This is the full transcript of the interview which took place at the Argentine embassy in Washington on March 26. The previous day, we also interviewed Arturo Porzecanski, a professor who is much more sympathetic to Argentina’s opponents.
Felix Salmon: I’m Felix Salmon and I’m very happy to be here with ambassador Cecilia Nahón, from Argentina. She’s the Argentine ambassador to the United States, and Argentina is in the news, because thanks to the US Courts, you’re in default, again. And this time it’s not your fault.
Ambassador Nahón: We’re not in default.
FS: You’re not in default, okay.
CN: To begin with. The case of Argentina has been really a game-changer in sovereign debt markets. And I think this is the case because it’s the first time that a country has the resources to pay its creditors, the will to pay its creditors, and in fact it paid its creditors, as we did. But because of this decision of the judge, an irrational decision of the judge that has been requested by the vulture funds, there is a blockage in the collection of that payments and our creditors are not getting the money. But this is certainly not our fault because we are paying. There is a discussion in the literature on how you can name this. You know there are some experts like Stiglitz have said, “Well, maybe it’s Greisafault.” Something different, but we are certainly not in default because we have kept paying our bondholders and we will continue to do that.
FS: So maybe we can just rewind a little bit and you can explain: what is a vulture fund?
CN: Well the vulture funds have gotten to the news more actively recently, but in fact have been around for 30 years now. They have developed a very specific modus operandi of getting debt – distressed debt – more generally bonds that are already in default from sovereigns, and they just get these bonds to litigate against countries, to try to recover 100% of the bonds, plus interest, plus penalties, making unwarranted, huge, extraordinary profits. They are not financial investors, they are not in fact investors at all, because they just abuse a lacuna that is in the sovereign restructuring regulations at the global level. And they take advantage of judges, like Judge Griesa, who has been very functional to these vulture funds, to litigate and to try to make exorbitant profits. Profits that are done against the interests of countries, but also at the expense of the other bondholders. In the case of Argentina, we restructured our debt, we reached a deal with 93% of our bondholders, and these funds have been litigating against Argentina, rejecting every deal, not wanting to negotiate, to try to make these exorbitant profits. They are looking for a 1600% profit. That’s what they are looking for, and that’s what has been granted to them by an absurd ruling by a judge from New York.
FS: The vultures want roughly 300 cents on the dollar. For every dollar of bonds that they own at face value, they want $3.00 from you. How much do you think that you owe them?
CN: We have made very clear that Argentina respects the principle of intercreditor equity, so we have offered them, and put them an offer last year, in July that will give them a 300% profit. We think that’s a reasonable profit. But they have rejected every offer. And in fact, sometimes we ask ourselves, why would they accept a more reasonable deal when they have Judge Griesa backing them up so much, you know? So, we have been trying to reach a deal with all the holdouts. We are a country that has been very effective in negotiating our debts. You know that Argentina defaulted on its debt in 2001. In 2003, under a new government with President Kirchner, we have restructured the whole process of restructuring our debt, and we negotiated successfully with 93%. But the vulture funds don’t want to negotiate.
FS: When you talk about intercreditor equity, this is more or less the same principle as the principle which was underlying the famous RUFO clause, the rights upon future offers. It sounds that even though that clause is no longer in effect, the principle still remains, that you don’t want to give the vulture funds anything that you wouldn’t have given holders of the same bonds in previous exchanges.
CN: What we want to do is to reach a solution with 100% of our bond holders, that’s our main goal now and that’s what we have established many times. We have successfully restructured our debt, we have resolved our debt with the Paris Club, with our ICSID creditors. I mean we are a country – this government in particular has been very effective in solving our debt issues. We’ve paid $190 billion for the last ten years to our creditors. And we want to find a solution to this. But we cannot do it under extortive situation, we cannot do it if we are forced, the judge, the special master, trying to have a conversation only with the most aggressive of the holdouts. We would like to find a solution with all the holdouts. And that’s what Argentina has been claiming. We are claiming, we are asking, for the possibility to have better conditions for a negotiation. That means to sit down with all our holdouts, and try to see if we can reach a deal with all of them, not only with Singer under his own terms. That wouldn’t be a solution for Argentina.
FS: So when you say you want to talk to all of the holdouts, that means the Italian retail bondholders, that means all of the judgment creditors, not just the people who have the injunctions from the judge.
CN: Exactly. Exactly. What we believe is that nobody restructures its debt talking only and firstly with the most predatory and aggressive of the bondholders, who is NML and Singer’s people. So basically what our minister has requested in the meetings that we had last year in New York during the month of July was the possibility and the opportunity to sit down in the table, with all of Argentina’s holdouts. Which are around 7% of our holdouts, and see if we can find a solution with them. Of course, at the time, the rights of our future offers was in place, so we couldn’t even start negotiating with anybody at that time, because it was a very high risk of triggering that clause. The Argentine government, and the leadership of the president made it very clear that we risked derailing our restructuring, risking to face claims of up to $500 billion. So we were very careful. But at all times we said, and we still say that we need to have and to sit at the table, all of our holdouts. And that’s not happening, because the judge is not allowing that to happen.
FS: So what kind of format do you see for these negotiations? Could you just invite them to Buenos Aires and say, “Come and we’ll talk to you.” I mean, would the special master be involved, would the New York courts be involved at all?
CN: Well the Special Master has been absolutely biased, and absolutely functional to the interests of the vulture funds. We gave him a try. The minister and the whole team traveled to New York for a while, participating in good faith in all of the process he offered. But he showed his true colors soon. And he even attacked Argentina and so he’s not a – he’s been questioned by us very seriously. He’s not a reliable person, he’s ultra-biased for this process.
FS: Do you even need the auspices of some organizations that organize these negotiations? Do you have any organizations in mind who might do that? I mean, presumably you don’t need the special master, you can have anyone or no one if you just announced that you are welcome to start talking to us.
CN: Well this is a very dynamic process. There’s still a lot of litigation going on, there’s news every day, and I don’t have the crystal ball on how exactly this is going to be solved. I can reassure you that Argentina is a country that has shown very clearly our will and our capacity to negotiate and solve our problems. The things that the vulture funds have not shown so far – any significant flexibility whatsoever in their claims to make us consider that they will accept a reasonable offer. They have been absolutely aggressive, they have put into place a very aggressive lobby campaign against Argentina, and there’s not conditions at this moment created by the whole litigation, to be able to have everybody sitting at the table at the same time. We are looking for that to happen. We’ll see, I don’t know. It’s an open question.
FS: What can the creditors do to hasten the arrival of negotiations?
CN: Well, if they are reasonable, if the creditors have a reasonable perspective. Let me tell you this. If Argentina accepted the claim of NML and Judge Griesa’s proposal to all the holdouts, we will be facing a total amount – we would have to pay a total amount of more than $20 billion. That’s impossible for Argentina to pay. It’s 2/3 of our foreign reserves. No responsible government, no serious government will get involved in a process of $20 billion debt to be paid, so basically, we need them to be reasonable, and they haven’t shown any reasonable flexibility whatsoever, not Singer and their people, certainly.
FS: And if NML and Paul Singer don’t display a willingness to reduce the amount that they’re willing to accept, that basically prevents any negotiations from even beginning, seems to be what you’re saying.
