Argentina successfully forced more than three quarters of its creditors to accept 35 cents on the dollar. As Quilombo reminds us, however, "Argentina is not completely out of the woods" yet ("Argentina Gets Out of Debt-lock," 26 Mar. 2005). Indeed, a hedge fund is striking back against Argentina as well as the hope that Argentina's tough bargaining with the creditor class kindled in the minds of the debtors of the world: "[L]ast week, Thomas Griesa of New York's southern district court ordered a freeze on $7bn of the old bonds that were tendered in the restructuring. The preliminary decision came after NML Capital, a Cayman Islands-based hedge fund, argued that the bonds belonged to the Argentine government and were therefore a legitimate target for 'attachment'" (Adam Thomson, "US Judge to Review Argentine Bond Case," 27 Mar. 2005). The ruling is to come today. Ominously, NML Capital is a fund "linked to Elliot Associates, a group that forced Peru to pay up on about $50m in defaulted debt in a landmark case during the 1990s" (Thomson, 27 Mar. 2005).
Other creditors' lawsuits have so far gone nowhere, but NML Capital's may prove different: "Experts believe a refusal by judge Griesa to lift the freeze could signal an intention to award the old bonds to NML rather than allowing them to be cancelled as planned," setting a favorable precedent for other hold-outs who rejected Argentina's debt restructuring offer (Thomson, 27 Mar. 2005).
The lawsuit has caused jitters in the market, and Argentine stocks have fallen for four days (Associated Press, "Stocks Down in Mexico, Brazil, Argentina," Forbes.com 28 Mar. 2005).
On March 24, 2005, Reuters reported that the International Monetary Fund said "it was not asking Argentina to reopen its $102.6 billion debt swap, which closed last month, to deal with the nearly 24 percent of bondholders who rejected the offer" ("IMF Says Not Asking Argentina to Reopen Debt Swap," 24 Mar. 2005). But the story is already changing: "The International Monetary Fund said on Monday it was studying Argentina's just-completed debt swap, leaving open the possibility it could ask Buenos Aires to re-negotiate with creditors who rejected the offer," if the IMF determines that Argentina is not negotiating with private creditors "in good faith" according to the IMF's "lending into arrears" rule (Reuters, "IMF Studying Outcome of Argentine Debt Swap," 28 Mar. 2005). At the very least, Judge Griesa's ruling today will affect Argentina's bargaining position vis-a-vis the IMF.
Bad news on the litigation front came at the same time as emerging market bonds and stocks, having flourished in the credit bubble (Richard Lapper, "More Faith in Emerging Economies," Financial Times [USA Edition], 14 Mar. 2005, p. 13), "dropped, extending a two-week slide, as rising interest rates in the U.S. pulled money away from high-risk securities" (Charles Penty, "Emerging Market Bonds, Stocks Decline on U.S. Rate Concerns," Bloomberg.com 28 Mar. 2005). In short, Washington's belated attempt to address the US current account deficit through higher interest rates alone, without giving up on the Iraq War and tax cuts for the rich that have pushed up its fiscal deficit or doing anything to resuscitate its atrophied export base, may be now beginning to take a toll on the global economy (cf. Nouriel Roubini and Brad Setser, "The US as a Net Debtor: The Sustainability of the US External Imbalances," November 2004, p. 24).
In the meantime, Venezuela, in a gesture of solidarity, "said it will buy $500 million of 7-year bonds that Argentina plans to sell within two weeks, the first bond sale for Argentina since its 2001 default," helping "Argentina pay back maturing bonds it issued after the default to compensate depositors for the seizure of their bank deposits, known as Boden bonds" (Peter Wilson, "Venezuela Says Argentina to Sell 7-Year Bonds [Update3]," Bloomberg.com 21 Mar. 2005). Is it any wonder Hugo Chávez's "petro populism" is more popular among Latin Americans than the moribund Washington Consensus?
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