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Cristina Could Repay Argentine Debt

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But ATFA -using YouTube - warns against Ecuador following an Argentina-style debt default.

BY CHRONICLE STAFF

Cristina Fernandez, the frontrunner in Argentina's presidential elections scheduled for October, could reach an agreement with the country's outstanding debt holders, an expert says.

"It's always easier for a new leader to make this kind of shift," says Robert Shapiro, co-chair of the American Task Force for Argentina (ATFA), an alliance of organizations promoting a settled solution with outstanding debtors.  "It gives her or anyone else elected the opportunity to put this behind them.  Coming back to the negotiating table would be met with a very positive reaction from the investor community."

Argentina formally declared a debt moratorium in January 2002, missing a $28 million interest payment due on an Italian lira bond. In 2005, the government of President Nestor Kirchner announced it had reached an agreement with 76.2 percent of debt holders to exchange their original debt of $61.8 billion for a lower one of $35.2 billion.

The ATFA estimates global investors lost $84 billion as a result, thanks to direct costs such as capital losses and foregone interest payments incurred by U.S. lenders who accepted the harsh restructuring terms, as well as those who rejected the offer and continue to hold the defaulted bonds.

Argentina is facing lawsuits for the debt default from investors in the United States, Germany and Italy and the lack of a complete settlement has kept Argentina from returning to international capital markets and obtaining credit from the Paris Club.

NOT WHETHER, BUT WHEN

Anne Krueger, a former deputy director of the International Monetary Fund, recently told Argentine newspaper La Nacion that Argentina had no option but to negotiate a settlement with the outstanding bondholders. "They will have to negotiate with them," she said. "The only question is when will they do it. "

Shapiro agrees. "Everyone knows how this will end," he says. "There's no alternative. No one can fight global capital markets without harming themselves...This circumstance is not sustainable for Argentina over the long term."

In the interview with La Nacion, Krueger acknowledged that a settlement with the outstanding debt holders could result in a better deal than the previous settlement, leading to protests from the investors who accepted the 2005 offer. However, Shapiro says the settled bonds would grow in value if the Argentine government settles the outstanding debt. "This may be less of a problem than people believe," he says.

While Shapiro is not realistically expecting a solution before Kirchner's mandate ends, he doesn't rule it out, either.  "I am hopeful, although I don't expect it, that before Kirchner leaves office he will choose to be a statesman and resolve this," Shapiro says. "It would be a wonderful gift. [However], I understand domestic politics...I understand how this works. It may be difficult for him, but won't be as difficult for his successor."

ECUADOR WARNING

Meanwhile, ATFA is also warning against a possible Argentine-style default in Ecuador, following a renewed wave of comments from Ecuadorian president Rafael Correa that the country's $10.6 billion foreign debt would not be paid.

"We would not normally focus on Ecuador, but statements by President Correa came after consulting with Argentine debt structuring advisors," Shapiro says. "Our principal concern is the integrity of the international lending system and [that] the Argentina [debt default] would set a new kind of norm or precedent and undermine lending to other developing countries."

 

Ecuador doesn't need to default on its debt and if it does it will have serious, adverse effects on the value of its bonds and investment, he says.  

To get its message out better, ATFA decided to use YouTube, the popular video-sharing web site owned by Google. "It's a way to get views directly around the world," Shapiro says.  Since posting the Ecuador video last week, it has received more than 1,700 views. A previous video on the Argentina debt posted in June has received nearly 12,000 views. "I am amazed," Shapiro says of the success.

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