Search AOL Mail
AOL Mail
AOL Favorites

Argentina: Won't submit to 'extortion' on debt

By Michael Warren

BUENOS AIRES, Argentina (AP) - President Cristina Fernandez says Argentina can't possibly comply with U.S. court orders to pay $1.5 billion in cash to winners of a decade-long debt dispute, the position her country was left in Monday when the U.S. Supreme Court refused to hear her government's final appeal.

Delivering a nationally broadcast address Monday night, Fernandez expressed willingness to negotiate, but said there is simply no way that Argentina can pay in cash, in full, starting just two weeks from now, which is what the U.S. courts have ordered.

"What I cannot do as president is submit the country to such extortion," Fernandez said.

Under the U.S. court orders, Argentina must hand over $907 million to the plaintiffs, or lose the ability to use the U.S. financial system to pay an equal amount due June 30 to holders of other Argentine bonds.

Fernandez said the total owed to the plaintiffs is $1.5 billion including interest, and paying it all immediately in cash the way the courts ordered could trigger another $15 billion in other cash payments to the remaining holders of defaulted debt. That "is not only absurd but impossible," since it represents more than half the Central Bank's remaining foreign reserves, she said.

She repeatedly vowed to keep making payments on the vast majority of the country's performing debts, which are held by bondholders who agreed previously to provide debt relief that enabled Argentina to rebound from its economic crisis of 2001. Even if Argentina can't use the U.S. financial system to do so, she said, teams of experts are working on ways to avoid such a default and keep Argentina's promises.

Meanwhile, she suggested that she has a moral obligation not to make the court-ordered payments to NML Capital Ltd. and other investors she calls "vulture funds."

"It's our obligation to take responsibility for paying our creditors, but not to become the victims of extortion by speculators," Fernandez said.

The president said her government has repeatedly shown its willingness and ability to negotiate debt accords, and called on her countrymen to "remain tranquil" despite the Supreme Court loss. "It was known that this would happen," she said.

Earlier Monday, the markets reacted in fear that Fernandez would take just such a stance. Argentine stocks plunged as economists, analysts and opposition politicians practically begged her to comply.

The justices not only rejected Argentina's appeal without comment - they also ruled 7-1 that bondholders could force Argentina to reveal where it owns property around the world. That could make it easier to collect on other debts that have gone unpaid since Argentina's economy collapsed.

Justice Antonin Scalia wrote that U.S. federal law offers no shield to Argentina's assets. Justice Ruth Bader Ginsburg worried that this could expose even its embassies and military ships to seizure if the government doesn't pay.

"This is the end of the line for Argentina in the judicial appeal process. It has nowhere else to turn," said Richard Samp, a lawyer for the Washington Legal Foundation who lobbies for plaintiffs that included NML Capital Ltd., the hedge fund owned by New York billionaire Paul Singer.

Argentina could win a delay of a few weeks by asking for a rehearing, but they are almost never granted.

Bowing to the U.S. courts would force Fernandez to betray a pillar of the government that she and her late husband and predecessor, Nestor Kirchner, have led since he won the presidency in 2003: That Argentina must maintain its sovereignty and economic independence at any cost.

In addition, Fernandez said, there's near certainty that the 92 percent of creditors who accepted new bonds at steep discounts years ago - debt now totaling at $24 billion - "will find a judge who will tell them that they, too, have the same rights," leading to "the more than certain possibility that the economy will crash."

Refusing to comply could win applause from her core supporters, because paying the plaintiffs 100 percent plus interest in cash would mean sacrificing the subsidies and populist programs that enabled her to win re-election by a landslide.

But while she and NML Capital's owner, New York billionaire Paul Singer, jockey for any remaining advantage ahead of the inevitable negotiations, Argentina's immediate economic outlook seems grim, analysts say.

Argentina's Merval stock index dropped 11 percent after the court decision, its largest one-day loss in more than six months. Share prices for the state-run YPF energy company fell nearly 13 percent, while the Edenor electricity utility plummeted 20 percent. The cost of insuring Argentine bonds against default soared, and the value of Argentina's currency plunged to 12 pesos to the dollar on the black market, implying a 33 percent loss to anyone needing to buy foreign currency legally.

Refusing to comply was "the best option" among a series of grim alternatives that Cleary, Gottlieb, U.S. law firm representing Argentina in Washington, presented to Fernandez ahead of the Supreme Court decision.

Fernandez will pay a steep political price by paying off the winners, but doing so will lower Argentina's country risk, restore foreign reserves and prevent the recession from worsening, said Miguel Kiguel, a former deputy finance minister and World Bank economist in the 1990s who now runs the Econviews consulting firm.

Defiance "would be very damaging to the Argentine economy in the near future," he said.

Join the discussion

1000|Characters 1000  Characters
jimbon88 June 17 2014 at 7:19 AM

Another example of failed Socialist policies. When will these progressives loons in the US learn?? Vote for the American way in 2014 and 2016. No democrats!!!

