| BUENOS AIRES, Sept 11
BUENOS AIRES, Sept 11 Argentina's Congress
approved a debt swap on Wednesday offering an unlimited time
window for the remaining 7 percent of investors to restructure
bonds left over from the country's 2002 default.
The exchange offer follows years of lawsuits stemming from a
debt crisis 11 years ago that pushed millions of middle-class
Argentines into poverty. Latin America's inflation-hit No. 3
economy remains vulnerable to legal fallout from the crisis.
Not all of the remaining holders will participate in the
swap and opinion is divided on whether the legal showdown, which
could end up before the U.S. Supreme Court, threatens to
undermine future restructurings worldwide.
The terms of the swap are in line with Argentina's 2010
restructuring offer. In that and a previous 2005 debt exchange,
93 percent of holders swapped their defaulted bonds for new
paper offering less than 30 cents on the dollar.
The 2005 and 2010 restructurings offered limited time
periods for participation, a point that U.S. judges have
complained about as they deliberate what to do with "holdout"
investors suing for 100 cents on the dollar.
"A handful of speculators cannot go against the will of the
Argentine people," lower house Chamber of Deputies member Carlos
Heller said before it voted 192-33 to approve the debt swap. The
bill had already passed the Senate and is now considered law.
The core holdout investors have signaled that they will not
participate in the debt swap. Ignacio Labaqui, an analyst for
emerging markets consultancy Medley Global Advisors, said the
offer was a good move for Argentina nonetheless.
"The holdouts that have sued Argentina and may be getting
close to a legal victory have little incentive to accept an
offer cast in terms that they have already rejected," he said.
"But other holdouts might accept the proposal. This would
increase the acceptance rate to above 93 percent and that would
be positive for Argentina, although it is uncertain if it would
strengthen the government's case in the U.S. courts," he said.
A U.S. federal court judge has ordered Argentina to pay
$1.33 billion to the holdouts. Argentina is appealing and the
U.S. Supreme Court will meet behind closed doors on Sept. 30 to
decide whether to hear the case.
The holdouts' case rests on the principle of equal
treatment, known as parri passu. The federal judge ruled
holdouts should be paid at the same time as investors who
restructured their bonds.
So if Argentina ends up losing in the U.S. courts and sticks
by its pledge never to pay the $1.33 billion, it would likely be
blocked from paying the 93 percent of investors who restructured
their bonds in 2005 and 2010.
That would mean another default for Argentina at a time when
its economy is already hobbled by inflation clocked by private
analysts at 25 percent, one of the world's highest rates.
The International Monetary Fund has voiced worry that a
ruling against Argentina would make it more difficult for other
countries to restructure their debt in times of economic crisis.
Holdouts call that an exaggeration given the near universal
use of collective action clauses in new bond deals saying that a
minority of investors would not be able to holdout if a
super-majority of creditors agree to restructure.
The defaulted bonds did not have collective action clauses,
thereby allowing investors such as NML Capital Ltd, a unit of
Paul Singer's Elliott Management Corp, and Aurelius Capital
Management, to press for payment in full.
President Cristina Fernandez calls these holdouts "vulture
funds," accusing them of exploiting Argentina's catastrophic
2002 financial crisis.
"They bought these bonds for almost nothing. Can anyone
explain to me why they should be rewarded with such astronomical
returns?" she said in televised comments on Wednesday.