CN: Well they, have to show a significant will to negotiate, but they have not shown that at all, as I’ve told you –
FS: They said that they’re willing to accept bonds –
CN: Well, they’ve said a lot of things, they have been really trying to create a distorted image of themselves, I mean they are the ones that have not negotiated, for all this period, and that are not willing to accept our offer. They have never been open to Argentina’s offer. Last year we offered them a 300% profit, and they are only trying to complicate these things and create more and more litigation. And the Judge, Griesa, is backing them. This is a situation where a few billionaires are trying to be even richer at the expense of countries, at the expense of sovereigns, but in this particular case also at the expense of US interests. The US government has been very clear that it didn’t support the interpretation that Judge Griesa put in relation to the pari passu. There are US institutions like the Bank of New York, like Citibank, like American bond holders that are within 92.4% of our creditors that are being damaged, that are not getting their money, because of this whole situation, so I think that we have really to understand that these vulture funds’ behavior goes against the system. Against the financial system, against sovereigns, against sovereign immunity, and against the interests of the rest of the financial investors. This is very important to understand who we are talking about here.
FS: You’re saying that if you paid out all the money that they’re demanding, that would be about $20 billion and you can’t afford that, so is there a problem that Argentina basically cannot afford to pay its vultures to settle this case?
CN: In 2001, when Argentina defaulted, the debt to GDP ratio was 166%. Now, we have put in place for the last 10 years a very responsible debt management strategy. We have reused our debt, and we have done that under the principle that Argentina needed first to grow, and from that growth, it will be able to service its debt. This was a very revolutionary principle that Argentina took to the United Nations, President Kirchner put it there. With the 2010 exchange debt, we did exactly the same under the President’s government. So basically, we believe that we need to keep our debt being sustainable. Now, our debt to GDP ratio is 40%. If you take into account the amount of debt that is in foreign currency to foreign creditors, it is less than 9%. Argentina has a very sustainable, very manageable debt, that we can pay, that we can afford, and that we are paying. We don’t want to derail this. We don’t want to put this at risk. We just cannot think about $20 billion. I mean which country in the world will make payments to these vulture funds compromising 2/3 of its foreign reserves, it just makes no sense. And they have not been offering us any reasonable solution, any reasonable way to get out of this.
FS: And yet, in light of the rulings which have come from the US courts, can Argentina afford not to resolve this situation, can you afford to let the current status quo stay indefinitely?
CN: Well we certainly won’t accept a false solution, you know? A solution that in fact seems like a solution, but puts our people and our growth process at risk. So basically, I think our minister, our President, have been very responsible in terms of what decisions they make in terms of this litigation. We just cannot put at risk the wellbeing of our people, and we cannot put at risk the sustainability of the growth process. So we are trying to find a solution, but it has to be under certain conditions. It has to be reasonable. It has to be affordable. It has to be legal. It has to be a fair solution.
FS: When you came to a solution with the Paris Club, that did involve paying interest and penalties on interest, so in principle, even if you don’t give the holdouts everything that they’re asking for, in principle it seems that the Paris Club settlement means that there’s something in the middle there that you might be able to pay.
CN: Well the Paris Club thing case shows that basically Argentina’s will and capacity to pay its debts, and its very successful capacity to negotiate, but these are not sovereigns with good faith. These are the most aggressive and predatory players of the international financial system, the scourge of the international financial system, so I don’t think that we can in any way compare them to the Paris Club negotiations. And again, they have not shown any flexibility whatsoever to see that they will be willing to reach a reasonable deal with Argentina. And reach a deal we could afford, a deal we could honor. So far. We’ll see.
FS: You say that they have shown no willingness to negotiate, they say that they’re willing to negotiate. What form is this unwillingness? Is there any forum that they have refused to attend, is there any talks that they have refused to show up to? How does this refusal to negotiate manifest itself? Because it seems to me that whenever there’s a meeting, they are happy to go to it.
CN: Well we were at the meetings that the Special Master requested, we were there, as you know, and we – the minister of economy sat with them face to face, and made a very reasonable proposal and it was rejected. And I think that from all we have seen in the last year from their specific behavior, they are really reaffirming once and again a very aggressive and hard position against Argentina, so we have enough evidence so far that that’s what they do. And that’s what they do, that’s how they operate in all cases all around the world.
FS: You say that you’re not in default to the exchange bond holders, you’ve been making those payments. Does that mean the exchange bond holders should not expect to receive the penalties and the past due interest, and all of the excess 7% money that they probably think that they’re due since they’re not receiving their coupon payments?
CN: We’ve been paying on due time, the responsibility of Argentina as a creditor extends to when we deposit the money to our bondholders, from that moment the money belongs to them, the money is not ours, we couldn’t get it back even if we wanted, so we’ve been paying regularly, and we will continue to pay regularly to our bondholders. But of course, there is a blockage in the collection of payments, and so that’s a situation in which we have been trying also to cooperate. We will continue doing everything we can to make sure our bondholders get their money, that’s our main concern, our main goal. But our obligations are fully covered. And in fact, let me tell you, the bondholders themselves have done things. A group of bondholders went to London to claim for their payments because they are suing the Bank of New York trying to understand why American bondholders that have UK law bonds, that we paid on time, are not receiving their money. So you see that the judge with these absurd rulings, has created cross litigation, has created more problems, has been damaging and hurting the interests all around the world, and he thinks his jurisdiction is the world. He’s not recognizing that he’s a US judge, a New York judge, and he just cannot to pretend to rule on UK bonds, on Argentine law bonds, damaging our bondholders. So the bondholders themselves are taking action. This is something that they have started in London, and they forced a UK law to issue and say the obvious, that UK law bonds are ruled by UK law. This doesn’t make sense.
FS: But conversely, you would agree that New York law bonds are ruled by New York law, that Judge Griesa has jurisdiction here, he can actually do what he has done.
CN: Well, Judge Griesa’s ruling not only violates the Foreign Sovereign Immunity Act, the law that we accepted when we decided to issue bonds here in New York, but it also violates the contracts. It’s a construction, a Frankenstein that he has created that’s not according to international law, it’s not according to US law, and it’s not according to the contracts. So we believe that his ruling really not only goes against all market principles of how the world works in terms of sovereign debt restructurings, but it also doesn’t reflect the law that Argentina in 1994 accepted when issuing bonds under New York law. So his rulings have been really challenged, not only by Argentina. His rulings and his decisions have been challenged by the market participants that have supported us throughout the process, by the US government, that has stated very clearly that the way the judge interpreted the pari passu clause goes against the market interpretation, goes against US interests, goes against New York’s interests as a place to issue debt. So the US government challenged and doesn’t agree with his interpretation, the government of France, the government of Mexico, the government of Brazil, experts all around the world have challenged and criticized very strongly the interpretation that the judge made of this very standard pari passu clause. So I think that we just cannot accept passively that this is a reasonable ruling. It’s an absurd, an irrational ruling, that really has changed and goes against all that was known in relation to how a country should restructure its debt.
FS: So, you understand how the separation of powers works in America. This got appealed up to the Supreme Court, which declined to hear the case, so there’s nothing on the judicial side which is going to be able to change these rulings. Are you saying then that you are hoping for some kind of legislative action on behalf of the United States, that they are going to pass some law which overrules what Judge Griesa has done? What is the way out of this that you see?
CN: Well this is a very dynamic case, there are news every day, and you’ve seen that the ruling that the judge created. It’s of impossible compliance, I mean it’s a ruling that is hard to comply with because it goes against financial rationality and possibility, so there’s things going on as we speak. We’ll see how this ends. It’s an open issue so far. Of course, we’ll see.
FS: If you look at the markets, the exchange bonds are trading almost as though they’re paying their coupons, they – you are paying your coupons, they’re just not being received. So it seems that the market is expecting that all of that money will end up in the pockets of the bond holders sooner or later. Which is it going to be, is it going to be sooner or later?
