Argentina and the holdouts
Experiences for the Greek’s debt restructuring
At moments when Europe is debating about the restructuration of the Greek’s debt, and especially the participation of deprived investors which are the bond possessors of the Greek’s debt, the Europeans should throw a glance to the Argentinean experience with the holdouts and go further in the proposal of the sovereign repurchase.
On December 2001 Argentina enter into a default differing the payments of more than US$100.000 million in bonds of the external debt, that were on hands of the national and international creditors.
Generally, the sovereign debts are on the hands of public and private investors, and the net speculators are part of this last group of investors, the ones that buy debt in troubled countries to a very low price, and, when the time comes, they resist to a restructuration or the prorogation of terms. There are also the ones that buy because of the high rates of interests, that pay the bonds emissions of those countries –as the Argentinean case and it is today’s case of Greece and other European block’s partners- induced by their bank or financial advisers.
Although the high interests are always associated to a high risk, the promise of enormous gains is more powerful than prudence, and savers go into the game of bank advisers, whom tempt them with the argument that the sovereign bonds are always paid, sooner or later, one way or another, but they are always paid. Nevertheless, in a regular system of risk taking, it is assumed that the risk taker should also take on part of the loss, and that is into discussion at the time when negotiating the sovereign debt restructuring in private hands.
Since 2001 Argentina performed two operations of debt exchange, one in 2005 and the other one in 2010, tending to renegotiate bonds in breach situation. In both operations great part of the bond possessors accepted the offer, and the rest preferred to follow the tribunals’ way –and now they are trying with arbitrations- in order to acquire the nominal values of bonds, plus the owed interests.
Today a group of bondholders grouped around the called “vulture funds” have obtained favorable sentences in American tribunals, although they have not been able to execute them because of the lack of Argentinean assets in other jurisdictions.
They obtained some provisional embargoes on deposits of the Central bank of Argentina in New York, but recently one Court of Appeals made place to the Argentine resource, declaring that the money of the Central bank is not of the Argentine State, and that they have embargo immunity.
On the other hand, during this month, the Court of Appeals of New York condemned to Argentina to keep paying interests on bonds until it doesn’t pay the main one. This decision is related with a sentence of first instance that already had been pronounced in favor of the payment of interests (of even the 101% per year in the unpaid debt) although it had not established until when they had to be paid.
Also this same month the Supreme Court of Justice of the United Kingdom made place to an order of American Argentine bond possessors, so that they can present their demands before British justice, rejecting the Argentine argument of which the courts of the United Kingdom did not have competition on the matter. This failure opens the door to the speculators of the European debt, since the countries of Europe probably have assets in the United Kingdom and other jurisdictions.
The international arbitration is another front that Europeans should consider.
In the Argentinean case, some of the retail possessors –Italian and German bondholders- have gathered in groups that demand the total payment of those bonds and maintain arbitrations against Argentina at the International Centre for Settlement of Investment Disputes (ICSID) that is the international arbitration centre of the World Bank.
The plaintiffs maintain before the ICSID that their bonds are protected “investments” within the framework of the ICSID agreement and within the framework of bilateral investment treaties between the two respective countries. The Italian bondholders, for example, formulate an argument which is certainly novel; maintain that when buying bonds in Italy have realized an investment in the territory of the Argentine Republic, and that this investment fulfils the criteria of the Salini case; meaning that it fulfills the criteria to be considered as a protected investment; that is to say, that implies a substantial contribution, of certain risk, that produces regular utilities, during certain time and that it contributes to the economic development of Argentina.
At first it does not seem as an investment in the territory, and that has contributed to the economic development of the emitting State, it would be like admitting that Greek bonds emitted to pay debt maturities, within the framework of a rate of negative real growth and to the loss, contribute to the economic development of that country.
The premise is legally untenable and contrary to the spirit of the referred Treaty; but with the ICSID you never know. Argentina has opposed the jurisdiction of ICSID to hear the matter, but the Centre has not yet issued decision.
Experts in rights of treaties and the international arbitrations of investments, anticipate that the organism has no jurisdiction, and that if it declares, it would be a legal scandal, but there is no need to discard it, other analyst maintain that the Centre has excessively become slanted in favor of the investors and against the States, and that, as it is not subject more than to its own interpretation in the pertinent agreements, it could give a surprise.
Europe can, Argentina could not, repurchase all the Greek debt, turning it into a sovereign debt, and then reconstruct that debt, so that it is sustainable for Greece, it discourages to the speculators and it avoids the contagion to the European periphery.
Europe also has the chance to negotiate that the private investors who took risks to assume some of the losses.
If however Europe imposes to Greece a voluntary reconstruction of the sovereign debt in deprived hands, the speculators will have make a fortune and Greece will ramble per years in the corridors of the courts.