BUENOS AIRES, Argentina – The Argentine economy minister said Tuesday the government is working on a debt swap that would make payments in Argentina to creditors who accepted previous debt restructurings.
The move came a day after the U.S. Supreme Court refused to intervene in a U.S. judge’s order that would deny use of the U.S. financial system to Argentina unless it first pays off holders of defaulted bonds who didn’t accept previous debt swaps.
The high court also decided that the bondholders who won the legal case could use U.S. courts to force Argentina to reveal where it owns property around the world.
“We’re starting to take steps to begin a (new) debt swap” to service the country’s restructured debt in “Argentina and under Argentine law,” Economy Minister Axel Kicillof said.
The arrangement would involve investors who agreed to swap government bonds that were defaulted on in Argentina’s 2001 economic collapse for new, less valuable bonds that the government has being paying on since 2005. It also seeks to avoid further U.S. legal action by the “holdout” bondholders who won the judgment against Argentina.
If Argentina were forced to pay off what the government calls “vulture funds,” the country could become an easy prey and would ultimately be “pushed into a default,” Kicillof said.
“Some say we should negotiate with vultures, but the vultures are vultures because they don’t negotiate,” he said. “If they were in conditions to negotiate, they would have done it like the rest of the bondholders.”
President Cristina Fernandez criticized the U.S. judge’s ruling requiring a $1.5 billion payment, of full value plus interest, to investors who didn’t accept the previous debt restructurings.
In a national address Monday night, she defiantly vowed not to submit to “extortion” by NML Capital and other investors that refused to trade in defaulted bonds. But she said her government “will not default on those who believed in Argentina” by accepting the debt swaps.
While conceding the Supreme Court’s decision was unfavourable, Kicillof kept the possibility of negotiation open, but said Argentina was not willing to “do anything, under any condition, to accept exorbitant conditions” to resolve the debt fight.
The court’s decision was a blow to Argentina’s aspirations to return to global credit markets after being shut out since its 2001-02 economic crisis and default.
Fernandez and her late husband and predecessor as president, Nestor Kirchner, negotiated or paid off most of the country’s defaulted debt. Argentina has paid its debt with the International Monetary Fund, and in May it agreed with the Paris Club of creditor nations on a plan to resolve $9.7 billion in debts that have gone unpaid since the economic collapse.
Bowing to the U.S. ruling would force Fernandez to betray a core value that she and her late husband promoted since they took over the government in 2003: Argentina must maintain its sovereignty and economic independence at any cost.
The president’s hard line on the U.S. ruling seemed to be a last effort to gain leverage ahead of a negotiated solution that both sides say they want.
With only days before a huge debt payment ordered by the court is due, many analysts and politicians say negotiations with the holdout investors are needed to avoid a new default and a blow to the country’s reputation.
“Another default can be quite costly economically and financially,” Alberto Ramos, Latin America economist for Goldman Sachs, said. “And the uncertainty and volatility that would generate would put added pressure on an already struggling economy, on the exchange rate, and therefore also on reserves.”
Standard & Poor’s Ratings Services on Tuesday lowered its long-term foreign currency rating on Argentina to “CCC-” from “CCC+” The ratings agency cited a higher risk of default on Argentina’s foreign currency debt.
But Argentina’s Merval stock index, which had plunged 10 per cent after Monday’s court decision, rebounded Tuesday and closed up 3.75 per cent on hopes the government would announce a solution
“Our view is still that the government will negotiate, given that the fear of a default is higher than the resistance to pay holdouts,” Eurasia Group analyst Daniel Kerner wrote in a research note.
The plaintiffs said Fernandez’s government needs to settle now.
“The time has come for Argentina to enter into good-faith negotiations with holdout bondholders,” said Richard Samp, an attorney for the Washington Legal Foundation who has acted as a spokesman for NML’s position throughout the case. “Argentina has expressed a desire to be permitted to re-enter financial markets around the world. The only way that it can do so is by coming to terms with its existing creditors.”
Associated Press writers Almudena Calatrava in Buenos Aires and Luis Andres Henao in Santiago, Chile, contributed to this report.