CN: Well I think that the markets are right in valuing Argentina’s will and capacity in effectively making the payments, so that’s very important. And of course the blockage of the collection of payments should be lifted, that’s our position, it’s absolutely irrational that unrelated parties to this litigation – because this is very important to be understood – this is a case that started with litigation between Argentina and the holdouts, the vulture funds. But Judge Griesa decided to intervene the flux of payments, to intervene the payments that we make to unrelated bond holders, 92.4% of our bondholders that have nothing to do with this litigation, that are absolutely good faith creditors that accepted our offer, and that have been getting their money since then. He decided to bring in unrelated parties, to sabotage their rights, to interfere and mingle with the contracts that they have with international financial institutions like Bank of New York, the other intermediaries, and so on and so forth. I don’t see any justice in this. Honestly, what he’s doing is creating more litigation, creating more conflicts, affecting third parties’ rights, that are being violated, because of this, because the creditors are not collecting the money that is theirs, it’s not Argentina’s, we complied with our obligation, it’s theirs, so this ruling cannot be fair. This ruling cannot be just. This ruling is functional to a very small group of very powerful people. We know who is on the other side. We know that Paul Singer is the main individual contributor to the Republican Party, it’s the fourth contributor to the – in the political system of the US as an individual, so there’s certainly some political interest behind this case. This just cannot be right, it cannot be accepted.
FS: I feel like we have an immovable force, you’re saying that the ruling is not right, it doesn’t stand up judicially, although it was upheld on appeal. But are you saying that there’s some way of it being overturned? That somehow the ruling might go away?
CN: What I’m saying is that as much as we want to get a solution to this, we will not accept a solution under extortive conditions, under conditions that are not good for the Argentine people, and under conditions that don’t allow us to keep on having a responsible management of our debt. So we are open to a solution, we want to find a way out of this, as we have solved – and this is very important – when Nestor Kirchner got to power in 2003, Argentina was in default, Argentina was in hell, and we grew for 10 and plus years in a very sustained way, because we made our debt sustainable, because we made our debt affordable. And we’ve been honoring our debt since then. We are a government and we are a country that wants to solve its debt problems, and we did. The only – from all the difficult situations that we had in 2001 in Argentina, to today, we solved all our debt issues. All of them. All of them. Very complex negotiations that we successfully put forward. And I think this is the best evidence that you have that the problem are the vulture funds. The problem here are their reluctance to accept a reasonable deal, and their abuse of the fact that the international financial system has a major flaw. And let me tell you a little bit about that, because I think it’s important.
Sovereigns in the current situation have less rights than companies to restructure its debt. You know that when companies restructure their debt, if they reach an agreement on a Chapter 11 in the US, it’s similar in Argentina, if they reach an agreement with 66% of their creditors, then 100% of their creditors have to accept the deal. Because you just cannot hold out and claim for a privileged windfall profit. Because it will be at the expense of everybody. There’s not a sovereign debt restructuring mechanism in place at the world level. So basically what vulture funds have done and what they keep on doing is to abuse this flaw of the financial system. Of course, Judge Griesa is the best judge that they could find to help them do this. And they are basically taking advantage of the fact that there’s not a system that there should be, that makes sure that 100% of the creditors accept what you agree with the majority of the creditors. We reached a deal with 93%, almost, of our creditors. How could a small minority of holdouts challenge that, and pretend a very unwarranted and privileged treatment, sabotaging the whole process. And the problem here is not only what happened to Argentina. We decided to take this to all international institutions, because we want this to never happen again to other countries around the world. There needs to be a change in the financial infrastructure to deal with this, and in fact Argentina with the support of the G77 plus China took this issue to the United Nations. You know that last year there’s been a resolution passed with the support of 124 countries of the United Nations, claiming for a new, legal multilateral framework for sovereign debt restructurings. Basically, to make sure that vulture funds’ practices are limited, are stopped, and don’t keep on attacking countries in such an unwarranted way, as they do Argentina.
FS: For the first 10 years or so of this litigation, Judge Griesa seemed to rule mostly in favor of Argentina – the vulture funds were mostly losing, and Argentina was mostly winning, and then at some point he seemingly got fed up, and there was this word that the second circuit used, they said that Argentina was “contumacious.” You think there was a point at which Argentina just refused to respect the New York courts and that after Argentina refused to respect the New York courts, the New York courts then refused to respect Argentina and started handing down these rulings?
CN: I am very proud of the way that we have dealt with our debt the last 10 years, I think that Argentina is a model in terms of debt restructurings in the sense that we have put payment capacity as a major issue. And we have been honoring our payments since then. Of course the vulture funds have tried to create this negative view of Argentina, through PR campaigns, through very aggressive characterizations, I think that it’s very unfair, I think that it doesn’t portray honestly what Argentina has progressed and has done in terms of its debt. And basically we tried to prevent this from happening. In 2004, now that you go back through history, you know that in 2004, before the debt restructuring, the first debt restructuring was done, Argentina asked Judge Griesa what he understood by the pari passu clause. Because we really wanted to be sure that sort of interpretation, which was already around, didn’t get confirmed by the judge, trying to jeopardize our debt restructurings. He said in his own words, and you can check this on the record, that that interpretation was “odd.” 10 years later, he confirmed this because of the vulture funds’ request. I think this really shows that he doesn’t have a very solid understanding probably of the complexities of the case, and that he’s absolutely biased and pro the vulture funds’ position. You just cannot expect a country to pay this group 100% of the original bonds plus interest, plus penalties – because we did go through a default. And we went through a default in 2001, because we couldn’t afford the debt. So when you restructure your debt, it’s because you can’t afford it the way it is. So it seems he doesn’t quite understand what a default means.
FS: And yet, he is the only person who can lift these injunctions. In order to get to him, in order for him to lift the injunctions, the only person really who can persuade him to lift any injunctions is the Special Master. Is it not worth you turning up and talking to the special master and trying to work out where there might be a compromise?
CN: We did it. I was there and I think the world was there when our economic team met with the Special Master many times in New York, spoke with him on the phone, tried to explain to him the complexities of the case, the willingness of Argentina to solve this equation but the limits that Argentina had at the time. The Rights Upon Future Offers was in place. If Argentina had accepted, as a lot of people – including in Argentina – had recommended at the time, if Argentina had accepted at that time to pay the vulture funds what they were asking, we would have been facing claims of up to $500 billion, and at least $140 billion. It would have been a trap for Argentina. We didn’t fall in the trap. We defended our sovereignty, but also we defended our finances, and the possibility of having our budget inadequate situation to pay for the most important responsibilities that we have as a government and as a country which is the health, the education, the social security of our people. So we tried to find through the Special Master a reasonable solution, and to make him understand. But he didn’t want to or he didn’t care to understand. Well, I’m not that innocent, I think we’re not that innocent – in fact, what he said and what he spoke, made a lot of people make a lot of money in the financial markets. They used his declarations also to move the markets and have a lot of business opportunities for financial investors. So he hasn’t proved to be special, or a master.
FS: So is that it with him? If you’re going to have negotiations, if you’re going to talk to your hold out creditors at all, and all of them, not just Paul Singer and NML, it won’t be with Daniel Pollack. You’re done with him.
CN: Well the judge reconfirmed him – you know that we requested that they remove him, but the judge reconfirmed him in his position. But the last episode that he had, which also proved him to be absolutely biased and functional to the vulture funds, was I think in January, when he made public that even before we had time to answer, he made public that he had contacted the Argentine authorities with a proposal to have some meetings with the vulture funds, and without giving us time, without giving us notice of anything, while he has said that all this was going to be discreet and confidential, he accused us of not willing to negotiate, of not showing up, I mean he didn’t even talk to us, and didn’t have an announcement on our behalf, and he had rushed to make all these public accusations. Again, very good for short term speculations of a lot of people in the financial markets.
