lawyers initially gained several major decisions against Argentina, all of which were affirmed on appeal. These decisions found that holdout holders in the case were entitled to repay the full face value of the bonds they held, rather than the number of alternatives such as the reduction of settlements negotiated in 2005 and 2010, or the amount they bought for the bonds.
After the default, Argentina continues to pay the bondholders renegotiations, but not holdout holders who have refused the settlement. Because Argentina refused to pay full-value creditor detentions, initially they used a lawsuit to confiscate Argentine government assets abroad - notably Central Bank deposits at the Federal Reserve Bank of New York, presidential aircraft, and ARA Libertad . The Libertad, an Argentine naval training frigate, was arrested (though not seized) on the orders of NML Capital for ten weeks at the end of 2012 at Tema port, Ghana, until the International Court of Law for the Sea decided unanimously that it is released. Eventually this approach proved futile. Holdout holders soon discovered that due to a number of sovereign immunity laws, it is impossible to actually enforce their judgment by taking a handful of Argentine assets still within the reach of US jurisdiction.
In the lawsuit filed by NML, lower British courts find that Argentina has state immunity. Prior to 2011, Elliott succeeded in appealing the case to the UK Supreme Court, which ruled that Elliott had the right to try to seize the Argentine property in Britain.
the disagreement party won the right to have "equal payments" thing enforced
The basis of the next holdout bondholders approach arose from negligence on the part of Argentina, both due to economic history and part of the legal words chosen by the Argentine government.
Because Argentina is historically very unstable, it will be difficult for investors to buy bonds in Buenos Aires under the jurisdiction of Argentina, as few external investors trust Argentine courts to establish ties to their own governments. This consideration led Argentina to divert bond issues to New York, based on United States law, on April 20, 1976, as well as most of the next bond issue. Accordingly, the bonds are issued under a special type of bond contract, the "Fiscal Treaty Agreement" designed by a US lawyer under New York state law. The FAA stipulates that the repayment of bonds must be made by Argentina through its trustee, The Bank of New York Mellon, which means that US courts do have jurisdiction over the party to issue injunctive orders.
In the Fiscal Authority Agreement, Argentine lawyers include the pari passu boiler clause, but do not include collective action clauses. Pari passu is a term commonly used to denote the same priority or treatment, and the collective action clause will require any ownership to accept the general terms offered if enough other bondholders agree to accept it. As a result, detention recognizes that while Argentina can not force organizers to accept the terms of the 2005 or 2010 restructuring, NML may use the pari passu clause to force Argentina to choose between paying all bondholders (including NML) or none from them.
Therefore NML Capital sued Argentina in the US District Court for the Southern District of New York (that is, federal court) by applying the jurisdiction of court diversity as well as the selection of forums and choice of legal clauses in the Fiscal Agency Agreement itself.
Pari passu litigation case
Federal District Judge Thomas P. Griesa was assigned to hear the case. Important expression of pari passu has never been interpreted earlier in a decision published by a New York state court, but there is no way in US federal civil procedure for a federal district court to directly transfer the case to a state court if initially did not start there. (Conversely, if NML Capital has sued Argentina in a New York state court, Argentina will have the option to "remove" the case to federal court.) Instead, the district court is required by Erie Railroad Co. v. Tompkins (1938) to make an "Erie guess" about how the New York state court would interpret the clause by applying the general principles of contract law in New York state as articulated in the decisions issued by the New York Court of Appeals and the Court Great New York, Appellate Division. The district court decided to support NML Capital and issued extensive permanent orders against Argentine and bond trustees. The US Court of Appeals for the Second Circuit (the federal appeals court with jurisdiction over New York) in turn affirms the interpretation of the district court, but does not use its optional right to certify specific issues to the New York Appellate Court for a decision on New York state law.
According to the opinion of the Second Circuit issued on October 26, 2012 (signed by the senior judge of Barrington circuit Daniels Parker, Jr.), Paragraph 1 (c) 1994 version of the Argentine Fiscal Agency Agreement is as follows:
- The Securities will be... a direct, unconditional, unsecured obligation and not terminated by the Republic and will always rank pari passu without preference among them. The repayment obligations of the Republic under the Securities shall at any time be at least equal to all current and future External Debts unsecured and non-split....
