BUENOS AIRES – President Cristina Fernandez’s Cabinet chief said on Friday that Argentina will continue to pursue the same strategy and not give in to “extortion” from U.S. hedge funds seeking full payment on defaulted debt.
The government will not cave to “extortion of any kind (from) privileged creditors (who won) a judgment that is shameful and has been roundly repudiated” internationally, Jorge Capitanich said, referring to the hedge funds’ legal victory in a U.S. federal court.
He said the country’s position has “not changed in the sense of seeking negotiating conditions that are fair, equitable and sustainable for 100 percent” of creditors.
Capitanich’s remarks come on the heels of recent statements by Paul Singer, founder and CEO of Elliott Management Corp., whose NML Capital Ltd unit led a group of funds that sued Buenos Aires in the United States for full payment on bonds they bought at large discounts in 2002.
Singer told U.S. media that it is difficult to predict what Argentina’s next move will be but it would be best if it sits down to negotiate.
NML and other hedge funds bought a small percentage of defaulted Argentine sovereign bonds in the wake of the nation’s 2001 economic collapse and, unlike 93 percent of creditors, refused to take part in debt restructurings in 2005 and 2010.
Thomas Griesa, a U.S. district judge in Manhattan, ruled in favor of the litigating hedge funds in 2012 and ordered Argentina to pay them $1.3 billion plus interest.
As part of that ruling, he also barred Argentina from paying the exchange bondholders, whose securities are governed by U.S. law, without simultaneously paying the holdouts.
Because Buenos Aires has refused to settle with what it terms “vulture funds,” it has been unable to service its debt to the vast majority of its creditors, prompting rating agencies to declare the country to be in technical default.
Fernandez’s government has said full payment to the hedge funds would lead other holdout bondholders to demand the same, creating a potential liability of some $15 billion, equivalent to roughly half of Argentina’s foreign-exchange reserves.
It also has said it cannot comply with Griesa’s ruling because a clause it its restructured bonds impedes it from making higher debt payments to holdout creditors.
Since that clause expires on Dec. 31, expectations are that a negotiated solution can be found to the dispute in 2015.
But the Cabinet chief said Friday that the government will “in no way reward strategies that benefit a tiny group that seeks to alter sovereign debt restructuring processes.”
After the U.S. Supreme Court in June declined to hear Buenos Aires’s challenge to Griesa’s verdict, Argentine opposition parties argued that the country “should pay the judgment and resolve the matter at any cost,” Capitanich recalled.
But he said Fernandez’s administration has remained true to its commitment to negotiate only under conditions that are “fair, equitable, legal and sustainable” for all bondholders.
Argentina defaulted on roughly $100 billion in debt in December 2001 – at the time the largest sovereign default in world history – amid a financial meltdown and economic depression.
The origins of the debt problem go back to Argentina’s 1976-1983 military regime, which presided over a 465-percent expansion in public indebtedness.