ARGENTINA: Steadfast Against Impatient IMF, Hovering Vulture Funds

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Feb 12 2004 (IPS) - A former Argentine official takes every opportunity to point out that during the Fernando de la Rúa administration (1999-2001), when the provinces negotiated from a position of power against a weakened president, there was one governor who was unyielding, but who always kept his word when it came to causes he considered just.

That governor was Néstor Kirchner, now president of Argentina. Like he did when he represented the southern province of Santa Cruz, he has stood firm for the past five months on his proposal for a 75-percent cut in the country’s debt to private creditors, which went into default in December 2001.

Kirchner also reaffirms that Argentina will not dip into its foreign cash reserves to pay off the 3.1 billion dollars owed the International Monetary Fund that come due in March “if there is not a prior advisement from the (IMF) board about the approval” of the second revision of economic goals that were agreed.

But the agents of the so-called “vulture funds” do not just stand on words in refusing the proposed write-off and have already gone on the offensive. They have turned to the U.S. courts to prevent Argentina from selling its state-owned assets in the United States.

Vulture funds target companies or countries in bankruptcy to purchase bank debts or “junk bonds” cheap, staking bets on profits from quick trades or ultimately suing the state for full repayment.

The Kirchner government is holding its ground despite this heavy pressure, which is likely to intensify, though for now is considered symbolic. The asset restrictions imposed at the request of a private creditor is based on repayment demands of 172 million dollars. The Argentine properties are worth only an estimated 20 million.

And Argentina has found some allies recently, such as World Bank chief James Wolfensohn, who expressed confidence Thursday that the IMF would approve the goals pledged by Buenos Aires and that the much awaited credit agreement could be finalised this month.

“There is no precedent of such tough negotiations between any country and the IMF since the late 1980s,” economist Alejandro Vanoli told IPS. He is a professor of international economics at the University of Buenos Aires and a member of “Plan Fénix”, a group of experts opposed to the neoliberal economic model.

Argentina currently faces a debt of 170 billion dollars, 95 billion of which is in Treasury bonds that were declared in default in December 2001. It is that latter package of titles, in private hands, that Argentina has been proposing since September to exchange for bonds with a nominal value of 75 percent less, or for bonds to come due in the very long term.

The private creditors, concentrated in Argentina, France, Germany, Italy, Japan, Spain and United States, are generally savers or major investors who acquired the titles during the process of financial deterioration that led to Argentina’s 2001 collapse, when they were offered on the capital markets at interest rates much higher than what could be obtained in more stable economies.

According to a study by Plan Fénix, the extraordinary profits those investors collected before Argentina’s financial collapse totalled some 43 billion dollars, a sum similar to what they would be giving up if they were to accept the 75 percent cut in bond value.

Kirchner and his economy minister, Roberto Lavagna, assure that if the private bondholders accept the proposal, the country would be able to consolidate its current economic growth trend, and that ultimately would allow Argentina to comply with the commitments it is making today.

The determination of the Argentine president in maintaining that position despite the criticisms of creditors has begun to make the international financial community nervous. The IMF’s managing director Horst Koehler called Lavagna to meet in Miami last Monday. Their conversation lasted five hours.

The meeting took place during the conference of economy ministers of the Group of Seven (G7) most powerful countries, which ended with a request that Argentina speed up its debt restructuring.

“There is a principle in the legislation of the western world that reflects what President Kirchner has often said,” and that is, “he who makes promises he knows he cannot keep is acting in bad faith,” said Lavagna after the meeting with Koehler and his associates.

Vanoli says that if these negotiations fail it would not only be a major setback for Argentina and its creditors, but also for the IMF, “which is coming from several blunders” in managing a series of financial crisis around the world since the 1997 debacle of the South-east Asian economies.

At the request of the G7, whose governments are under pressure from private creditors, the IMF pushed Argentina to accelerate its debt renegotiation by selecting banks that would issue the new bonds and to establish a new type of bond that could be tied to the country’s future economic growth.

“If Argentina doesn’t reach an agreement for a rapid restructuring of its debt and decides not to use its reserves to pay the IMF when the 3.1 billion dollars matures on Mar. 9, the liquidity of the IMF would not be affected in the slightest, but it would indeed be a heavy blow to its reputation,” Vanoli said in a conversation with IPS.

The damage to the IMF image could be even worse taking into account that Argentina, after suffering a true economic and financial collapse at the end of 2001, saw its gross domestic product grow eight percent in 2003, and is expected to maintain that trend this year, according to official and independent forecasts alike.

Unlike the situation in the first half of the 1990s, this growth was achieved without the financial assistance of the multilateral credit institutions and without defaulting on the debt to those agencies, for which Argentina cancelled more than 7.0 billion dollars in the past two years.

While the wrangling continues at the highest political level, the vulture funds last Friday convinced the U.S. courts to block some of Argentina’s assets in the United States, something Buenos Aires has played down, saying it does not involve a true embargo. Argentina has appealed the court ruling.

According to Treasury attorney Horacio Rosatti, the military and diplomatic properties affected by the judicial measure are not seizable under U.S. law or the Vienna Convention on Diplomatic Relations.

Nevertheless, the Argentine authorities fear a wave of asset restrictions, which could even extend to the presidential aeroplane “Tango 01” during a trip outside Argentina. “We cannot be sure that a country with independent judicial power will not take such a measure,” admitted Foreign Minister Rafael Bielsa.

“But nor would it be an embarrassment” if during some presidential trip a country issues an embargo against the aircraft. “This is what happens to a poor country that tries to resolve its situation with dignity. We should not be ashamed, but rather try to defend our rights with dignity,” said Bielsa.

He added that the vulture funds should understand that “if they want to collect, they won’t collect anything from anyone by pecking, because the country can only maximise its foreign remittances if there is a basis for growth.”