Flag Reply +45 rate up
19 replies
taostop June 17 2014 at 10:36 AM

Current Government and Cultural Environment:

1. We are advised to NOT judge ALL Muslims by the actions of a few lunatics,
but we are encouraged to judge ALL gun owners by the actions of a few
lunatics. Funny how that works.

And here's another one worth considering.

2. Seems we constantly hear about how Social Security is going to run out of
money. How come we never hear about welfare or food stamps running out of
money? What's interesting is the first group "worked for" their money, but
the second didn't.

Think about it..... Last but not least

3. Why are we cutting benefits for our veterans, no pay raises for our
military and cutting our army to a level lower than before WWII, but we are
not stopping the payments to illegal aliens. This is what illegal's receive
monthly, $1500.00 per child, $500 for housing, Food Stamps, Free education
including college and the right to vote.

Am I the only one missing something?

Flag Reply +36 rate up
14 replies
BeagleDawg June 17 2014 at 6:47 AM

Paying your bills is not extortion. What kind of loon do they have for President. Does she think that buried money never has to be paid back. She thinks like a Democrat.

Flag Reply +33 rate up
6 replies
BeagleDawg June 17 2014 at 6:45 AM

Same position the United States will be in after a few more years of running up the national debt and China decides it wants to sell their bonds. There is a lesson to be learned. When a country tries to spend its way to prosperity this will happen.

Flag Reply +27 rate up
1 reply
wwelbes BeagleDawg June 17 2014 at 8:17 AM

Actually the facts prove you wrong. The debt as a percentage of GDP was actually much higher under Regan. Second debt levels are decreasing and the deficit has been reduced in each of the last four consecutive years. Third the largest holder of US debt is the US government. Third we currently make a profit off of the debt that we have sold. All the facts prove you are wrong.

Flag Reply +13 rate up
14 replies
Lynn1964 June 17 2014 at 3:59 AM

Same boat U.S. will be in when China demands we pay them what is owed.

Flag Reply +17 rate up
2 replies
ranger197172 Lynn1964 June 17 2014 at 10:45 AM

Well obama has lied to everyone so we should declare bankruptcy on our loan to China and deliver obama to them.

Flag Reply +14 rate up
2 replies
Alexis Elizabeth ranger197172 June 17 2014 at 12:13 PM

So did George W. Bush and his bunch of cronies!!! Lied us right into 2 unpaid wars!!!

Flag +7 rate up
Bill ranger197172 June 17 2014 at 7:45 PM

.... including the current and former Secy of State. Each of them (Kerry and Clinton) supported the prior engagements in war and lied to us about our objectives there. Don't trust 'any' democrat.

Word to Alexis: G.W. didn't lie to us about the consequences of abandoning our commitments in Iraq. Did Obama lie to us when he said the wars in Iraq and Afghanistan were now over? Did he hold to his commitment to not send troops back into Iraq? Circumstances change... Now we have a new liar in charge (apparently).

Flag 0 rate up
juststeve35 Lynn1964 June 17 2014 at 3:35 PM

1. US Debt held by China is $1.37T as of January.

2. Last year the US spent almost 3 times that amount.

3. Total US Revenue is approximated $2.9T, or more than twice what China holds.

Just like Argentina's debt to these bond holders, the China held US Debt is easily covered if called up.

Argentina has more than the needed revenues and assets to pay this bill and just SHOULD already..

Flag Reply +2 rate up
rauleballie June 17 2014 at 6:43 AM

I understand that there is many that will say the big bad USA, I say it is time that the world understand that they NEED TO PAY US BACK, welcome to the real world, that is how we got where we are, Just remember most of Europe has gotten away with not paying back and deflating, many times and we held the empty bag, no more world

Flag Reply +12 rate up
5 replies
Your Excellency June 17 2014 at 11:10 AM

The story says about Argentia's president: "Refusing to comply could win applause from her core supporters, because paying the plaintiffs 100 percent plus interest in cash would mean sacrificing the subsidies and populist programs that enabled her to win re-election by a landslide." Aren't liberals cute? They borrow money for social programs, bankrupting thier economy, then refuse to meet their legal obligations to pay back what was borrowed. All they want is to win elections. Morals, law, and wellbeing of the country is never in play.

Flag Reply +10 rate up
bottomtime321 June 17 2014 at 9:20 AM

Spending your way to Prosperity, works every time!

Aren't Democrats and Socialism great?

An Obama Phone anyone?

Flag Reply +9 rate up
apoloniaco June 17 2014 at 11:33 AM

The best she can do is blame the US for their own economic programs and economy. She also forgot that she can use the $400.000.00 payment from Hugo Chaves that was confiscated in the Buenos Aires airport to help pay down their debt!

Flag Reply +5 rate up
albatroll June 17 2014 at 7:57 AM

We probably give them that much in aid every year. They borrowed the money, they need to pay it back. No one held a gun to their head when they agreed to the terms of the loans. I want to call everyone I owe money and tell them I will not be coerced into paying them back. I'm certain that will get me out of debt.

Flag Reply +4 rate up
aol~~ 1209600



World Series

More From Our Partners