MercoPress. South Atlantic News Agency

US Congress strong message to Argentina on defaulted obligations

Argentina could end in “the bad boys” list

American Task Force Argentina (ATFA), a coalition of more than 40 taxpayer, investor, educator, Latino and agriculture organizations, commended members of the United States House of Representatives for introducing legislation imposing stiff penalties on wealthy and middle-income nations that, like Argentina, refuse to honour obligations to US creditors.

The effort is being led by Representative Eric Massa, a Democrat from New York State who was raised in Argentina while his father served as US Naval Attaché in Buenos Aires. Also introducing the legislation were Representatives Paul Tonko (D-NY), Robert Wexler (D-FL), Timothy Bishop (D-NY), Carolyn Maloney (D-NY), Dan Maffei (D-NY), Mike McMahon (D-NY), Ed Towns (D-NY), and Brian Higgins (D-NY).

The bill, H.R. 2493, called the Judgment Evading Foreign States Accountability Act of 2009, would bar from US capital markets any nation that has been in default of US court judgments totalling more than 100 million US dollars for more than two years. The legislation would also require the US government to consider the default status of these countries before granting them aid.

“Argentina is ignoring billions of dollars in US court judgments, which has hurt not just US citizens, but also Argentine citizens,” said ATFA Executive Director Robert Raben. “US taxpayers are still waiting to be repaid money they lent to Argentina in good faith. At the same time, Argentina is saddled with the reputation of a deadbeat because their government defaults on court judgments. This legislation should pave the way for a fair resolution for both countries.”

In 2001, Argentina defaulted on 81 billion in obligations to investors - the largest sovereign debt default in history. In 2005, Argentina offered bondholders 27 cents on the dollar for outstanding debt, far below the international norm for sovereign debt restructurings. Argentina repudiated its debts to the 50% of foreign lenders who declined the offer. US courts have ruled in favour of these “holdout” bondholders in numerous cases, but the Argentine government has refused to repay its debts, choosing to default on those judgments.

“President Kirchner has said several times she's prepared to negotiate with bondholders, but we've seen no action whatsoever,” Raben said. “Argentina has 45 billion in reserves and can afford to pay its 3.5 billion in debts to US bondholders many times over. It's time to resolve this issue for the benefit of both nations.”

A team of Argentine economists concluded in 2006 that Argentina's default status causes the nation to lose more than 6 billion US dollars in foreign direct investment every year. The US State Department warned in February 2009 that Argentina's unresolved debts, and the resulting court judgments, have created a risky climate for US investors.

Argentina's refusal to resolve its outstanding debts may be setting a precedent in the region. Ecuador in recent months defaulted on more than 3.8 billion in obligations to foreign investors, citing Argentina as a model.

The legislation introduced is intended to encourage responsible lending, support the rule of law and improve international accountability by:

• Denying Argentina and other foreign states that have been in default of US court judgments exceeding 100 million USD for more than two years access to US capital markets;

• Denying domestic corporations of such judgment evading foreign state that remain in default for more than three years access to the US capital markets;

• Requiring the US government to consider the default status of countries before granting them aid; and

• Requiring the Secretary of the US Treasury to issue annual reports naming these states and analyzing the impact of their behaviour on the US economy.

The legislation would not affect poor nations including those eligible for International Development Association financing or relief through the World Bank's Heavily Indebted Poor Countries (HIPC) Initiative or the Multilateral Debt Relief Initiative.

Made up of an alliance of organizations, ATFA's leadership includes Executive Director Robert Raben, a former Assistant Attorney General at the US Department of Justice, and is co-chaired by The Honourable Robert J. Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton Administration, and Ambassador Nancy Soderberg, Ambassador at the US Mission to the United Nations in New York from 1997 to 2001.