Latin America
2:30 pm
Fri June 27, 2014

Bitter Debt Fight Between Argentina And U.S. Set To Reach Climax

Originally published on Wed September 3, 2014 2:26 pm

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Transcript

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From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.

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And I'm Melissa Block. For most of the last 14 years, Argentina has been locked in a bitter fight over how much has to pay its international creditors. On Monday, that battle will come to a head. That's the deadline the U.S. Supreme Court set for Argentina to pay off some U.S. hedge funds that had bought its bonds. Argentina says the payments could ruin the country. NPR's Jim Zarroli explains.

JIM ZARROLI, BYLINE: This fight goes all the way back to 2001, when Argentina defaulted on tens of billions of dollars in government debt. Anna Gelpern is a professor of law at Georgetown.

ANNA GELPERN: This came after several years of recession, bank runs, a political crisis. This was an enormously tumultuous event.

ZARROLI: Argentina spent the next few years negotiating with its creditors. And by 2005, most of them had agreed to accept partial repayment. But there were hold outs, including American hedge fund billionaire, Paul Singer. And this year, the Supreme Court told Argentina it to pay them about a $1.5 billion by this coming Monday.

ROBERT SHAPIRO: The basic principle here is - uphold the law.

ZARROLI: Robert Shapiro is chairman of the American Task Force Argentina, which represents the holdouts against the government.

SHAPIRO: Her ability to put this off is now running out very quickly because of the decision of the Supreme Court.

ZARROLI: Argentina says a lot more is at stake here than $1.5 billion. If it's forced to pay off these hedge funds, other creditors will line up to be paid, too. And soon the country's foreign reserves will be depleted. Argentina's economy minister Axel Kicillof spoke at the United Nations on Wednesday. He's heard here through an interpreter.

AXEL KICILLOF: (Through interpreter) This places the country's economy at risk. So we have requested that the negotiation conditions be fair, equitable and envisage the interest - not of a small portion, but of 100 percent of bondholders.

ZARROLI: Over the years, Argentina's creditors have tried to attach some of the country's overseas assets, including its presidential plane. Anna Gelpern of Georgetown says such moves illustrate the bizarre nature of international credit. Investors can lend money to a government by buying its bonds. But if a government doesn't want to pay it what it owes, there's not always a lot creditors can do.

GELPERN: The name of the game has become creating as much hassle as possible for the government in its economic and financial dealings abroad.

ZARROLI: Argentina's creditors have responded by dragging the government into court. Just today, the government lost another ruling ordering it not to transfer money to a bank until it can pay all of its creditors. In turn, Argentina has refused to negotiate calling the holdout creditors vulture funds. Now time is running out. If Argentina can't pay what it owes by Monday, it will be in default. But it will have a 30-day grace period. And Diego Ferro of Greylock Capital Management, which owns some Argentine bonds, believes the case can be resolved.

DIEGO FERRO: I wouldn't be surprised - is that when we get close to the end of this, there is some compromise.

ZARROLI: Until then, Argentina remains frozen out of the credit markets. In the aftermath of global recession, Argentina needs to borrow money. And so it's under intense pressure to resolve the dispute. Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.