BUENOS AIRES, Argentina – The Argentine government said Wednesday it was suing Citibank, the latest in an escalating proxy fight related to a legal battle over paying back the South American country’s long-standing debt.
Economy Minister Axel Kicillof said the government was seeking an injunction to nullify in Argentine courts Citibank’s recent agreement with a group of holdout creditors in the United States that Argentine officials refer to as “vulture funds.”
“Citibank ceded to extortion and signed an agreement with the devil on March 20,” said Kicillof, adding it was done to “abandon its business in Argentina.”
A Citibank statement released late Wednesday said the bank was “disappointed” by the legal actions, and that it was simply trying to comply with a U.S. court order.
“Citi has acted in accordance with all applicable laws and will respond to these actions in due course,” read the statement.
The legal fight has its roots in Argentina’s $100 billion default in 2001. In 2005 and 2010, the majority of creditors accepted bond swaps with lower payments. A group of funds led by billionaire Paul Singer refused and took their case to court.
U.S. district court judge Thomas Griesa in New York has repeatedly ruled that Argentina can’t pay its restructured debt without paying the holdout creditors, a position that Argentine President Cristina Fernandez flatly rejects.
Citibank, which is used by many multinational companies and forms an important part of Argentina’s financial landscape, had been processing payments for the restructured debt. But last month Griesa extended his ruling to the bank, saying it would be in contempt if it continued to make payments. The Argentine government threatened to revoke Citibank’s operating license in the country if it did what Griesa said, saying Citibank’s branches here came under Argentine law, not American.
Citibank reached an agreement with the holdout funds and the court whereby it could make payments through June and in exchange would transfer the processing of payments to another entity.
That decision has enraged the Argentine government, prompting it to suspend Citibank’s Argentina CEO and send inspectors to the headquarters to “ensure” the bank could still operate in the country.
According to Citibank’s website, the bank opened in Argentina in 1914 and currently operates 74 branches in the country. While neither side has suggested Citibank may cease other operations in Argentina, the fight has spooked many in the financial community.
“The Argentine government is trying to be a lawyer in New York,” said Fausto Spotorno, an Argentine economic consultant. “What they are doing doesn’t make sense.”