FS: You say that you have the capacity to pay your debts, but in the wake of the most recent rulings from Griesa, which affect all of your dollar-denominated debt, not just the foreign bonds, the New York law bonds, that capacity is now being called into question. There’s a big $6 billion payment which is due in November. How long are you going to have the capacity to pay your debts, if these rulings stay in place?
CN: First, to clarify, Citibank, I think you’re referring to that ruling, is one of many custodians of the Argentine jurisdiction to nominate Argentine jurisdiction bonds. So the Citibank is one of many custodians. It processes around 3% of our Argentine law payments, so it’s not quite like you say. It’s not that our debt is being in dollars, is being – now comprehended by this ruling. But first, I would like to reaffirm that this is a new example of Griesa overstepping his jurisdiction. Again, if before he was thinking of ruling – if before his ruling was out of this world, now it’s out of this universe. You know, it’s like: how can you accept that a US judge rules on Argentine law bonds issued by Argentina in our own country? I mean, that’s far away from his jurisdiction. That’s domestic foreign currency debt. That’s not foreign indebtedness. That’s domestic debt in foreign currency, so we reject very much his, again, his decision on this, and we will keep on making the payments, as we have been doing so far, to all our debt, including the debt that is channeled through this bank and through other banks. Because we won’t put at risk our payment capacity at all, I mean we won’t stop making the payments. That’s our major commitment, we have a commitment with our bondholders, with our good faith bondholders, and we just won’t betray them.
FS: But there’s almost no sovereign nation in the world, outside of Middle Eastern petro states, which can continue to make payments on its debt without being able to roll over those debts. Right now, it looks like Argentina does not have the capacity to roll over debts, to issue new bonds as the old ones come due. So at some point, maybe in November, or maybe some other point, there’s a crunch, no?
CN: We have covered all our maturities for this year. Of course, as we have publicly said, we are always hoping to learn about financial opportunities. Many international, domestic banks have offered Argentina different opportunities to issue new debt, we considered them, but Argentina has not requested any bank or international bank to offer debt in its name at all. So we will only eventually cross that bridge when we get there. We have shown, I think, and proved, for the last 10 years, that we have the capacity and the will to keep on paying our creditors, and we will continue to do that in a responsible way, and also thinking, as we have been thinking, always in terms of new debt, leading to infrastructure investment, leading to real economy investments. We – in the 90s, you know, Argentina was the poster child of neoliberalism, and in that period, our country was the best student of the Washington Consensus policies, we grew and grew in our debt, and we became a very over-indebted country. And financial speculation was the main element ruling our economy. We moved from that. Now we are a country and an economy that basically builds on its productive sector. We have recovered our industrial sector, we have recovered our productive capacity, so we will eventually consider new debt, if it’s related to our infrastructure, to continue building our infrastructure and our productive capacities.
FS: If you talk to investors, Argentine bond investors, it seems that their base case scenario, what they will expect will probably happen, is that when a new administration comes into power in January, whoever that is will have much more ability or willingness to negotiate with the hold outs, will settle those hold out claims relatively quickly, and then open up the ability of Argentina to borrow in capital markets, and be able to pay all the exchange bond holders, and everything else. Is that a reasonable expectation?
CN: Well if the Wall Street people are able to foresee the future, I am amazed, I think that we are in a situation now where the candidates are not fully clear, it’s not clear who’s going to make it in the elections, most of the candidates have not even made explicit and clear how they are gonna deal with this issue so far, so I think that having this kind of expectation is something that they will have to explain. I don’t know what’s going to happen in the future, I can’t tell you about that.
FS: If I’m an exchange bondholder, and I come up to you, and I say, “I’m owed money and you’ve been making these payments, I have not been receiving my payments, when will I be able to receive my payments?” What do you say to me?
CN: Go ask Bank of New York, go ask Griesa, go ask the vulture funds, go ask the intermediaries that are there, maybe they can give you an answer. Of course we are trying to make that happen, because we have a common will with our bond holders, and we are trying always to safeguard the interests of our bondholders, but Argentina’s obligations are complied with, we are paying, and we will keep on paying, and we will keep on participating in this litigation to make sure they can collect their payments, but it’s a part of the payment process that we don’t control. It’s a contract – and this is important to understand – it’s the contracts between the bondholders and their financial institutions and their financial intermediaries. So these institutions, because of the ruling, have been brought to the front, but they are unrelated to this litigation. And I think this is, again, important. They have nothing to do, and they’ve been involved in that, because of the judge’s absurd, irrational, contrary to common sense ruling.
FS: And just to be clear, as an exchange bond holder, when I receive my payments, I will receive the interest payments which are mandated as part of the coupon payments, but no past due interest, no penalties, nothing like that, because you have made all your payments in full.
CN: We’ve been making all our payments in full, and we will continue to make that. We have a very clear position about this, about –
FS: About past due interest?
CN: About – no about paying our creditors. We will continue paying our creditors.
FS: Finally, if you could spell this out a bit: On one side you have the vulture funds and the New York courts. On the other side – who’s on the other side?
CN: Well, the whole world supports Argentina on this litigation. Experts covering all the ideological extremes, you know from Anne Krueger, who’s not a person who we particularly share with many ideas, to Nouriel Roubini, to Joseph Stiglitz, I mean all the experts from around the world have stated very clear this ruling is flawed. But also at the United Nations, at the G20, at the Organization of American States, of course, Mercosur, UNASUR, everybody around the world has made it clear that vulture funds practices are not accepted, that they just cannot be good for the world, that they go against sovereign debt restructuring logic and sense. So the support that Argentina has received through this process has been really, very, very important. But what’s more, this process has created a global conversation, a global international process of reform in relation to sovereign debt markets. You know that the International Capital Markets Association has put forward a new recommendation, including some anti-vulture clauses, some sort of vulture-proof clauses. We believe there are no vulture-proof clauses, you know, we believe that, as much as Judge Griesa has interpreted in a very unwarranted extravagant way the pari passu clause, any judge in the future could interpret in a very strange way clauses. But of course, all that you could do as sovereigns to protect from the vultures is positive, so we think it’s a very positive step, the IMF is also involved in that, and there are around eight, nine countries in the world, that have already issued new debt with these so called vulture-proof clauses, or anti-vulture clauses. Which is positive. Because this shows that this is not only about Argentina. This shows that this is part of the global financial system, and it shows that there’s action that is being taken. At the United Nations, we are involved in these negotiations, but also to all international bodies. The President was very clear in asking us to take this to the world. Because the world should know what is going on. And the world should react, and in fact is reacting against vulture practices. In the Greek case, you can see also the vultures showed up, and made a lot of money holding out, threatening to hold out, in the restructuring of 2012, so we need to make sure vulture funds are stopped, and the international financial system and countries around the world are ready, reacting to that.
FS: This UN process that you’re going through right now, trying to create with G77 and China and the United Nations, does that provide a possible resolution to this particular issue that you have with NML Capital? Or is that only sort of looking forward?
CN: Well, it’s an open negotiation. You know, the negotiations are going on as we speak, but the goal of this is to make clear that there has to be a legal framework, and an international framework for sovereign debt restructurings in some way. And the participation of countries is very important, so we’ll see what happens with this process, I don’t want to anticipate process that is in essence multilateral, so it’s for the countries involved to decide, but I think it shows the global nature of this problem and this is not only about Argentina.
