REUTERS | Yuya Shino

Argentina: back to business?

When Argentina defaulted for more than $80 billion in debt in 2001, it became embroiled in numerous court proceedings and investment arbitration disputes involving all types of investors from around the world. For more than a decade Argentina managed to avoid paying its debts or at least offer some level of compensation. This in turn resulted in the shunning of Argentina from the international capital markets and investors avoided Argentina as an investment destination.

However, with the recent change of the Argentinian government, two important developments took place in the past weeks.

First, during President Obama’s official visit to Argentina on 23 March 2016, Noah Mamet, US Ambassador to Argentina, and Susana Malcorra, Argentina’s Minister of Foreign Affairs, signed a bilateral trade and investment framework agreement (TIFA). According to the Office of the US Trade Secretary, the agreement:

“…demonstrates the interest of both governments in advancing bilateral trade and investment ties and in working together in the spirit of friendship and cooperation. The TIFA creates a forum for the United States and Argentina to engage on a broad range of bilateral economic issues, such as market access, intellectual property rights protection, and cooperation on shared objectives in the World Trade Organization and other multilateral fora.”

Second, Argentina has recently struck a deal with the last bond holdouts, who have rejected previous settlement offers.

Argentina has agreed to a $4.65 billion cash payment to its main holdout creditors, which was approved by the Argentinian Congress.

However, individual savers, pensioners and small money managers in Argentina and around the globe have claims that add up to about $2 billion. But they are not eligible to get the same relatively generous terms struck in the $4.65 billion deal with the hedge-fund holdouts. Instead, they are subject to the public offer Argentina made to all bondholders last month. Pay-outs under that proposal would vary widely, based on which bonds are involved, whether the holder had a court judgment, and how the bonds’ interest accumulated. Some investors could receive up to 70% of their claims, while others could walk away with as little as 24 cents on the dollar, according to bond-research firm Exotix Partners.

Following on the heels of the $1.35 billion settlement announced by Argentina earlier this month with Italian “Abaclat” creditors, this latest news is quite interesting, especially when one considers that it has recently been reported that Argentina has only about $30 billion of foreign-exchange reserves.

These moves signify a significant change of attitude of the Argentine government vis-à-vis foreign investors and international financial institutions, such as the IMF.

The settlements could pave the way for new investments and new loans for Argentina. More generally, there is a now a window of opportunity for the new Argentinian government to seriously improve the attitude of the domestic courts and bureaucracy when it comes to the treatment of foreign investors and foreign awards. For example, Argentina has a questionable record when it comes to the execution and recognition of foreign awards.

If Argentina indeed changes in this direction unequivocally, it could again become an interesting investment destination in South America, in particular as an alternative to the currently very unstable situation in Brazil.

In short, Argentina could be back to business.

EFILA Nikos Lavranos

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