Brazil & Southern Cone - July 2013 (ISSN 1741-4431)

Expressions of South American unity were very much the fashion at the latest summit of the Southern Common Market (Mercosur) in Uruguay on 12 July. Regional leaders vied to demonstrate the greatest outrage over the refusal of various European countries to allow the Bolivian presidential plane travel through local airspace on the erroneous belief the fugitive US intelligence whistleblower, Edward J. Snowden, was on board. President Cristina Fernández had good reason to issue a statement of solidarity. “I am going to be extremely sincere,” she said. “I cannot fly to some countries in Europe with my presidential airplane, because there might be a judge who will issue a seizure order after a ‘vulture fund’ request.” Over the weekend, however, it emerged that the US government is now considering backing Argentina in its battle with the said ‘vulture funds’.

Tango 1, the presidential jet, has since little action since the Ghanian authorities impounded the Libertad, an Argentine frigate and navy training vessel, on a visit to the West African country late last year, following a request by Argentina’s hold-out bondholders to a local judge. The frigate’s subsequent return to Argentina, after it was freed by the UN International Tribunal for the Law of the Sea, was celebrated with fireworks, flypasts and a bout of nationalistic speechifying.

Since Argentina restructured its debts following its default in 2002, a number of US hedge funds, led by Paul Singer of Elliott Capital, have refused the terms of the deal and have been battling in US courts to force the country to pay up. Lately, the battle has been going the investors way, with Argentina losing repeatedly in the US lower courts, and being ordered to place US$1.33bn in an escrow account to pay its debtors. However, a new ruling is expected by the 2^nd US Circuit Court of Appeals soon; in the meantime Argentina has requested the US Supreme Court examine the issue (which it will only consider following the lower court’s ruling).

Battle moves to Washington

On 13 July, The Washington Post reported that the US Barack Obama administration was now considering whether to weigh into the battle on Argentina’s behalf. The day before, US Justice Department officials met lawyers from both parties. According to the report, the department is now considering whether to file a brief at the US Supreme Court focused on defending the concept of sovereign immunity, which gives nations protection from lawsuits.

Politics complicate the judicial principle. Singer, who is spearheading the investors’ efforts, is a major donor to the US Republican Party (GOP). The bondholders have also launched a massive PR campaign, highlighting Argentina’s relationship with Iran and questioning its commitment to combatting drug-trafficking. Congressmen from both sides of the house have been drafted in to help sway the government. Argentina and its allies label the investors ‘vulture funds’ seeking massive financial gains at the expense of an impoverished country. Anti-poverty campaigners have sought to make an issue of the principle, arguing that poor countries should be able to restructure their debts without fear of expensive lawsuits.

• German courts reject bondholders

The same arguments that proved effective in the US courts fell on deaf ears in Germany. On 11 July, the German courts rejected a petition from bondholders based on the same interpretation of the ‘pari passu’ clause the hedge funds used in New York. The ‘pari passu’ clause was interpreted by US courts as meaning that Argentina could either pay all its bondholders or none, but could not pay only those who cooperated with the 2005 restructuring and ignore the rest.

German bondholders, identified under the name 'Laxhuber', had recently managed a favourable judgement for the payment of EUR1.5m plus interest, but their demands for additional payments were rejected by the courts. END BOX

• Blue dollar rises again

After several months in abeyance, the market for the so-called ‘blue dollar’ – the unofficial exchange rate, started to take off again in July. On 15 July, it reached Arg$8.58/US$, pushed by a higher demand due to the beginning of the winter holidays in Buenos Aires. The official rate isaround Arg$5.4/US$.