FS: Thank you very much.
CN: Thank you.
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Felix Salmon: I’m Felix Salmon and I’m very happy to be here with ambassador Cecilia Nahón, from Argentina. She’s the Argentine ambassador to the United States, and Argentina is in the news, because thanks to the US Courts, you’re in default, again. And this time it’s not your fault.
Ambassador Nahón: We’re not in default.
FS: You’re not in default, okay.
CN: To begin with. The case of Argentina has been really a game-changer in sovereign debt markets. And I think this is the case because it’s the first time that a country has the resources to pay its creditors, the will to pay its creditors, and in fact it paid its creditors, as we did. But because of this decision of the judge, an irrational decision of the judge that has been requested by the vulture funds, there is a blockage in the collection of that payments and our creditors are not getting the money. But this is certainly not our fault because we are paying. There is a discussion in the literature on how you can name this. You know there are some experts like Stiglitz have said, “Well, maybe it’s Greisafault.” Something different, but we are certainly not in default because we have kept paying our bondholders and we will continue to do that.
FS: So maybe we can just rewind a little bit and you can explain: what is a vulture fund?
CN: Well the vulture funds have gotten to the news more actively recently, but in fact have been around for 30 years now. They have developed a very specific modus operandi of getting debt – distressed debt – more generally bonds that are already in default from sovereigns, and they just get these bonds to litigate against countries, to try to recover 100% of the bonds, plus interest, plus penalties, making unwarranted, huge, extraordinary profits. They are not financial investors, they are not in fact investors at all, because they just abuse a lacuna that is in the sovereign restructuring regulations at the global level. And they take advantage of judges, like Judge Griesa, who has been very functional to these vulture funds, to litigate and to try to make exorbitant profits. Profits that are done against the interests of countries, but also at the expense of the other bondholders. In the case of Argentina, we restructured our debt, we reached a deal with 93% of our bondholders, and these funds have been litigating against Argentina, rejecting every deal, not wanting to negotiate, to try to make these exorbitant profits. They are looking for a 1600% profit. That’s what they are looking for, and that’s what has been granted to them by an absurd ruling by a judge from New York.
FS: The vultures want roughly 300 cents on the dollar. For every dollar of bonds that they own at face value, they want $3.00 from you. How much do you think that you owe them?
CN: We have made very clear that Argentina respects the principle of intercreditor equity, so we have offered them, and put them an offer last year, in July that will give them a 300% profit. We think that’s a reasonable profit. But they have rejected every offer. And in fact, sometimes we ask ourselves, why would they accept a more reasonable deal when they have Judge Griesa backing them up so much, you know? So, we have been trying to reach a deal with all the holdouts. We are a country that has been very effective in negotiating our debts. You know that Argentina defaulted on its debt in 2001. In 2003, under a new government with President Kirchner, we have restructured the whole process of restructuring our debt, and we negotiated successfully with 93%. But the vulture funds don’t want to negotiate.
FS: When you talk about intercreditor equity, this is more or less the same principle as the principle which was underlying the famous RUFO clause, the rights upon future offers. It sounds that even though that clause is no longer in effect, the principle still remains, that you don’t want to give the vulture funds anything that you wouldn’t have given holders of the same bonds in previous exchanges.
CN: What we want to do is to reach a solution with 100% of our bond holders, that’s our main goal now and that’s what we have established many times. We have successfully restructured our debt, we have resolved our debt with the Paris Club, with our ICSID creditors. I mean we are a country – this government in particular has been very effective in solving our debt issues. We’ve paid $190 billion for the last ten years to our creditors. And we want to find a solution to this. But we cannot do it under extortive situation, we cannot do it if we are forced, the judge, the special master, trying to have a conversation only with the most aggressive of the holdouts. We would like to find a solution with all the holdouts. And that’s what Argentina has been claiming. We are claiming, we are asking, for the possibility to have better conditions for a negotiation. That means to sit down with all our holdouts, and try to see if we can reach a deal with all of them, not only with Singer under his own terms. That wouldn’t be a solution for Argentina.
FS: So when you say you want to talk to all of the holdouts, that means the Italian retail bondholders, that means all of the judgment creditors, not just the people who have the injunctions from the judge.
CN: Exactly. Exactly. What we believe is that nobody restructures its debt talking only and firstly with the most predatory and aggressive of the bondholders, who is NML and Singer’s people. So basically what our minister has requested in the meetings that we had last year in New York during the month of July was the possibility and the opportunity to sit down in the table, with all of Argentina’s holdouts. Which are around 7% of our holdouts, and see if we can find a solution with them. Of course, at the time, the rights of our future offers was in place, so we couldn’t even start negotiating with anybody at that time, because it was a very high risk of triggering that clause. The Argentine government, and the leadership of the president made it very clear that we risked derailing our restructuring, risking to face claims of up to $500 billion. So we were very careful. But at all times we said, and we still say that we need to have and to sit at the table, all of our holdouts. And that’s not happening, because the judge is not allowing that to happen.
FS: So what kind of format do you see for these negotiations? Could you just invite them to Buenos Aires and say, “Come and we’ll talk to you.” I mean, would the special master be involved, would the New York courts be involved at all?
CN: Well the Special Master has been absolutely biased, and absolutely functional to the interests of the vulture funds. We gave him a try. The minister and the whole team traveled to New York for a while, participating in good faith in all of the process he offered. But he showed his true colors soon. And he even attacked Argentina and so he’s not a – he’s been questioned by us very seriously. He’s not a reliable person, he’s ultra-biased for this process.
FS: Do you even need the auspices of some organizations that organize these negotiations? Do you have any organizations in mind who might do that? I mean, presumably you don’t need the special master, you can have anyone or no one if you just announced that you are welcome to start talking to us.
CN: Well this is a very dynamic process. There’s still a lot of litigation going on, there’s news every day, and I don’t have the crystal ball on how exactly this is going to be solved. I can reassure you that Argentina is a country that has shown very clearly our will and our capacity to negotiate and solve our problems. The things that the vulture funds have not shown so far – any significant flexibility whatsoever in their claims to make us consider that they will accept a reasonable offer. They have been absolutely aggressive, they have put into place a very aggressive lobby campaign against Argentina, and there’s not conditions at this moment created by the whole litigation, to be able to have everybody sitting at the table at the same time. We are looking for that to happen. We’ll see, I don’t know. It’s an open question.
FS: What can the creditors do to hasten the arrival of negotiations?
CN: Well, if they are reasonable, if the creditors have a reasonable perspective. Let me tell you this. If Argentina accepted the claim of NML and Judge Griesa’s proposal to all the holdouts, we will be facing a total amount – we would have to pay a total amount of more than $20 billion. That’s impossible for Argentina to pay. It’s 2/3 of our foreign reserves. No responsible government, no serious government will get involved in a process of $20 billion debt to be paid, so basically, we need them to be reasonable, and they haven’t shown any reasonable flexibility whatsoever, not Singer and their people, certainly.
FS: And if NML and Paul Singer don’t display a willingness to reduce the amount that they’re willing to accept, that basically prevents any negotiations from even beginning, seems to be what you’re saying.
