By Cecilia Nahón
The op-ed published on October 21 entitled “Supreme Court Moves Us Closer To Holding Deadbeat Argentina Accountable” openly distorts Argentina´s recent history and the facts surrounding its debt restructuring. Moreover, it conveys a completely erroneous impression about my country’s attitude toward this matter. Indeed, FORBES readers should be concerned about the negative systemic consequences that would arise if the current judgments in U.S. courts are upheld.
In this regard, the following aspects deserve clarification.
First, litigation against Argentina before New York courts derives from the cataclysmic crisis suffered by my country in 2001-2002, the worst in its history. In 2002, public debt as a percentage of GDP reached 166%. The consequences for our economy and our people were devastating. With an unemployment rate exceeding 21%, Argentina was at a critical juncture, with a paralyzed economy and a dire political situation, struggling to preserve social cohesion.
Pretending that “the Argentine people essentially had a wild party and woke up with a hangover” reflects utmost disrespect for the suffering of the Argentine people as well as an astounding lack of knowledge about what really occurred in my country. The Argentine people were unquestionably the default’s main victims, not beneficiaries. The only potential beneficiaries of this unfortunate situation would be the profiteers (worldly known as “vulture funds”) that bought distressed debt –important parts of it after the default—for mere pennies on the dollar and now expect a return exceeding 1,300% while holding 93% of the creditors that accepted the terms of the debt restructuring offered by Argentina hostage.
By the same token, the allegation that Argentina had an alternative to default is also misguided. For the reasons explained above, Argentina’s inability to pay its sovereign debt was indisputable. It cannot be seriously stated that “no one forced the Argentine government to default.”
Secondly, since 2003 a new government has implemented a successful debt management strategy under the premise that it was necessary to resume economic growth in order to be able to service debt. The domestic economy has grown steadily for the past ten years benefiting those creditors who believed in the country. New debt was issued as the result of two debt restructuring processes (2005 and 2010) and has been faithfully serviced ever since. Argentina has also paid all of its obligations with the IMF ahead of schedule. Hence, debt as a percentage of GDP declined from 166% in 2002 to 45% in 2012—with public external debt being only 14% of GDP and foreign currency public debt less than 9%—providing Argentina with strong foundations to sustain growth and social inclusion.
Unfortunately, 7% of bondholders have not yet agreed to the terms accepted by the overwhelming majority. A small group within these holdouts is suing Argentina in U.S. courts, seeking privileged and unwarranted conditions, insisting that Argentina be forced not to pay the other 93% unless they are paid in advance in full. It is worth noting that many bondholders within the 93% who accepted the debt swap are U.S. citizens or U.S. institutions including workers, pension or state retirement funds, employee funds or teachers´ unions.
Argentina has never repudiated any debt. Argentina’s commitment has been to treat all bondholders equally, including the litigant vulture funds. In fact, Argentina has formally reaffirmed this commitment before the Courts.
Third, the actions by these sovereign debt profiteers have evident systemic consequences that reach far beyond Argentina’s case. This is not just an issue between Argentina and the plaintiffs. In this sense, we agree that “the New York battle ….matters for all of us” albeit for very different reasons than those portrayed in the op-ed. If the U.S. courts uphold the complainant’s position, negative consequences will be felt by the U.S. and the rest of the world. Sovereign debt restructurings will be virtually impossible in the future.
What rational creditors would agree to restructure a debt if they know the flow of payments can be interrupted by holdouts through litigation? Precisely, the growing concern about this systemic impact has led international stakeholders as diverse as the IMF, governments of the U.S. and France, the G77 plus China and scholars like Joseph Stiglitz, Anne Krueger and Nouriel Roubini to express support for Argentina’s position.
Finally, Argentina is a vibrant democracy firmly committed to the promotion of democratic values, the maintenance of international peace and security within the UN framework, the fight against international terrorism, drugs and human trafficking, the respect and protection of human rights, pluralism and multiculturalism, and, in particular, respect for the rule of law. Argentina’s constructive and valued role in the international community speaks for itself.
Cecilia Nahón, Ambassador of Argentina to the United States.
