ARGENTINA: Local Creditors to Test Voice in Talks on Defaulted Debt

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 23 2004 (IPS) - The Argentines who hold a share of their country’s public debt are a far cry from the so-called "vulture funds", which target foundering economies in order to purchase debt titles cheap, staking their bets on profits from quick trades or ultimately suing the state for full repayment.

They are not in the media spotlight, but the local holders of Argentina’s public debt (holding 39 percent of the total, according to various calculations) were hard hit by the default that the government declared more than two years ago.

These small creditors include retirees, professionals, academics, housewives and small business owners – many now in bankruptcy.

And they are the ones who will begin discussions with the government of President Néstor Kirchner on Thursday about alternatives for recovering their lost savings.

The Argentine bondholders are represented by three associations. One is a retirement and pension fund management association, to which workers make regular contributions.

This association, willing to accept a new long-term bond, had nearly half of its bond portfolio – 15 billion dollars – declared in default.

The other two, made up of individual bondholders, criticise the fact that the government authorised debt payments to the multilateral credit institutions. They also refuse to be treated in the same way as corporate bondholders.

"We have expectations that the government will show willingness to negotiate," says Eduardo de la Fuente, a retiree who serves in the secretariat of ADAPD, an association of Argentines who lost money in the default and in the conversion of their dollar savings into pesos.

The group has 500 members, but more than 7,000 bondholders seek its advice.

"Many do not pay the ADAPD membership fee because they have no income," De la Fuente told IPS. "We are part of the internal debt of Argentina," he added, referring to the enormous social debt caused by the extended crisis, which has left more than 50 percent of the country’s 37 million people living in poverty.

Carlos Báez Silva, of the Savers’ Association of the Argentine Republic (AARA), told IPS he is hopeful that the government will be in a negotiating mood.

"We want to be recognised as small holders of the debt," he said. AARA has 400 members and 2,000 followers.

Argentina’s public foreign debt reaches 175 billion dollars, and in December 2001 the country defaulted on 80 billion dollars held by private creditors.

The rest is made up of bonds that have been honoured, and of debts to the multilateral credit institutions that are being paid interest – though at the last minute before deadline.

In the latest round of negotiations with the International Monetary Fund (IMF), Argentina pledged to show "good faith" in beginning talks with private creditors who are mostly from Argentina (39 percent), but also from Italy, Switzerland, United States, Japan, Germany and other countries.

That pledge helped unblock the agreement approved Monday by the IMF board in Washington, which releases a 3.1-billion dollar loan instalment, and calls for a review of the goals established in its existing agreements with Argentina.

Despite opposition from creditors, for the past seven months the Kirchner government has stood firm behind its plan for exchanging unpaid bonds for new titles at a 75-percent discount on their nominal value, or without that cut but with maturities of 20 to 42 years and annual interest rates of 0.5 to 2.0 percent.

The Argentine government repeatedly said the proposal was unalterable, but after negotiating with the IMF it sent signs of willingness to better the offer.

Argentine bondholders were invited to sit down to talk, and new proposals were announced, like a coupon – in addition to the new bonds – with additional interest for each percentage point of economic growth above the projected rate.

To obtain better conditions, most foreign bondholders have linked up with the Global Committee of Argentina Bond Holders, led by former banker Nicola Stock, of Italy.

The IMF pressed Argentina to give priority to that group when the time came to negotiate, but the government rejected the request.

Government officials will receive one group at a time in meetings scheduled from Mar. 24 to Apr. 16, beginning with Argentina’s AARA and ADAPD.

Stock says the committee he represents holds 66 percent of the Argentine bonds that are outside of the country, including those of banks and mutual funds, but the Kirchner government does not give credence to that amount, and has stressed that it will negotiate with all creditor groups on equal terms.

The IMF had said in November that it would remain neutral on the matter of negotiations between Argentina and the private holders of its debt.

But in recent weeks, at the behest of the governments of the Group of Seven (G7) leaders of the industrialised North, the Fund pushed Argentina to offer better conditions to the private creditors.

Despite such efforts on their behalf, the Argentine bondholders consider it "a mistake" that the government has given priority to paying its debts to multilateral credit institutions instead of paying them.

"They were the auditors of the process that led the country into unlimited debt, and they should be considered as sharing responsibility for the default," said AARA’s Báez Silva.

De la Fuente, of ADAPD, agrees with the notion of shared responsibility and he blames the multilateral institutions – the IMF, World Bank, Inter-American Development Bank – for permitting the small savers to be victimised by poor advice.

Nor do the local bondholders agree with the government giving corporate creditors the same treatment as individuals like them.

"In Argentina, the legislation favours older bondholders or those with health problems. What we want is that differentiation for small savers like us," said Báez Silva.

"Most of our members are middle-class, who purchased bonds at a price that was 85 to 95 percent of their face value," he said.

These creditors do not have a lifetime to wait for the cancellation of the bond at its nominal price with the long periods proposed by the government, nor can they accept a 75-percent cut in the value of those titles, he said.

The members of ADAPD also reject the government’s proposed alternatives for bond swaps.

"Our members are small property owners, retirees or professionals. The vast majority are older than 55 and put their savings in bonds. We can’t wait 40 years to recover our money," De la Fuente said.

One of the ADAPD members is a woman whose husband was among the tens of thousands who disappeared during Argentina’s last military dictatorship (1976-1983). The woman, who preferred not to be identified, works in building cleaning and maintenance.

She received bonds from the state as reparations for the dictatorship’s kidnapping of her husband. Those titles went into default.

The ADAPD proposal, which the government passed on to the banks entrusted with dealing with the creditors and with placing the new debt, calls for the emission of bonds known as "preferred ongoing obligations of the state", without a maturity date, without a discount, and with interest.

The association believes this type of bond would have better chances at selling, especially if a strong guarantee can be secured.

"We loaned money to the state, not to a government, which is why we believe that the new guarantees should be serious and executable – so there are not changes to what was agreed under every new government," said De la Fuente.

In its IMF letter of intent, signed Tuesday, the Argentine government commits to treating the international creditors’ proposals "in a constructive and transparent way," and to "intensifying dialogue with the local bondholders" with sights on achieving an agreement on the follow-up process by mid-April.

Argentina’s final offer to the creditors will be officially announced sometime between late June and August, says the letter.