CN: Well they, have to show a significant will to negotiate, but they have not shown that at all, as I’ve told you –
FS: They said that they’re willing to accept bonds –
CN: Well, they’ve said a lot of things, they have been really trying to create a distorted image of themselves, I mean they are the ones that have not negotiated, for all this period, and that are not willing to accept our offer. They have never been open to Argentina’s offer. Last year we offered them a 300% profit, and they are only trying to complicate these things and create more and more litigation. And the Judge, Griesa, is backing them. This is a situation where a few billionaires are trying to be even richer at the expense of countries, at the expense of sovereigns, but in this particular case also at the expense of US interests. The US government has been very clear that it didn’t support the interpretation that Judge Griesa put in relation to the pari passu. There are US institutions like the Bank of New York, like Citibank, like American bond holders that are within 92.4% of our creditors that are being damaged, that are not getting their money, because of this whole situation, so I think that we have really to understand that these vulture funds’ behavior goes against the system. Against the financial system, against sovereigns, against sovereign immunity, and against the interests of the rest of the financial investors. This is very important to understand who we are talking about here.
FS: You’re saying that if you paid out all the money that they’re demanding, that would be about $20 billion and you can’t afford that, so is there a problem that Argentina basically cannot afford to pay its vultures to settle this case?
CN: In 2001, when Argentina defaulted, the debt to GDP ratio was 166%. Now, we have put in place for the last 10 years a very responsible debt management strategy. We have reused our debt, and we have done that under the principle that Argentina needed first to grow, and from that growth, it will be able to service its debt. This was a very revolutionary principle that Argentina took to the United Nations, President Kirchner put it there. With the 2010 exchange debt, we did exactly the same under the President’s government. So basically, we believe that we need to keep our debt being sustainable. Now, our debt to GDP ratio is 40%. If you take into account the amount of debt that is in foreign currency to foreign creditors, it is less than 9%. Argentina has a very sustainable, very manageable debt, that we can pay, that we can afford, and that we are paying. We don’t want to derail this. We don’t want to put this at risk. We just cannot think about $20 billion. I mean which country in the world will make payments to these vulture funds compromising 2/3 of its foreign reserves, it just makes no sense. And they have not been offering us any reasonable solution, any reasonable way to get out of this.
FS: And yet, in light of the rulings which have come from the US courts, can Argentina afford not to resolve this situation, can you afford to let the current status quo stay indefinitely?
CN: Well we certainly won’t accept a false solution, you know? A solution that in fact seems like a solution, but puts our people and our growth process at risk. So basically, I think our minister, our President, have been very responsible in terms of what decisions they make in terms of this litigation. We just cannot put at risk the wellbeing of our people, and we cannot put at risk the sustainability of the growth process. So we are trying to find a solution, but it has to be under certain conditions. It has to be reasonable. It has to be affordable. It has to be legal. It has to be a fair solution.
FS: When you came to a solution with the Paris Club, that did involve paying interest and penalties on interest, so in principle, even if you don’t give the holdouts everything that they’re asking for, in principle it seems that the Paris Club settlement means that there’s something in the middle there that you might be able to pay.
CN: Well the Paris Club thing case shows that basically Argentina’s will and capacity to pay its debts, and its very successful capacity to negotiate, but these are not sovereigns with good faith. These are the most aggressive and predatory players of the international financial system, the scourge of the international financial system, so I don’t think that we can in any way compare them to the Paris Club negotiations. And again, they have not shown any flexibility whatsoever to see that they will be willing to reach a reasonable deal with Argentina. And reach a deal we could afford, a deal we could honor. So far. We’ll see.
FS: You say that they have shown no willingness to negotiate, they say that they’re willing to negotiate. What form is this unwillingness? Is there any forum that they have refused to attend, is there any talks that they have refused to show up to? How does this refusal to negotiate manifest itself? Because it seems to me that whenever there’s a meeting, they are happy to go to it.
CN: Well we were at the meetings that the Special Master requested, we were there, as you know, and we – the minister of economy sat with them face to face, and made a very reasonable proposal and it was rejected. And I think that from all we have seen in the last year from their specific behavior, they are really reaffirming once and again a very aggressive and hard position against Argentina, so we have enough evidence so far that that’s what they do. And that’s what they do, that’s how they operate in all cases all around the world.
FS: You say that you’re not in default to the exchange bond holders, you’ve been making those payments. Does that mean the exchange bond holders should not expect to receive the penalties and the past due interest, and all of the excess 7% money that they probably think that they’re due since they’re not receiving their coupon payments?
CN: We’ve been paying on due time, the responsibility of Argentina as a creditor extends to when we deposit the money to our bondholders, from that moment the money belongs to them, the money is not ours, we couldn’t get it back even if we wanted, so we’ve been paying regularly, and we will continue to pay regularly to our bondholders. But of course, there is a blockage in the collection of payments, and so that’s a situation in which we have been trying also to cooperate. We will continue doing everything we can to make sure our bondholders get their money, that’s our main concern, our main goal. But our obligations are fully covered. And in fact, let me tell you, the bondholders themselves have done things. A group of bondholders went to London to claim for their payments because they are suing the Bank of New York trying to understand why American bondholders that have UK law bonds, that we paid on time, are not receiving their money. So you see that the judge with these absurd rulings, has created cross litigation, has created more problems, has been damaging and hurting the interests all around the world, and he thinks his jurisdiction is the world. He’s not recognizing that he’s a US judge, a New York judge, and he just cannot to pretend to rule on UK bonds, on Argentine law bonds, damaging our bondholders. So the bondholders themselves are taking action. This is something that they have started in London, and they forced a UK law to issue and say the obvious, that UK law bonds are ruled by UK law. This doesn’t make sense.
FS: But conversely, you would agree that New York law bonds are ruled by New York law, that Judge Griesa has jurisdiction here, he can actually do what he has done.
CN: Well, Judge Griesa’s ruling not only violates the Foreign Sovereign Immunity Act, the law that we accepted when we decided to issue bonds here in New York, but it also violates the contracts. It’s a construction, a Frankenstein that he has created that’s not according to international law, it’s not according to US law, and it’s not according to the contracts. So we believe that his ruling really not only goes against all market principles of how the world works in terms of sovereign debt restructurings, but it also doesn’t reflect the law that Argentina in 1994 accepted when issuing bonds under New York law. So his rulings have been really challenged, not only by Argentina. His rulings and his decisions have been challenged by the market participants that have supported us throughout the process, by the US government, that has stated very clearly that the way the judge interpreted the pari passu clause goes against the market interpretation, goes against US interests, goes against New York’s interests as a place to issue debt. So the US government challenged and doesn’t agree with his interpretation, the government of France, the government of Mexico, the government of Brazil, experts all around the world have challenged and criticized very strongly the interpretation that the judge made of this very standard pari passu clause. So I think that we just cannot accept passively that this is a reasonable ruling. It’s an absurd, an irrational ruling, that really has changed and goes against all that was known in relation to how a country should restructure its debt.
FS: So, you understand how the separation of powers works in America. This got appealed up to the Supreme Court, which declined to hear the case, so there’s nothing on the judicial side which is going to be able to change these rulings. Are you saying then that you are hoping for some kind of legislative action on behalf of the United States, that they are going to pass some law which overrules what Judge Griesa has done? What is the way out of this that you see?
CN: Well this is a very dynamic case, there are news every day, and you’ve seen that the ruling that the judge created. It’s of impossible compliance, I mean it’s a ruling that is hard to comply with because it goes against financial rationality and possibility, so there’s things going on as we speak. We’ll see how this ends. It’s an open issue so far. Of course, we’ll see.
FS: If you look at the markets, the exchange bonds are trading almost as though they’re paying their coupons, they – you are paying your coupons, they’re just not being received. So it seems that the market is expecting that all of that money will end up in the pockets of the bond holders sooner or later. Which is it going to be, is it going to be sooner or later?