Second Circuit interprets this clause under New York law and concludes "that in pairing the two sentences of the Pari Passu Clause, the FAA manifests the intention to protect bondholders from more than just formal subordination.... two sentences... protects against various forms of discrimination: other superior debt issuance (first sentence) and giving priority to other payment obligations (second sentence). "Argentina believes that all clauses are intended to protect only against the first type of discrimination ; Second Circuit states that the Argentine approach is invalid because it ignores important differences in the wording between two sentences, treats the second sentence as excessive, and in turn violates New York rules that "the contract should not be interpreted in such a way as to leave one of its provisions substantially without coercion or influence. "Thus, Second Circuit affirms the court's decision that Argentina can pay all bondholders or none , but can not pay only those who cooperate with restructuring 2005 and 2010 and ignore the rest.
Thus in 2012 (affirmed in appeal of 2013), the court ruled that paying the non-infringing bondholders is a violation of the Argentinean agreement and discriminates against the holders of the disagreement bonds.
In addition, Second Circuit states that court orders do not infringe on Argentine sovereign immunity because they only impose a ban on formal and informal subordination of any part of the debt to other debts: "They do not attach, hold, or execute on any property... The order does not require Argentina to pay any bondholders any amount of money, nor does it restrict any other use to which Argentina may place its fiscal reserves, in other words, the Orders do not transfer any power or control over the sovereign property to justice.
In February 2013, after a further decision by the district court, the case came again before the Second Circuit. The appeals court decision was detrimental and a motion for rehearing by a full panel was rejected on March 26.
On August 23, 2013, Second Circuit (in another opinion also signed by Judge Parker) confirms a recent decision of a lower court clarifying the scope of a permanent order. The court implied at the beginning of his opinion that because Argentina had taken calculated risks to enjoy the benefits of New York law (ie, lower interest rates), now must bear the burden of New York law as well: "In order to increase the bond sale power, Argentina made a series of promises to the buyer. "Among the promises in the 1994 Fiscal Agreement is the pari passu clause, the selection of the forum and the above-mentioned legal choice clause explicitly referring New York, as well as the promise of a bond-free transfer to every transferee recipient, regardless of whether the transferee is "university endowment, so-called 'vulture fund,' or widow or orphan." In other words, as a drafter of the Fiscal Agency Agreement, Argentina can easily avoid situations that it finds itself by writing different pari passu clauses, ignoring the transferability clause, including the anti-duty clause (eg clause stating that recipients can only recover the actual amount paid out of the nominal value of the debt), or write contracts under different jurisdiction laws altogether, with the understanding that rational investors will demand a higher interest rate in exchange for all of these things.
After arguing all Argentine arguments about the benefits, the Second Circuit concluded: "We do not believe the outcome of this case threatens to divert the issuer of the bonds from the New York market... We believe that interest - one widely shared in the financial community - York as one of the leading commercial centers advanced by obliging debtors, including overseas debtors, to repay their debts. "
Specifically, when it comes to looking at major-image public policy issues, both Second Circuit opinions examine them only through federal procedural legal lenses (that is, whether orders are unfair drugs) as opposed to the substantive rules of New York state contract law. Although New York recognizes some defenses against the enforceability of a contract such as inequality, such defenses are usually only available to weaker parties at the time of contract formation, the contracting party does not write contracts (ie, bondholders), who explain why they are not discussed in the opinion of the Second Circuit. If the defense is unavailable (for example, because the party that refuses enforcement is the person who writes the contract), the New York court will mechanically enforce the plain language of a contract irrespective of the harshness that "the court is not free to change the contract to reflect personal ideas about justice and equality. "
The United States Supreme Court has repeatedly denied the Argentine petition for certiorari, on October 7, 2013 and June 16, 2014, which means that it effectively refuses to hear Argentina's appeal from the Second Circuit decision. The rejected petition on June 16 has presented two issues: (1) sovereign immunity and (2) the Second Circuit decision to only affirm the Erie court ruling as opposed to using the option to certify the matter to the New York Court of Appeals.
On the same day refused to review the order, the US Supreme Court asserted that Grie Judge's order was worldwide around the Republic of Argentina v. NML Capital, Ltd.
Citigroup, which operates in New York and in Argentina, is arrested in the middle, asked to obey the laws of New York and Argentina, a conflict of international law. The court has provided temporary waivers to the bank, allowing the payment of some interest payments due to the holders of fixed bonds, but the obligation to pay all holdouts because of the cost to continue the Argentine bond service has resulted in the decision to terminate its Argentine debt payment operations there is no legal aid. Argentina Argentina 2014 "selective standards" Argentina Argentina 2014 "selective standards"
The Pari passu in power has a huge impact on Argentina's route out of economic hardship. The problem Argentina feels is that the agreement also includes the clause "rights on an upcoming bid" ("RUFO"). The effect of the clause is that, if the payment is then paid more, or with better terms, all existing settlements will be paid back on better terms. This is intended to convince bondholders that it is safe to be resolved early, and reduce the incentive to survive for better then supply.
