Argentina leader says government lawyers to seek best terms with US judge to solve debt battle
Argentina's president said Friday that she'll seek a U.S. judge's support for resolving all of her nation's unpaid debts in some kind of grand bargain.
A truly fair resolution, President Cristina Fernandez said, should not be limited to the plaintiffs whose legal victory was just endorsed by the U.S. Supreme Court. These hedge funds are awaiting payment of $1.5 billion — full value, plus interest, for bonds that Argentina defaulted on in 2001.
She wants equal treatment for creditors who have been collecting on $24 billion in "exchange bonds" since writing off more than two-thirds of their defaulted bonds' face value in debt swaps. And she also wants the participation of the remaining 7 percent of holdouts who weren't part of the winning case, a final group with potential claims she says add up to $15 billion.
"We want to comply with 100 percent of the creditors — the 92.4 percent who decided to join the swaps and also those who didn't," Fernandez told a large crowd celebrating Flag Day in the city of Rosario.
The president has long refused to negotiate with the plaintiffs led by New York billionaire Paul Singer's NML Capital Ltd., who spent a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief.
But she has been backed into a corner by NML Capital's payment plan, which was allowed to stand by the Supreme Court on Monday.
If Argentina doesn't pay the plaintiffs at least $907 million by June 30, it can't use U.S. banks for its next installment of an equal amount to the much larger group of investors who joined the debt swaps in 2005 and 2010.
With less than 10 days left to comply or expose Argentina's economy to a new default, she said Friday that she will send lawyers to seek "fair terms" from the judge. Any deal must comply with Argentina's constitution and laws as well as its contracts with other bondholders, she said.
None of the other parties affected made any on the president's announcement.
An Argentine effort to include "me too" claims could make settlement talks more difficult, and "holdout creditors seem to have the upper hand," analyst Daniel Kerner with the Eurasia Group wrote in a note on Friday's speech. "In the end, having shown that it is fearful of a default, Argentina's ability to extract many concessions will be limited."
The idea that Argentina might pay all of its creditors in one grand accord and be freed from their legal pressure has broad appeal. But it's not likely to be welcomed by the plaintiffs.
Their lawyers already asked U.S. Judge Thomas P. Griesa to reject any delays. Bringing in all of Argentina's creditors, including those Griesa previously ruled have no standing in this case, could postpone payments well beyond June 30.
The plaintiffs own just a sliver of the $100 billion in bonds that went unpaid after Argentina's debts soared to unsustainable heights, prompting economic collapse at the end of 2001.
After the Supreme Court rejected Argentina's final appeal Monday, Fernandez first suggested moving payments beyond the reach of U.S. courts. Her economy minister, Axel Kicillof, said exchange bondholders could get new bonds to be paid in Buenos Aires and guaranteed by Argentine law.
That prospect was always unlikely, however, because any participating bank with interests in the U.S. would be violating the judge's orders and because many of the exchange bondholders are barred by their funds' charters from making such a move. In addition, a new swap would take time to engineer, making it likely all the performing bonds would go into default.
Fernandez did not mention that idea in her Flag Day speech.
Still, bowing to the U.S. courts is difficult in terms of Argentine political culture. It would seem to betray a core value that she and her late husband and predecessor, Nestor Kirchner, always promoted: That Argentina must maintain its sovereignty and economic independence at any cost.
With affordable credit unavailable from international markets, the Kirchners have used much of the Central Bank's reserves to pay down Argentina's debts, provide energy subsidies and fund social programs, weakening its ability to control one of the world's highest inflation rates and manage the money supply.
That Fernandez is even talking about talking with the sworn enemies she calls "vulture funds" is a good sign, analysts said.
"I firmly believe that it is in the best interest of Argentina — present and future — to find a settlement on this issue and close this decade long chapter of litigation and financial isolation," said Alberto Ramos, who analyzes Argentina for Goldman Sachs.
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Associated Press writer Michael Warren reported this story from Buenos Aires and Hernan Alvarez reported in Rosario. AP writers Almudena Calatrava in Buenos Aires and Luis Andres Henao in Santiago, Chile, contributed to this report.