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Why a New York judge holds Argentina’s economic future in his hands

July 29th, 2014
03:57 PM ET

By Mick Krever and Ken Olshansky, CNN

A country that just weeks ago was at the heights of world cup fever could be facing an economic crash.

But this is not a case of ill-advised economic policy or financial malfeasance.

Indeed, economic journalist Felix Salmon told CNN’s Hala Gorani, in for Christiane Amanpour, it is a crisis that appears to be unprecedented.

“Inflation is high, unemployment is bad, but we’re not anywhere close to Armageddon,” Salmon, senior editor at Fusion, said.

“Argentina has the means to pay its debts and it has the willingness to pay its debt. The only reason why it’s not paying its debts is because the U.S. courts aren’t allowing it to do so.”

You would be forgiven for doing a double-take there. Yes, a U.S. Federal Court in New York may cause Argentina, a hemisphere away, to default on its debts.

A billionaire American investor, Paul Singer, holds a large amount of Argentine debt, which he bought up after Argentina’s last financial disaster, a decade ago.

In negotiations over how much of its debt Argentina could afford to pay back, Salmon said, all the other people and organizations that held Argentine debt agreed on a middle ground, taking some fraction of the bonds’ face value.

But Singer, Salmon said, is demanding the full value of the debt, and a New York judge, Thomas Griesa, agreed with him.

“He has ordered the Bank of New York” – which is holding the money Argentina is willing to pay back – “not to pay a penny to any of the bondholders unless and until Paul Singer, the vulture investor, the hedge fund investor, gets paid off in full the one point five billion dollars that he’s owed.”

The result is that Argentina cannot make any deal, and will likely be forced to default tomorrow, Wednesday, when a grace period to pay back its debts expires.

“We’ll have an official default tomorrow, and then everyone will be in default. Paul Singer has been in default for a decade now, basically, and now everyone else will be in default as well. So it will, to use a technical term, be a mess.”

At the center of it all, he told Gorani, are “two incredibly strong personalities.”

“Cristina Fernandez de Kirchner is this hard-charging, populist, woman of the left, champion of her people, who has made a political career in large part out of demonizing what she calls the ‘vulture funds,’ who are epitomized by this man, Paul Singer, multi-millionaire hedge-fund manager who bought up Argentine debt at pennies on the dollar and now wants to get well over face value for his debt.”

Argentina, of course, has defaulted before. But in 2002, Salmon said, it was because it simply did not have the money to pay off its debts.

Now, we are in “completely uncharted territory,” where a judge – not the markets – will determine Argentina’s economic future.

“Argentina has defaulted before. Virtually every other country in Latin America has defaulted before. The bond markets and the international capital markets know how to deal with sovereign defaults in principle and in general.”

“But this one is so different because it’s entirely a U.S. jurisprudential issue.”


Filed under:  Argentina • Latest Episode
soundoff (28 Responses)
  1. Ricardo

    So, please let me understand this...I'm a bit slow today
    – Argentina needed money in 2002
    – This guy Paul Singer lent them the money they needed
    – Now in 2014 Argentina say they will pay this guy Singer not the amount they owe him but whatever they want
    – Singer is a bit "upset" by this
    – Argentina says he is the bad guy because he wants his money back
    Honestly, can some one explain to me why people keep giving money to these autocratic governments from Latin America?
    Thanks

    July 29, 2014 at 7:24 pm | Reply
    • J. Brozic

      You should have read the article more carefully, because you got a lot of it wrong.

      July 29, 2014 at 8:11 pm | Reply
      • Ricardo

        Thanks Brozic
        Could you please let me know what did i get wrong?
        Cheers

        July 29, 2014 at 8:52 pm |
    • Pato

      Ricardo, making any comments, please inform yourself. You are passing judgement without knowing.
      Mr Paul Singer bought Argentinean debt bonds from the banks at a ridiculous price. Banks wanted to offload them because they thought it would be difficult to get any money at all. They rather sell at a much much lower price to a vulture fund. (ie: 1 cent in a dollar). Now this funds have taken the Argentinean government to court and a judge said Argentina needs to pay the full amount owing. This particular fund didn't accept the deal the Argentinean government offer in the 2000's of 35c in a dollar which was achievable and viable.
      Now if you question the debt, maybe past government were irresponsible accepting advise from IMF and borrowing more that they could pay back. I also remind you banks were lending money to Argentina at 20% annual interest in the late 90's and early 2000's. If it was you own home mortgage, could you have repaid at that high interest?Answer is probably not!

