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Tag: debt crisis
Argentina Blames U.S. For Debt Woes, Denies Default

Argentina Blames U.S. For Debt Woes, Denies Default

Buenos Aires (AFP) – Argentina blamed the United States for the legal battle that forced it to miss a debt payment and, despite ratings agencies’ declarations to the contrary, denied being in default.

Ratings agency Fitch declared Argentina in “restrictive default” Thursday after 11th-hour talks failed to resolve the country’s dispute with two U.S. hedge funds that refuse to accept a write-down on their Argentine bonds.

Fitch’s label echoed the “selective default” declared Wednesday by Standard & Poor’s. Both terms indicate that Argentina has defaulted on one or more of its financial commitments but continues to meet others.

U.S. District Judge Thomas Griesa has blocked Argentina from paying its “exchange creditors” — those who agreed to take a 70-percent write-down after the country’s 2001 default — without also paying two American hedge funds that took it to court demanding full payment.

Argentine stocks plummeted Thursday, closing 8.43 percent down as the repercussions of the default began to set in.

President Cristina Kirchner’s cabinet chief, Jorge Capitanich, blamed the U.S. government, Griesa and a court-appointed mediator for the messy legal dispute, which made Argentina miss a $539 million payment to exchange bondholders.

“If there’s a judge who’s an agent of these speculative funds, if the mediator is their agent, what is this justice you’re talking about? There’s a responsibility of the state here, of the United States, to create the conditions for the unconditional respect of other countries’ sovereignty,” he said.

He accused Griesa and mediator Dan Pollack of “incompetence” and said Argentina would take the matter to international courts.

Argentina says paying the holdouts the $1.3 billion it owes them could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.

The U.S. State Department said it opposed the court ruling but called on Argentina to get its books in order.

“They’ve made some good progress towards meeting their obligations, and we believe it’s in their interest to normalize relations with all of its creditors,” said Deputy State Department spokeswoman Marie Harf.

Kirchner denied her country was in default, reiterating that it had transferred the payment in question and condemning the tactics of the hedge funds, which she calls “vulture funds.”

“We live in a profoundly unjust and profoundly violent world and this is also violence. Like missiles in war, financial missiles also kill,” the president said in a nationally televised address.

“I want all Argentines to remain very calm, because Argentina is going to use all the legal instruments our contracts give us.”

The Bank of New York confirmed Buenos Aires’ payment to the exchange creditors was still sitting in the U.S. bank’s account at the Argentine central bank, frozen there by Griesa’s ruling.

Amid the back-and-forth, some in the financial world called for a simple yes or no on whether the country had defaulted.

The International Swaps and Derivatives Association, a trade organization for participants in the derivatives market, said it had accepted a request from Swiss bank UBS to rule whether Argentina was in default or not.

A default would activate insurance contracts on the relevant debt.

Argentina got a show of support from more than 100 economists, including Nobel laureate Robert Solow and other prominent academics, who sent a letter to the U.S. Congress urging it to intervene.

“The district court’s decision… could cause unnecessary economic damage to the international financial system, as well as to U.S. economic interests (and to) Argentina,” said the signatories, warning the ruling created a “moral hazard” by guaranteeing creditors full payment no matter how risky their investment.

With Argentina scrambling to find a way to placate the hedge funds until the RUFO clause on its restructured debt expires at the end of the year, sources close to the case told AFP that JP Morgan and other banks were in negotiations with the holdouts to buy some or all of their bonds.

JP Morgan declined to comment.

Analysts said the damage could still be controlled if the default was fleeting, but warned a lengthy standoff would deepen Argentina’s current recession, fuel inflation and unemployment and further the country’s isolation from global financial markets.

Argentina’s 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into crisis. Rioting left 33 people dead after the government froze savings accounts to halt a run on the banks.

But analysts say the global impact of the new default will be far smaller, since Argentina has since been locked out of international capital markets.

AFP Photo/Daniel Garcia

Exclusive: John Kerry Says ‘Chinese Are Laughing All The Way To The Bank’ Over Prospect Of U.S. Credit Downgrade

The global impact of the American debt crisis – and the likelihood of permanent damage to American interests – are already visible to Senator John Kerry (D-MA) from his perch as chairman of the Senate Foreign Relations Committee. Indeed he is not only seeing but hearing those effects.

“The Chinese are laughing all the way to the bank,” said the former Democratic presidential nominee, because a downgrading of US Treasury securities will mean enormous and completely unnecessary increases in our interest payments to the nation’s largest creditor – and our most important competitor in the international arena.

“If we suffer a downgrade of our [US Treasury] debt simply because of the brief time before we have to go through this exercise again,” said Kerry, referring to the House Republican insistence on a debt-limit increase that will expire before next Christmas, “it would mean billions of additional dollars that would have to be paid to the Chinese.”

Those costs would come on top of the extra interest expense that all Americans would see on their home loans, car loans, student loans and credit cards, further weakening the slow recovery from the recession. Moreover, that loss would cut into government’s capacity to pay for important functions, sending many billions of additional dollars abroad instead of rebuilding our infrastructure, bolstering Social Security and Medicare, educating our children and maintaining national security.

The ill wind of an American default and downgrade will blow far beyond any temporary financial setback, according to Kerry, when allies and adversaries assess this country’s future influence. Chairing the Foreign Relations Committee, he speaks frequently with diplomats, ministers, business executives, elected officials, and social leaders from every continent – -and he is disturbed by what they’re telling him now.

“People in other parts of the world are incredulous,” he said, as they observe the current spectacle in Washington. “Some of them are gloating…I know personally of major [U.S.] government officials who have been needled about what is happening here, in the course of their conversations abroad. I’ve had personal conversations with leaders who are praying that the United States doesn’t flounder here, because their economies depend on it.”

European leaders are particularly worried, said Kerry, because of the possibility that an American default will worsen the debt crisis across the Atlantic. “I met with the Greek foreign minister and deputy prime minister a few days ago,” he noted, to discuss the U.S. commitment to the International Monetary Fund, which is essential to Greece’s eventual economic recovery. He has heard expressions of deep anxiety from leaders in Spain and Italy as well.

More broadly, Kerry is hearing rumors of the decline of a nation that once led the world. “There’s a general sense that the United States has already been questioned about our steadfastness and will power, the consistency of our pledges…One of the great things we’ve always had going for us was the sense of our strength, our unity of purpose, our ability as a democracy to come together and display our intent, and right now that is fraying — with the potential of serious consequences, not automatic, but certainly real. “

Why would a group of conservative Republicans in Congress – who rarely stop braying about their great patriotism – create such a grave risk to American power and prosperity? “Some of them don’t get it, some don’t care, and for some it is a combination of both,” Kerry lamented. “I have had Republican leaders of the Senate – I’m not going to tell you who – tell me that they’ve tried to talk to some of these [House members], and they just don’t understand the implications of their actions.”

By the time our Congressional clowns realize what their intransigence has inflicted on this country, if ever, the harm will be done — and very hard to undo.