CN: Well I think that the markets are right in valuing Argentina’s will and capacity in effectively making the payments, so that’s very important. And of course the blockage of the collection of payments should be lifted, that’s our position, it’s absolutely irrational that unrelated parties to this litigation – because this is very important to be understood – this is a case that started with litigation between Argentina and the holdouts, the vulture funds. But Judge Griesa decided to intervene the flux of payments, to intervene the payments that we make to unrelated bond holders, 92.4% of our bondholders that have nothing to do with this litigation, that are absolutely good faith creditors that accepted our offer, and that have been getting their money since then. He decided to bring in unrelated parties, to sabotage their rights, to interfere and mingle with the contracts that they have with international financial institutions like Bank of New York, the other intermediaries, and so on and so forth. I don’t see any justice in this. Honestly, what he’s doing is creating more litigation, creating more conflicts, affecting third parties’ rights, that are being violated, because of this, because the creditors are not collecting the money that is theirs, it’s not Argentina’s, we complied with our obligation, it’s theirs, so this ruling cannot be fair. This ruling cannot be just. This ruling is functional to a very small group of very powerful people. We know who is on the other side. We know that Paul Singer is the main individual contributor to the Republican Party, it’s the fourth contributor to the – in the political system of the US as an individual, so there’s certainly some political interest behind this case. This just cannot be right, it cannot be accepted.
FS: I feel like we have an immovable force, you’re saying that the ruling is not right, it doesn’t stand up judicially, although it was upheld on appeal. But are you saying that there’s some way of it being overturned? That somehow the ruling might go away?
CN: What I’m saying is that as much as we want to get a solution to this, we will not accept a solution under extortive conditions, under conditions that are not good for the Argentine people, and under conditions that don’t allow us to keep on having a responsible management of our debt. So we are open to a solution, we want to find a way out of this, as we have solved – and this is very important – when Nestor Kirchner got to power in 2003, Argentina was in default, Argentina was in hell, and we grew for 10 and plus years in a very sustained way, because we made our debt sustainable, because we made our debt affordable. And we’ve been honoring our debt since then. We are a government and we are a country that wants to solve its debt problems, and we did. The only – from all the difficult situations that we had in 2001 in Argentina, to today, we solved all our debt issues. All of them. All of them. Very complex negotiations that we successfully put forward. And I think this is the best evidence that you have that the problem are the vulture funds. The problem here are their reluctance to accept a reasonable deal, and their abuse of the fact that the international financial system has a major flaw. And let me tell you a little bit about that, because I think it’s important.
Sovereigns in the current situation have less rights than companies to restructure its debt. You know that when companies restructure their debt, if they reach an agreement on a Chapter 11 in the US, it’s similar in Argentina, if they reach an agreement with 66% of their creditors, then 100% of their creditors have to accept the deal. Because you just cannot hold out and claim for a privileged windfall profit. Because it will be at the expense of everybody. There’s not a sovereign debt restructuring mechanism in place at the world level. So basically what vulture funds have done and what they keep on doing is to abuse this flaw of the financial system. Of course, Judge Griesa is the best judge that they could find to help them do this. And they are basically taking advantage of the fact that there’s not a system that there should be, that makes sure that 100% of the creditors accept what you agree with the majority of the creditors. We reached a deal with 93%, almost, of our creditors. How could a small minority of holdouts challenge that, and pretend a very unwarranted and privileged treatment, sabotaging the whole process. And the problem here is not only what happened to Argentina. We decided to take this to all international institutions, because we want this to never happen again to other countries around the world. There needs to be a change in the financial infrastructure to deal with this, and in fact Argentina with the support of the G77 plus China took this issue to the United Nations. You know that last year there’s been a resolution passed with the support of 124 countries of the United Nations, claiming for a new, legal multilateral framework for sovereign debt restructurings. Basically, to make sure that vulture funds’ practices are limited, are stopped, and don’t keep on attacking countries in such an unwarranted way, as they do Argentina.
FS: For the first 10 years or so of this litigation, Judge Griesa seemed to rule mostly in favor of Argentina – the vulture funds were mostly losing, and Argentina was mostly winning, and then at some point he seemingly got fed up, and there was this word that the second circuit used, they said that Argentina was “contumacious.” You think there was a point at which Argentina just refused to respect the New York courts and that after Argentina refused to respect the New York courts, the New York courts then refused to respect Argentina and started handing down these rulings?
CN: I am very proud of the way that we have dealt with our debt the last 10 years, I think that Argentina is a model in terms of debt restructurings in the sense that we have put payment capacity as a major issue. And we have been honoring our payments since then. Of course the vulture funds have tried to create this negative view of Argentina, through PR campaigns, through very aggressive characterizations, I think that it’s very unfair, I think that it doesn’t portray honestly what Argentina has progressed and has done in terms of its debt. And basically we tried to prevent this from happening. In 2004, now that you go back through history, you know that in 2004, before the debt restructuring, the first debt restructuring was done, Argentina asked Judge Griesa what he understood by the pari passu clause. Because we really wanted to be sure that sort of interpretation, which was already around, didn’t get confirmed by the judge, trying to jeopardize our debt restructurings. He said in his own words, and you can check this on the record, that that interpretation was “odd.” 10 years later, he confirmed this because of the vulture funds’ request. I think this really shows that he doesn’t have a very solid understanding probably of the complexities of the case, and that he’s absolutely biased and pro the vulture funds’ position. You just cannot expect a country to pay this group 100% of the original bonds plus interest, plus penalties – because we did go through a default. And we went through a default in 2001, because we couldn’t afford the debt. So when you restructure your debt, it’s because you can’t afford it the way it is. So it seems he doesn’t quite understand what a default means.
FS: And yet, he is the only person who can lift these injunctions. In order to get to him, in order for him to lift the injunctions, the only person really who can persuade him to lift any injunctions is the Special Master. Is it not worth you turning up and talking to the special master and trying to work out where there might be a compromise?
CN: We did it. I was there and I think the world was there when our economic team met with the Special Master many times in New York, spoke with him on the phone, tried to explain to him the complexities of the case, the willingness of Argentina to solve this equation but the limits that Argentina had at the time. The Rights Upon Future Offers was in place. If Argentina had accepted, as a lot of people – including in Argentina – had recommended at the time, if Argentina had accepted at that time to pay the vulture funds what they were asking, we would have been facing claims of up to $500 billion, and at least $140 billion. It would have been a trap for Argentina. We didn’t fall in the trap. We defended our sovereignty, but also we defended our finances, and the possibility of having our budget inadequate situation to pay for the most important responsibilities that we have as a government and as a country which is the health, the education, the social security of our people. So we tried to find through the Special Master a reasonable solution, and to make him understand. But he didn’t want to or he didn’t care to understand. Well, I’m not that innocent, I think we’re not that innocent – in fact, what he said and what he spoke, made a lot of people make a lot of money in the financial markets. They used his declarations also to move the markets and have a lot of business opportunities for financial investors. So he hasn’t proved to be special, or a master.
FS: So is that it with him? If you’re going to have negotiations, if you’re going to talk to your hold out creditors at all, and all of them, not just Paul Singer and NML, it won’t be with Daniel Pollack. You’re done with him.
CN: Well the judge reconfirmed him – you know that we requested that they remove him, but the judge reconfirmed him in his position. But the last episode that he had, which also proved him to be absolutely biased and functional to the vulture funds, was I think in January, when he made public that even before we had time to answer, he made public that he had contacted the Argentine authorities with a proposal to have some meetings with the vulture funds, and without giving us time, without giving us notice of anything, while he has said that all this was going to be discreet and confidential, he accused us of not willing to negotiate, of not showing up, I mean he didn’t even talk to us, and didn’t have an announcement on our behalf, and he had rushed to make all these public accusations. Again, very good for short term speculations of a lot of people in the financial markets.
