Fact Check: Argentina

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This year there will be no payment to the holdouts, warned government

La Nacion

July 22, 2014
By Rafael Mathus Ruiz

NEW YORK.- With dramatic warnings, Argentina yesterday asked Judge Thomas Griesa to again suspend his court mandated payments to the so-called vulture funds, in order to protect negotiations with these groups of creditors under a “legal umbrella”. The Argentine government said otherwise, an agreement on the debt by 2015 is not feasible, because it is too risky for the country.

Hours before key hearing will be held in Griesa’s court today, which could decide the fate of the debt payments, Argentina lawyers filed a 17-page document in which they ask the judge again to apply the injunction, or stay and put on hold the court order forcing the country to pay the holdouts along with the other creditors.

The document, drafted by lawyers from Cleary, Gottlieb, Steen & Hamilton, marks out the position of the country in search of a solution to the debt problem when we are just nine days from the expiration of the grace period in which it must pay the last maturity.

A “global resolution” says the letter, should include all holdouts not only the litigants, and must be consistent with other contractual obligations, including the RUFO clause (which entitles the exchange bondholders to file a claim if another creditor is paid more), now in the center of the dispute between the Government and NML, the fund leading the legal assault against the country.

According to the Government, an agreement that “triggers” the RUFO clause, which expires on December 31, could generate complaints for “billions of dollars” from the bondholders.

It could also lead to Argentine officials, for example, Economy Minister Axel Kicillof, and his team, to face criminal charges and impeachment, such as with those involved in negotiating the mega-swap in 2001 by Domingo Cavallo.

The RUFO clause prevents the country from holding a swap with the holdouts “voluntarily” without extending the same benefits to creditors who participated in the 2005 and 2010 exchanges. That clause expires in December this year, and, therefore, lawyers for the country spared no warnings about the potential costs to Argentina of a deal with the plaintiffs before 2015. “Given the magnitude of the possible consequences of activating the RUFO clause, even a small chance of activating makes the risk is unacceptable,” says the brief filed yesterday before Griesa. Sources from the Ministry of Economy clarified in Buenos Aires that the brief was presented “in support of third parties in the hearing”, because in fact there will be no official representatives there.

However, the lawyers from Cleary did not provide a precise figure of inherent risk in an activation of the RUFO clause. This risk also is debated: some believe that the language of the clause is clear enough to prevent its activation from a forced agreement from a U.S. court judgment, unlike a voluntary offer like the debt swaps of 2005 and 2010. But others believe that a court, not only in the U.S. but also in other countries, could interpret it otherwise.

As a backup, Cleary presented an estimate of the risks of judgments provided by the lawyer Marcelo Etchebarne in a column published in LA NACION along with a note from the Economist magazine and an article by columnist of The Wall Street Journal, Mary O’Grady. “Argentina could not bear the estimated US$120 billion in new debt it would need to honor with the RUFO clause,” O’Grady wrote, the day that Argentina and Germany played the final of the World Cup.

Given the “prohibitive risks,” Griesa should replace the stay to provide “legal umbrella” for Argentina “to engage in productive dialogue in order to resolve this dispute,” they added.

There has not been, so far, any sign that the dialogue between Argentina and NML through the negotiator appointed by Griesa, Daniel Pollack, has borne fruit. In fact, the document released today says that the prospect of a resolution “is further complicated” by the continuing court offensive by the plaintiffs, and it cites attachment petitions made ​​against assets of YPF and Chevron, operators of the Vaca Muerta reserve. Then, it says the negotiations will continue with Pollack.

Experts following the Argentine case expected, at this point, some progress in the talks, at least as regards to the conditions for NML to endorse the request to replenish the stay, something everyone considered essential for Griesa to decide to do it. Without the approval of the litigants, the judge will not side with the Argentine complaint, those who follow the fight agree.

The Argentine filing came amid a small wave of briefs in recent days, from Citibank, Euroclear, Clearstream, the Bank of New York Mellon, foreign bondholders and NML, with a view on today’s hearing. Griesa, having returned from vacation, would remove uncertainty about the Argentina debt payments and will provide specific financial institutions information on how they should operate transfers between the Treasury and the bondholders.

In its filing, Argentina supported the motions filed by the Bank of New York Mellon, a group of bondholders and European Bondholders, clearing houses, Euroclear and Clearstream, who asked Griesa for a green light for the transfers to be completed. Moreover, Argentina requested to remove peso bonds from that judgment, which are paid in the country under Argentina law.

NML rejected all requests for clarification, arguing that Griesa’s judgment reached bonds in euros and asked its extension to peso bonds.

Cleary’s lawyers also appealed a Griesa order to the Court of Appeals for the Second Circuit, rejecting the Kicillof proposal of carry out a debt swap to pay off bonds that came from the swaps of 2005 and 2010 in Argentina under Argentina law. Griesa had said that the proposal violated his court order.

Este año no habrá pago a los holdouts, advirtió el Gobierno