      July 29, 2014 at 9:55 pm | Reply
      • Ricardo

        Pato, so you are saying that the banks put a gun in Argentinans officials and made them accept the terms of a loan? That is really unacceptable!!!
        And yes, thanks I understand now how it works: I can borrow money and agree with the terms of the loan and then later on I can say that it was unfair and decide not to pay what I have agreed on the first place
        Thanks again Pato for illustrating me

        July 30, 2014 at 12:01 am |
      • Macanao

        I don't get it. Why didn't the Argentinian government just from tell singer from the beginning that they were only going to repay him later a fraction of the agreed amount? Was it perhaps because then singer wouldn't have been interested in lending them the money? Would any of you blaming the U.S. accept being paid a fraction of the money someone owes you, just because it's more convenient for the other person?

        July 30, 2014 at 11:05 am |
      • Truth

        Ricardo is correct. If the deal is lousy then don't take it. Nobody forced anybody to do anything. Crying "unfairness" is not a reason to let this go and accept their pennies on the dollar payment. Good for Paul Singer to have found a great deal and taken it. Argentina needs to learn a lesson. If you accept the terms the PAY UP.

        July 30, 2014 at 12:59 pm |
      • Seba

        Excellent Pato. CNN show there case oficial Argeentina with an obvious buitre's point of view, they are not objetives. CNN SHUOLD INFORMATE WITH THE TROUTH; NO T PAYED BY BUITRES.

        August 3, 2014 at 9:04 am |
    • SC Wood

      Singer did not lend money to Argentina. He bought up bonds on the open market at distressed prices.

      Argentina, in fact are offering him more money than he originally paid for the distressed debt- a lot more.

      July 30, 2014 at 10:17 pm | Reply
  2. SpartanChief

    BECAUSE MORE RISK MEANS MORE RETURN FOR SINGER. INVESTORS LIKE HIM KNOW HOW TO DEAL WITH RISK AND RETURN OVER TIME, AND HE HAD BEEN ENJOYING RECORD RETURNS WHEN COMPARED WITH OTHER SIMILAR INVESTMENTS ON THE REGION. HE FORGOT TO ASSESS THE SITUATION AND FLY TO QUALITY OR OTHER INVESTMENT. IF YOU PLAY WITH FIRE, YOU CAN HAVE FUN BUT YOU MAY GET BURNED.

    July 29, 2014 at 8:19 pm | Reply
  3. Enrique Vignola

    The Argentine economic future is in hand of a corrupt and liar government of Cristina Fernandez, not judge Griessa. Mr. Salmon: Argentina is strongly in front of the Armageddon: inflation, recesion, unemployment, poverty, miserable retirements, increasing climate of social and personal insecurity, curruption from Vice President to dozen of public servants ... and a seriusly political and social unstable situation. Today Argentina is in bankrupt that it was in 2001, no penny cash in the Central Bank. That's the true about my country. Nobody must to tell pink stories in front a so dramatic situation.

    July 29, 2014 at 9:11 pm | Reply
    • Seba

      Se nota enrique que sos anti K, consumidor de TN y de Lanata, fíjate un poco lo s logros de este plan de gobierno para que los 40millones de argentinos sigan progresando a corto y largo plazo. Mientras haya usureros y jueces fieles a ellos, los pueblos van a estar en problemas, hace falt dirigentes con convicciones 'populares' para defender a los pueblos contra los inttereses capitalistas extremos.

      August 3, 2014 at 9:14 am | Reply
  4. Josh

    This actually IS a case of ill-advised economic policy and financial malfeasance. That's Cristina Kirchner for you

    July 29, 2014 at 11:00 pm | Reply
  5. miss snow

    Again another consequence of American's foreign policy this time back from the 70's.
    How much a better 'invasion' than creating a financial dependency of a very resource rich country.
    Well there you go news speak for themselves. This is what US has been capable of doing with their foreign policies.
    USA The upmost evil ever.

    July 30, 2014 at 3:04 am | Reply
  6. poncho

    Miss Snow I am not particularly fond of the U.S, I presume you are really pointing the finger at them, but I think you are exaggerating their responsibility in this mess. The previous government of Argentina must take the blame, with corruption, money laundering rampant among the rulers. If the U.S and IMF were responsible for this mess then how could a country like Uruguay be poles apart from Argentina economic wise. Has to do with proper governance, ethics and some intelligent planning don't you think?

    July 30, 2014 at 4:14 am | Reply
  7. KarenP

    This is the worst written article I have ever read. It is a total lie. I wish Amanpour were the writer, she would never allow such a thing under her name. Argentina's President is a well known bipolar thief, who refuses to abide by any law and has been robbing her people by any decency to her own private will. I really never, ever thought that Ii could read on CNN any article with such a tremendous amount of misinformation. The reporters should at least try to read Argentinians newspapers for the week. Am sorry for CNN and Americans am being one if you are the guys we have to count on for news.

    July 30, 2014 at 10:03 am | Reply
    • Ken

      Paul Singer called, Karen. He won't be needing his comment board trolls anymore, and wants his money back.