As a result of previous decisions for holdout bondholders, Argentina now faces a situation where:
- 7% of bonds held by Holdout holders must be paid in full, while 93% agree to pay about 30% of the bond's nominal value; 93% of renegotiated bonds can not be repaid without paying the installment (on a larger scale) to 7% ownership;
- Any repayment of the penalties associated with the full face value will potentially trigger all previous bondholders entitled to a full nominal repayment as well, effectively discharging all intents of the renegotiation of 2000 - 2010, and creating an additional obligation of $ 100 billion of which Argentina unable to pay.
Therefore, the US court ruling pari passu has forced Argentina to skip the payment of the managed bonds managed from New York, since July 30, 2014 (bonds issued under Argentine law (paid via Citibank Argentina) and bonds issued pursuant to European law (paid through Euroclear and Clearstream), is not affected.). This in turn caused Argentina to be expressed in a selective standard by Standard & amp; Poor and in a limited standard by Fitch, which means that some Argentine bondholders receive payments while others are not now.
Response to 2014 verdict and default
By Argentina
President Cristina FernÃÆ'¡ndez de Kirchner states after the last refusal of certiorari that his country has an obligation to pay its creditors, but is not subjected to extortion by speculators; although Argentina can not use the US financial system to do so, he said, the team of experts working in a way to avoid default and keep Argentina's promise. The termination of the Right to Future Offer (RUFO) in December 2014 will deter other bondholders from insisting on better terms if the Argentine Government and the vulture fund remain, making such settlement more likely after that date if the dispute continues.
International Court of Justice
In August 2014, Argentina filed a case with the International Court of Justice, alleging that through its judicial system decision, the United States had "violated [its] sovereign immunity" and violated "[obligations] not to use or encourage measures of economic and political action to forcing the sovereignty of other countries, "and is responsible for allowing judicial malpractice and gross incompetence in allowing two small hedge funds to trigger unnecessary defaults against most other bondholders. Information is also requested from the Securities and Exchange Commission on the possibility of securities fraud involving obligations by the plaintiff in this case. Observers note that the United States must approve the case heard, which occurs only 22 times in 68 years of ICJ existence, and a Latin American and international legal specialist at Oxford Analytica observes to the media that, "From the point of view of the US government, York has dealt with contract disputes in which the [branch] of the executive can not intervene.This is a dispute governed by contract, not by treaty or international law ".
By other organizations and countries
The decision was also rejected by the Organization of American States, G-77 (133 countries), and the Council on Foreign Relations, as well as by bondholders whose payments were terminated by the Griesa court.
Financial responses
The big banks, investors, and the US Treasury Department objected to the federal court decision and expressed concern over losses that could be incurred by bondholders and others, as well as disruptions in the bond market. Vladimir Werning, executive director for Latin American research at JPMorgan Chase, observes that the vulture fund "attempts to block payment systems" in the United States itself, something "unprecedented in New York jurisdictions." Kevin Heine, a spokesman for Bank of New York Mellon, which handles Argentina's international bond payments, said the decision "will create anxiety in the credit market and generate litigation cascade, which is the opposite effect that a decision must have." The American Bankers Association agreed, noting that "enabling orders that preclude existing obligations whenever wise to enforce judgments against borrowers would have significant adverse consequences for the financial system."
A consortium of Argentine banks, led by the Argentine Banking Association (Adeba) President Jorge Brito, meanwhile presented their own completion offer on July 30, where all vulture fund bond holdings in dispute will be bought in installments totaling US $ 1.4 billion, but the offer was rejected; Citibank, JP Morgan Chase, and HSBC joined the effort to repurchase the vulture fund holdings on August 1st. The ISDA, which is one of 15 member banks, Singer and fellow vulture teaser, Aurelius Capital CDS, paid $ 1 billion on August 1.
Impact of jamming bond payments
Impact on Argentina
The dispute restricts Argentina's access to foreign credit markets as well; in October 2012 the cost of Argentina's theoretical lending was 10.7%, twice the average for developing countries. Although Argentina has not raised money in the money market since the default, YPF state oil company has put its debt on the financial markets to finance its investment program in the coming years.
Wider implications for financial systems
The likelihood that enforceability lenders can attach future payments on restructured debt and receive better treatment than cooperating with creditors distorts incentives can thwart attempts to restructure cooperatives, and in the end may cause the United States no longer seen as a safe haven for issuing state debt..
