The Strategist

The US Is Cultivating International Contacts: Argentina Is Next After Cuba and Moscow

03/25/2016 - 14:07

US Justice Department said that the authorities are interested in speedy settling disputes with Argentina relating to the default of 2001. After that, the US Court of Appeals sided with Buenos Aires and besieged creditors.

Judging by recent events, Washington began a large-scale policy aimed at easing of the US relations with other countries. Barack Obama is restoring relations with Cuba completely stopped a few decades ago. Secretary of State John Kerry after a dialogue with Sergei Lavrov in Moscow said that he started to better understand the decision of Russian President Vladimir Putin in combating global terrorism. Kerry is also advocating resumption of normal dialogue with Moscow on other issues.

Now this series of unexpected solutions is followed by possible completion of a financial dispute with Argentina. After the Island of Freedom, Barack Obama went to Buenos Aires, which no American president had visited for 20 years. Experts claim: new Argentine leader Mauricio Macri is very inclined to engage in dialogue with the West, in contrast to his predecessor Christina de Kirchner.

In 2001, Argentina defaulted on government bonds at $ 100 billion, which was one of the largest sovereign bankruptcies in the whole history of finance. The initial panic was very serious: it was in Argentina where the modern concept of bank runs emerged (raids on banks committed by local people). Enraged investors with baseball bats and Molotov cocktails were trying to get back their money, and banks were protecting themselves with steel shutters and special forces units.

When the panic subsided, Buenos Aires did not ask for the full debt forgiveness, but said instead that will return the money step by step. Still, better than nothing. Yet, there still were dissatisfied, because some lenders would inevitably be in a priority, and many would not receive the money. As a result, a group of foundations led by Paul Singer of NML Capital filed a class action lawsuit, and ensured that was Argentina banned to repay debts in installments. The country also has no right to go to the government bonds market with the aim of raising funds for the repayment of old debts. Simply put, Argentina is in limbo.

In late February 2016, Buenos Aires offered a large payment ($ 4.65 billion) and almost immediately increased the amount to $ 6.5 billion. However, the funds once again quarreled over the sequence of receiving the funds. Firms not included in the priority list blocked the payments again.

President Mauricio Macri is trying to restore financial ties with the Western world, broken 15 years ago. Argentine Parliament should vote on the new draft debt repayment on March 30. Press service of the White House announced that Argentina has already taken very important steps to normalize relations with creditors. It seems that the joint pressure of Barack Obama, the US Ministry of Justice and the Federal Court of Cassation will finally stop the dispute continued for over 12 years.