The op-ed published on October 21 entitled “Supreme Court Moves Us Closer To Holding Deadbeat Argentina Accountable” openly distorts Argentina´s recent history and the facts surrounding its debt restructuring. Moreover, it conveys a completely erroneous impression about my country’s attitude toward this matter. Indeed, FORBES readers should be concerned about the negative systemic consequences that would arise if the current judgments in U.S. courts are upheld.
In this regard, the following aspects deserve clarification.
First, litigation against Argentina before New York courts derives from the cataclysmic crisis suffered by my country in 2001-2002, the worst in its history. In 2002, public debt as a percentage of GDP reached 166%. The consequences for our economy and our people were devastating. With an unemployment rate exceeding 21%, Argentina was at a critical juncture, with a paralyzed economy and a dire political situation, struggling to preserve social cohesion.
Pretending that “the Argentine people essentially had a wild party and woke up with a hangover” reflects utmost disrespect for the suffering of the Argentine people as well as an astounding lack of knowledge about what really occurred in my country. The Argentine people were unquestionably the default’s main victims, not beneficiaries. The only potential beneficiaries of this unfortunate situation would be the profiteers (worldly known as “vulture funds”) that bought distressed debt –important parts of it after the default—for mere pennies on the dollar and now expect a return exceeding 1,300% while holding 93% of the creditors that accepted the terms of the debt restructuring offered by Argentina hostage.
By the same token, the allegation that Argentina had an alternative to default is also misguided. For the reasons explained above, Argentina’s inability to pay its sovereign debt was indisputable. It cannot be seriously stated that “no one forced the Argentine government to default.”
Secondly, since 2003 a new government has implemented a successful debt management strategy under the premise that it was necessary to resume economic growth in order to be able to service debt. The domestic economy has grown steadily for the past ten years benefiting those creditors who believed in the country. New debt was issued as the result of two debt restructuring processes (2005 and 2010) and has been faithfully serviced ever since. Argentina has also paid all of its obligations with the IMF ahead of schedule. Hence, debt as a percentage of GDP declined from 166% in 2002 to 45% in 2012—with public external debt being only 14% of GDP and foreign currency public debt less than 9%—providing Argentina with strong foundations to sustain growth and social inclusion.
Unfortunately, 7% of bondholders have not yet agreed to the terms accepted by the overwhelming majority. A small group within these holdouts is suing Argentina in U.S. courts, seeking privileged and unwarranted conditions, insisting that Argentina be forced not to pay the other 93% unless they are paid in advance in full. It is worth noting that many bondholders within the 93% who accepted the debt swap are U.S. citizens or U.S. institutions including workers, pension or state retirement funds, employee funds or teachers´ unions.
Argentina has never repudiated any debt. Argentina’s commitment has been to treat all bondholders equally, including the litigant vulture funds. In fact, Argentina has formally reaffirmed this commitment before the Courts.
Third, the actions by these sovereign debt profiteers have evident systemic consequences that reach far beyond Argentina’s case. This is not just an issue between Argentina and the plaintiffs. In this sense, we agree that “the New York battle ….matters for all of us” albeit for very different reasons than those portrayed in the op-ed. If the U.S. courts uphold the complainant’s position, negative consequences will be felt by the U.S. and the rest of the world. Sovereign debt restructurings will be virtually impossible in the future.
What rational creditors would agree to restructure a debt if they know the flow of payments can be interrupted by holdouts through litigation? Precisely, the growing concern about this systemic impact has led international stakeholders as diverse as the IMF, governments of the U.S. and France, the G77 plus China and scholars like Joseph Stiglitz, Anne Krueger and Nouriel Roubini to express support for Argentina’s position.
Finally, Argentina is a vibrant democracy firmly committed to the promotion of democratic values, the maintenance of international peace and security within the UN framework, the fight against international terrorism, drugs and human trafficking, the respect and protection of human rights, pluralism and multiculturalism, and, in particular, respect for the rule of law. Argentina’s constructive and valued role in the international community speaks for itself.
Cecilia Nahón, Ambassador of Argentina to the United States.