FS: You say that you have the capacity to pay your debts, but in the wake of the most recent rulings from Griesa, which affect all of your dollar-denominated debt, not just the foreign bonds, the New York law bonds, that capacity is now being called into question. There’s a big $6 billion payment which is due in November. How long are you going to have the capacity to pay your debts, if these rulings stay in place?
CN: First, to clarify, Citibank, I think you’re referring to that ruling, is one of many custodians of the Argentine jurisdiction to nominate Argentine jurisdiction bonds. So the Citibank is one of many custodians. It processes around 3% of our Argentine law payments, so it’s not quite like you say. It’s not that our debt is being in dollars, is being – now comprehended by this ruling. But first, I would like to reaffirm that this is a new example of Griesa overstepping his jurisdiction. Again, if before he was thinking of ruling – if before his ruling was out of this world, now it’s out of this universe. You know, it’s like: how can you accept that a US judge rules on Argentine law bonds issued by Argentina in our own country? I mean, that’s far away from his jurisdiction. That’s domestic foreign currency debt. That’s not foreign indebtedness. That’s domestic debt in foreign currency, so we reject very much his, again, his decision on this, and we will keep on making the payments, as we have been doing so far, to all our debt, including the debt that is channeled through this bank and through other banks. Because we won’t put at risk our payment capacity at all, I mean we won’t stop making the payments. That’s our major commitment, we have a commitment with our bondholders, with our good faith bondholders, and we just won’t betray them.
FS: But there’s almost no sovereign nation in the world, outside of Middle Eastern petro states, which can continue to make payments on its debt without being able to roll over those debts. Right now, it looks like Argentina does not have the capacity to roll over debts, to issue new bonds as the old ones come due. So at some point, maybe in November, or maybe some other point, there’s a crunch, no?
CN: We have covered all our maturities for this year. Of course, as we have publicly said, we are always hoping to learn about financial opportunities. Many international, domestic banks have offered Argentina different opportunities to issue new debt, we considered them, but Argentina has not requested any bank or international bank to offer debt in its name at all. So we will only eventually cross that bridge when we get there. We have shown, I think, and proved, for the last 10 years, that we have the capacity and the will to keep on paying our creditors, and we will continue to do that in a responsible way, and also thinking, as we have been thinking, always in terms of new debt, leading to infrastructure investment, leading to real economy investments. We – in the 90s, you know, Argentina was the poster child of neoliberalism, and in that period, our country was the best student of the Washington Consensus policies, we grew and grew in our debt, and we became a very over-indebted country. And financial speculation was the main element ruling our economy. We moved from that. Now we are a country and an economy that basically builds on its productive sector. We have recovered our industrial sector, we have recovered our productive capacity, so we will eventually consider new debt, if it’s related to our infrastructure, to continue building our infrastructure and our productive capacities.
FS: If you talk to investors, Argentine bond investors, it seems that their base case scenario, what they will expect will probably happen, is that when a new administration comes into power in January, whoever that is will have much more ability or willingness to negotiate with the hold outs, will settle those hold out claims relatively quickly, and then open up the ability of Argentina to borrow in capital markets, and be able to pay all the exchange bond holders, and everything else. Is that a reasonable expectation?
CN: Well if the Wall Street people are able to foresee the future, I am amazed, I think that we are in a situation now where the candidates are not fully clear, it’s not clear who’s going to make it in the elections, most of the candidates have not even made explicit and clear how they are gonna deal with this issue so far, so I think that having this kind of expectation is something that they will have to explain. I don’t know what’s going to happen in the future, I can’t tell you about that.
FS: If I’m an exchange bondholder, and I come up to you, and I say, “I’m owed money and you’ve been making these payments, I have not been receiving my payments, when will I be able to receive my payments?” What do you say to me?
CN: Go ask Bank of New York, go ask Griesa, go ask the vulture funds, go ask the intermediaries that are there, maybe they can give you an answer. Of course we are trying to make that happen, because we have a common will with our bond holders, and we are trying always to safeguard the interests of our bondholders, but Argentina’s obligations are complied with, we are paying, and we will keep on paying, and we will keep on participating in this litigation to make sure they can collect their payments, but it’s a part of the payment process that we don’t control. It’s a contract – and this is important to understand – it’s the contracts between the bondholders and their financial institutions and their financial intermediaries. So these institutions, because of the ruling, have been brought to the front, but they are unrelated to this litigation. And I think this is, again, important. They have nothing to do, and they’ve been involved in that, because of the judge’s absurd, irrational, contrary to common sense ruling.
FS: And just to be clear, as an exchange bond holder, when I receive my payments, I will receive the interest payments which are mandated as part of the coupon payments, but no past due interest, no penalties, nothing like that, because you have made all your payments in full.
CN: We’ve been making all our payments in full, and we will continue to make that. We have a very clear position about this, about –
FS: About past due interest?
CN: About – no about paying our creditors. We will continue paying our creditors.
FS: Finally, if you could spell this out a bit: On one side you have the vulture funds and the New York courts. On the other side – who’s on the other side?
CN: Well, the whole world supports Argentina on this litigation. Experts covering all the ideological extremes, you know from Anne Krueger, who’s not a person who we particularly share with many ideas, to Nouriel Roubini, to Joseph Stiglitz, I mean all the experts from around the world have stated very clear this ruling is flawed. But also at the United Nations, at the G20, at the Organization of American States, of course, Mercosur, UNASUR, everybody around the world has made it clear that vulture funds practices are not accepted, that they just cannot be good for the world, that they go against sovereign debt restructuring logic and sense. So the support that Argentina has received through this process has been really, very, very important. But what’s more, this process has created a global conversation, a global international process of reform in relation to sovereign debt markets. You know that the International Capital Markets Association has put forward a new recommendation, including some anti-vulture clauses, some sort of vulture-proof clauses. We believe there are no vulture-proof clauses, you know, we believe that, as much as Judge Griesa has interpreted in a very unwarranted extravagant way the pari passu clause, any judge in the future could interpret in a very strange way clauses. But of course, all that you could do as sovereigns to protect from the vultures is positive, so we think it’s a very positive step, the IMF is also involved in that, and there are around eight, nine countries in the world, that have already issued new debt with these so called vulture-proof clauses, or anti-vulture clauses. Which is positive. Because this shows that this is not only about Argentina. This shows that this is part of the global financial system, and it shows that there’s action that is being taken. At the United Nations, we are involved in these negotiations, but also to all international bodies. The President was very clear in asking us to take this to the world. Because the world should know what is going on. And the world should react, and in fact is reacting against vulture practices. In the Greek case, you can see also the vultures showed up, and made a lot of money holding out, threatening to hold out, in the restructuring of 2012, so we need to make sure vulture funds are stopped, and the international financial system and countries around the world are ready, reacting to that.
FS: This UN process that you’re going through right now, trying to create with G77 and China and the United Nations, does that provide a possible resolution to this particular issue that you have with NML Capital? Or is that only sort of looking forward?
CN: Well, it’s an open negotiation. You know, the negotiations are going on as we speak, but the goal of this is to make clear that there has to be a legal framework, and an international framework for sovereign debt restructurings in some way. And the participation of countries is very important, so we’ll see what happens with this process, I don’t want to anticipate process that is in essence multilateral, so it’s for the countries involved to decide, but I think it shows the global nature of this problem and this is not only about Argentina.
FS: Thank you very much.
CN: Thank you.
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