MercoPress. South Atlantic News Agency

Argentina still haunted by the holdouts from the 2001 default

New York Federal Judge Thomas Griesa

Argentina’s attempts to return to global credit markets nine years after its 2001/02 default received this week mixed results. New York Federal Judge Thomas Griesa has issued a ruling urging Argentina to pay 54.33 million Euros (US$75.1 million) to the Capital Ventures International Fund.

The Argentine government -represented by Cleary, Gottlieb, Steen & Hamilton LLP- is expected to appeal the ruling within the next few weeks.

The amount totals 28.3 million Euros of capital plus interest of 26 million Euros. Griesa's ruling ordered the public titles involved in the suit can't be sold or transferred without notice.

Argentina swapped some 12.6 billion US dollars in defaulted bonds for new debt last year, seeking to reduce lawsuits by holdout creditors and improve credit conditions for state and private entities.

About 92% of the record 100 billion USD in debt that Argentina stopped servicing in 2002 has been exchanged, at a steep loss for bondholders, during swaps in 2005 and 2010.

Despite these efforts, the holdouts who rejected the government debt swaps are still suing to recover the full value of the defaulted bonds, hampering Argentina's bid to return to global credit markets nine years after its default.

Should Argentina launch a new issue in international capital markets, it faces the threat that some of its assets could be seized as holdouts try to enforce multibillion-dollar court judgments against the country.

So-called vulture funds vow to try to block any new debt operations by Argentina and in recent months they have taken fresh action in a New York court where Argentina argues the recent swaps are evidence of its good faith.

Precisely District Court Judge Griesa presides over a slew of lawsuits filed by holders of defaulted Argentine bonds, which includes class-action suits and complaints filed by individual investors.

He has granted several billion dollars in court judgments to litigating holdout creditors. So far they have not been able to collect any money since U.S. sovereign immunity laws protect most assets owned by a country abroad.

Argentina does not deny that it owes investors money for the defaulted bonds. But the government says it is legally unable and also unwilling to pay holdouts at a more favourable rate than the creditors who accepted its swaps.

Finally the good news: Argentina’s Economy Ministry reported this week that a French court lifted a US$1 billion embargo on Argentina's assets. The embargo - US$645 million of capital plus interest of US$440 million- was imposed on Air France accounts whose funds had been allocated to pay off a debt held by the airline against the Argentine government.