Argentina Trumpets UN Vote

Sep 11 2014 | 3:25am ET

Argentina has claimed a moral victory in its battle with hedge-fund holdouts from its 2001 default after the United Nations voted to create a new framework for sovereign-debt restructuring. A practical victory may be harder to come by.

The UN General Assembly this week voted overwhelmingly in favor of a resolution put forth by Bolivia to negotiate and then adopt a new legal process for restructurings, one which would presumably prevent similar situations to Argentina’s current debt impasse, which has seen it sink into default for the second time in 13 years after failing to reach a deal with hedge fund holdouts from its last default.

“The peoples of the world have spoken and we have decided that the time has come to embark on an ethical, political and legal path together that can put an end to this unbridled speculation,” Argentine Foreign Minister Hector Timerman said. Cabinet Chief Jorge Capitanich crowed that “if 124 countries in the United Nations support the Republic of Argentina, it means that Argentina is right in its claims.”

Right, perhaps, but not guaranteed of success: UN General Assembly resolutions are non-binding, and the 11 “no” votes included five of the world’s seven largest economies: the United States, United Kingdom, Germany, Canada and Japan. Two of those countries, the U.S. and U.K., are permanent members of the UN Security Council and can block any UN action.

In addition, 41 countries abstained, including several other economic powerhouses, such as New Zealand.

The U.S. said it feared that a restructuring framework would make lenders wary of providing financing to emerging markets countries. Other critics said that the International Monetary Fund was a more appropriate venue for such a system.

The UN vote follows moves by the IMF and global banks to add clauses to sovereign-debt contracts that would also prevent situations like the Argentine matter.

For its part, Argentina is expected today to move forward with plans to offer creditors the option to exchange their New York-law bonds for those issued in Argentina or another jurisdiction. Such an exchange would allow it to skirt U.S. court rulings barring it from paying restructured debtholders without also paying the hedge funds, led by Elliott Management and Aurelius Capital Management.

The lower house of the Argentine Congress is to vote on the matter today. The upper Senate has already approved it. But it, like the UN resolution, may prove symbolic: U.S. District Judge Thomas Griesa has threatened with contempt of court anyone who assists Argentina in violating his orders. Argentine Economy Minister Axel Kicillof this week acknowledged as much, admitting that the country’s creditors have shown little interest in the plan.

Separately, Griesa yesterday rejected Elliott’s request to enforce a subpoena against Citigroup in which the hedge fund sought evidence that the bank has been threatened by Argentina if it fails to make its next bond payment.

Griesa in July allowed Citi to make a one-time payment on the bonds in question, some of which were issued to Spanish oil company Repsol earlier this year as part of another debt settlement. But he ordered the parties to come up with a way to distinguish between the Repsol bonds and other restructured bonds before the next payment date.

Citi has appealed that ruling; Griesa said yesterday it would be inappropriate to enforce the subpoena “while the issue is pending before the Court of Appeals.”

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...