Second Circuit has acknowledged that the New York Judiciary Law Section 489 (derived from law of 1813) seems to openly prohibit transactions "basically all 'secondary' in debt instruments in which the buyer has the intention to enforce the debt obligations through litigation," but later decided in a 1999 decision involving previous Elliott Management cases against Peru that the history of that section as interpreted in a New York state court revealed that it was intended only to prohibit purchases made with a sole intention to file a lawsuit > in itself . That is, the New York Legislature tries to stop lawyers or debt collectors from exploiting a cost change clause in a worthless promissory note to get an appraisal for a very small amount (ie, the nominal value of the notes) which also gives a massive fee incurred in a litigation course. Article 489 does not apply to purchases made for the primary purpose of collection at the nominal value of the instrument, in which litigation is merely a means of achieving that goal. The United Kingdom, however, permanently prohibits the use of its court for clothing with vulture funds in 2011. By 2014, 70% of the world's state bonds are issued in New York, and 22% in London.
According to Reuters in 2013, the case may be particularly important in cases where creditors are required to receive large debts and reduced debt repayment, although it is unclear given the special circumstances of creditors. The case of Elliot/NML does that would apply widely to holdouts in other restructuring. The American Bankers Association warns that the district court's interpretation of the same terms may allow a creditor to thwart the implementation of an internationally-supported restructuring plan, thereby undermining the decade of United States efforts being made to encourage a cooperative resolution system. the sovereign debt crisis.
Mauricio Macri Presidency and default end (2015-2016)
Mauricio Macri was elected president of Argentina in November 2015. He seeks to negotiate with detention and end failure, to return to international capital markets and benefit the national economy. In early 2016, a US court ruled that Argentina should make full payments to four holdout bondholders (NML, Aurelius Capital Management, Davidson Kempner Capital Management and Bracebridge Capital) on 29 February. Argentina made an offer to pay $ 6.5 billion to settle a lawsuit on February 5, requesting that an earlier decision on payment be revoked. Daniel Pollack announced in February 2016 that Argentina had reached an agreement with Paul Singer. The deal still needs to be ratified by the Argentine Congress. The deal will only last until April 14, 2016.
Although the Cambiemos , Macri political coalition, does not have a majority in one of the Congress houses, the bill was approved by both in March. Many Peronist legislators support it because the provincial governors will also benefit from access to international credit markets. With the bill approved, Argentina faces a trial in New York on April 13. The court confirmed Griesa's verdict, and allowed Argentina to pay to bondholders in 2005, 2010 and those still in default. Payments will be made by the sale of bonds. This seems to be the end of Argentina's failure, which began in 2001.
However, nearly US $ 1 billion in bonds failed to remain unpaid, resulting in continued litigation even though it is less publicized. Argentina finally reported in November 2016 that it had reached an agreement to pay US $ 475 million to pay off unpaid bad debts. In January 2017, The Economist reported that the MSCI index will consider accepting back Argentine stocks during 2017, and on January 5, JPMorgan Chase also said it would recognize Argentina into its benchmark index earlier in the year.. On March 6, 2017, Barron's reported that Moody's Investors Services had "raised its outlook on Argentina's credit rating to positive from stable."
See also
- Argentine Economy
References
Further reading
- US Court Defends Vulture's Fund Rights over Argentina Michael Hudson and James Henry, The Real News (July 23, 2014)
- Vulture Funds Lobbying Argentina, Trying to Use the US Congress in a Public Relations Campaign - Mark Weisbrot op-ed (2009).
External links
- Argentina and the IMF on the IMF website.
- Banco Central de la RepÃÆ'ºblica Argentina - the website of the Argentine Central Bank, with various economic statistics available quickly.
- Interessengemeinschaft Argentinien e. V. (nonprofit association of creditors involved in restructuring, based in Germany).
- Associazione per la Tutela degli Investigation at Argentine Titoli Argentini/Task Force (Rome-based pressure group, representing the interests of default bondholders in Italy).
- The American Task Force Argentina (Washington, DC-based pressure group representing the interests of institutional default bondholders in the United States, and co-chaired by Robert J. Shapiro, former US Vice Minister of Commerce in the Clinton Administration, and Nancy Soderberg, National Security Council under Clinton).
- The Global Committee of Bond Holders of Argentina. The global association of groups of Argentine bondholders and committees from around the world, representing holders of more than 39 billion dollars of debt. It includes over 500,000 retail investors and more than 100 institutions, banks, partnerships and committees.
Source of the article : Wikipedia
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