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Argentina's Creditors Trying The Revolt
Financial Times Deutschland
February 17, 2010

Argentina's president would like to serve parts of its debt. Of all people, creditors are trying to prevent this with Germany's help.

By Max Borowski

In the end, the deciding factor will be how much money Cristina Kirchner allows to flow to Pampa. The two senators representing the Province La Pampa have so far refused to vote favorably on the president's plan to free up financial reserves to serve the country's debt. With 6.6 billion Dollars, Kirchner wants to serve the remaining debt stemming from Argentina's financial collapse of 2001. 35 senators are in favor, 35 have expressed their intention to vote no.

Just the two Pampeanos are reluctant. The Argentine media has been speculating that they want to extract maximum cash inflow for their province. Yet, of all people, there are some creditors, whom Kirchner wants to serve, are hoping that parliament will reject her overtures. "This is not a serious offer extended to the creditors", says Robert Shapiro, Director of the American Task Force Argentina, an association of private creditors. 6.6 billion Dollars are not sufficient.
Instead, Shapiro wants to force negotiations between Argentina and the creditors. He is being supported by the German Bundestag. "This issue also affects German creditors, in particular the interests of German taxpayers", says Petra Merkel (SPD), Chairwoman of the Finance Committee. According to calculations of the U.S. Task Force, German tax authorities stand to loose 1.5 billion Euros due to potential write off of those losses by German investors.

Shapiro is doubtful that Kirchner will actually use the Central Bank reserves to serve its debt obligations and not just to finance the current national budget. In this case, things will even get worse for creditors and Argentina from unsustainable budget deficits to double digit inflation in the country. Argentina's opposition echoes those concerns.

"We want a change in policy", states Shapiro and he believes to be able to force Kirchner in such a direction. Argentina needs access to the international capital market. This access has so far been denied due to the old debt. If she cannot access Central Bank funds, Kirchner will have to negotiate with the country's creditors, says Shapiro.

Even if the senators grant access to those reserves, Shapiro sees another way to stop Kirchner. "Argentina withdraws the majority of its reserves from foreign courts by parking those reserves with the Bank for International Settlements in Basel", mentions Shapiro. This 'misuse' this bank with is vital for the global financial system had to be stopped, Shapiro continues.

During a recent visit to Berlin, Shapiro found support for his plan. "We want to jointly investigate this with the Ministry of Finance", says Petra Merkel. If and how Germany could help to either freeze or confiscate Argentina's Basel reserves was not yet clear, Merkel mentioned. The BIS is steered by the Central Bank Directors of its member states, and those are even more difficult to influence then the senators from Pampa.

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