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Argentina’s government on Wednesday announced it was not going to deal separately with each of the U.S. hedge funds sitting on billions of dollars of its state debt, saying it was looking instead for a deal with all the bondholders, Reuters reported. In the past, similar initiatives by the Argentineans were met with rejection.
Argentina’s economy was in default one more time last month, when its government failed to reach a “haircut” deal with the funds, which are led by NML Capital Ltd and Aurelius Capital Management.
Argentina’s bondholders are suing for full payment.
On Wednesday, Argentina’s Senate Budget and Foreign Affairs Committees began a debate of a government-sponsored bill allowing for payment of the country’s creditors in a way that sidesteps U.S. court ruling banning Argentina from servicing performing debt until it pays the litigating funds $1.3 billion plus interest.
Economy Minister Axel Kicillof spoke before the committee, describing what he called the process of “over- indebtedness, ” initiated by the 1976-1983 military dictators, which left Argentina with a mountain of external debt it couldn’t possibly pay up.
Kicillof accused the International Monetary Fund (IMF) of making a bad situation much worse by forging a mechanism of “refinancing, ” “interests, ” and “covered capitalization, ” which only increased Argentina’s liabilities “without the entrance of genuine resources into de South American country.”
“Each of these refinancing processes were a show of humiliation for Argentina, because the impossibility to pay forced her to incur new debts, conditioning its economic policy on adjustment plans, ” Axel Kicillof said.
Kicillof complained bitterly that affirming this “over indebtedness” gave outsiders undue control over Argentina’s domestic policies, both with the 1976-1983 junta and the democratic governments that followed.
The process of piling on Argentina’s ever increasing debt, Kicillof argued, resulted in the 2001-2002 crisis and his country’s historic default.
He warned that the current pressure by hedge funds to collect the full amount Argentina owes would de-industrialize the economy, and bring on huge rates of unemployment.”
Meanwhile, Argentina’s currency on Wednesday fell to 8.41 Argentine Peso to the US, and central bank reserves fell to $28.5 billion.
Last week, President Cristina Fernandez announced plans to make debt payments locally, insisting on a drive to push bondholders to bring their debt under Argentine law.
Fernandez’s tough stance against the hedge funds, which she called “vultures, ” has been winning wide support among Argentines, but Reuters points to a second national strike that’s been scheduled for Thursday, saying it underscores the growing risk of social unrest, no matter how populist the president sounds these days.