MercoPress. South Atlantic News Agency

Germans, Italians say Argentines offering bum deal.

German holders of bad Argentine bonds are having none of the South American nation's push to exchange them for new ones, asking why they should trade old funny money for what they suspect will turn out to be more of the same.

The response has been much the same from Italian holders of the South American nation's defaulted-upon securities.

The Community of Argentine Interests, or IGA, one of the top German associations of holders of Argentine bonds, on Wednesday rejected Argentina's bond-exchange offer, calling it "criminal and arrogant." Buenos Aires is in the middle of a campaign to persuade global investors to accept drastic terms to swap some $82 billion in unpaid debt resulting from the biggest sovereign default in history. The Argentine proposition involves payment of about 25 cents on each dollar owed.

Argentina started to exchange the debt for new securities on Jan. 14, more than three years after the December 2001 default. The exchange would help enable Argentina to borrow again in international capital markets and rebuild relations with the International Monetary Fund.

At a press conference, IGA president Stefan Engelsberger described the offer as "coercion" and said creditors were "dealing with a group of criminals." Engelsberger said that because the Argentine government offers no credibility, bondholders should sell or hold on to their bonds, "but never accept a trade-in for new bonds." "It's as if someone who sold you poisoned food tries to sell it to you again," he said.

IGA represents some 200 German creditors, mostly individuals, although it also includes some cooperatives and investment funds. In all, the organization's members are holding debt worth well over $100 million. According to the association, the portion of Argentina's bond debt in German hands is approximately 5 percent.

However, Argentine Technical Coordination Secretary Leonardo Madcur the figure is closer to 10 percent. This weekend, Madcur met with representatives of German financial interests in Frankfurt and Munich and explained the debt restructuring proposal.

Engelsberger said IGA was not invited to the meeting, "nor would it have attended if it had." German creditors are disappointed with the International Monetary Fund (IMF), German banks "that sometimes advised investors poorly" and the German government, "which says this is a private matter."

For Engelsberger, the plan also sets a bad precedent for other countries and may touch off "a wave of restructuring of public debt." The IGA is engaged in talks to form "a fund or corporation" that brings together all the German creditors, so as to exert pressure more effectively and "enable us to recover our money."

The main association of Italian holders of Argentine bonds also advised its members to reject the deal. Nicola Stock, the head of Task-Force Argentina, called the Buenos Aires offer "unacceptable." Some $14 billion of the defaulted-upon debt is held by more than 400,000 Italians.

On Wednesday, the Italian Banking Association (ABI), which groups the country's financial entities, praised to work of the Argentine Task Force, but did not say whether its customers should accept the deal. The ABI said every investor has the right to accept the bond exchange option or not, and made no recommendation.

In Rome a few days ago, Argentine Finance Secretary Guillermo Nielsen said publicly that his country would not modify its bond-exchange offer.

In a related development, a Venetian couple has been compensated by a local bank following their ill-fated investment in Argentine debt, in keeping with the ruling of a local court. In 1998, the couple acquired Argentine bonds in the amount of 152,000 euros through a local branch of the Deutsche Bank.

The daily "La nuova Venezia" reported in Wednesday's edition that the bank has been forced to compensate the couple, given the fact, the court said, that it did not inform them of the high risk involved when they signed the investment contract.