      July 31, 2014 at 8:40 pm | Reply
  8. KarenP

    And I forgot to mention, Argentina's government at some point in time chose the US Court in a contract's clause as the court of jurisdiction for any disputes. Will give you an example, I have been in international commerce for 30 years and I use the Court of Hague for disputes, even if the judge may not like my brown eyes. We make choices and then we have to live with them in every instance of life, not only when they are favorable to us and we all know it.

    July 30, 2014 at 10:19 am | Reply
  9. Socrates1947

    Lesson to be learned: Let countries like Argentina borrow money from the BRICS countries. We'll see how those nations handle it.

    July 30, 2014 at 11:46 am | Reply
    • Ken

      Why? Singer never lent Argentina a dime; he bought his Argentine bonds from resellers for $48 million, and expect to be paid over $800 million – or $1 billion in CDS default insurance, which thanks to Judge Griesa he now has a shot at collecting even if it means stopping payment to legitimate bondholders (which Argentina has been paying in full and on time).

      It's illegal to buy bonds with the intent of suing for more later on; but where there's a will there's a bribe, and a Wall Street judge happy to take one. I guess the $7 billion in TARP funds he weaseled Uncle Sam out of wasn't enough for Singer – or his Cayman islands clients (such as Mitt Romney).

      July 31, 2014 at 9:18 pm | Reply
  10. elpitucaselacree

    No one is defaulting. Although it is definitely an accurate term if a country refuses to pay for a debt this definitely won't stop any of the Argentina's actual allies to continue to work together. They'll continue to invest on the country, working their way into Vaca Muerta oil's reserve and support Argentina's affiliation to BRICS.

    July 30, 2014 at 12:29 pm | Reply
    • KarenP

      First,"BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China, and South Africa. The grouping was originally known as "BRIC" before the inclusion of South Africa in 2010." " The term, "BRICS", was coined by economist Jim O'Neill in his publication, Building Better Global Economic BRICs." Having this clear, Argentina does not fit the group. It is out by default. Actually, South Africa got in because Africa as a continent needed to be included in the group and South Africa was geopolitically the country that best fit. Now, the BRICS have just decided to form their development bank to help themselves with their countries infrastructures and possibly with other countries as well. People who have never seen with their own eyes may not understand what is a country with over 1.2 billion people like India and over half a million of them without basic living infrastructure such as a bathroom. And am not talking about it in a disrespectful way, am saying as it is and that is why the country and the people are working hard and uniting with other developing countries to build their infrastructure because if they are to wait for the help of the developed part of the world they might as well drop dead and let the developed North keep using 70% of the energy of the world and come down complaining that Brazil is destroying the Amazon after over hundreds of years the US destroyed what used to be barrier islands. But, let's not make the subject complicated since we have to basic and our reporters can not even get one topic straight imagine two.

      July 30, 2014 at 2:30 pm | Reply
  11. kissorkick

    This is crazy. You work less but earn more though legitimately, and then the once distressed friend comes back crying foul though morally?
    See why I prefer Theonomics(God's way of doing business) to. economics?

    July 30, 2014 at 12:39 pm | Reply
  12. Prof M H Settelen

    This file must be immediayely sent to Basel, viz: the BIS, where some Nobels in Economics or @ least those with an Actuarial mind ban make a numerate judgement; which will free up the NewYorkers to flee to the Catskills!

    July 30, 2014 at 7:58 pm | Reply
  13. Ken

    Please ask that Russian hyena to ease up on her coke habit, CNN.

    This is not default, it's a Griefault. Argentina's bondholders have been collecting on time and in full since 2005, and won't now thanks to a stop payment ordered by a bribed judge, Thomas Griesa, in direct violation of Article 489 of the New York Civil Code.

    Paul Singer, who's been scamming countries and companies such as Delphi Automotive for years, bought his Argentine bonds for 10 cents on the dollar in 2008 (not 2002), and from third parties (not Argentina). He bought them, moreover, using his Cayman Islands laundry, NML Capital (which helps deadbeats like Mitt Romney and numerous kingpins evade altogether an estimated $3 billion a year). This is the same Paul Singer that was bailed out with $7 billion in TARP money after holding Delphi corporate bonds hostage, and of course never paid a cent back.

    And that's basically what he's doing now: holding the bondholders hostage until Argentina pays him over $800 million for bonds he bought for $48 million (a 1600% return). He could accept Argentina's offer of a market price payout (just like everyone else), and still clear over 300% profit; but why, when he has the judge with jurisdiction over these bonds in his pocket – to say nothing of the fact that Singer has at least a $1 billion in CDS default insurance against these bonds (which is llike setting a fire for the insurance).

    With another congressional debt ceiling fight coming up in March, guess what Singer's plans for the U.S. bond market are?

    You guessed it: a Griefault.

    July 31, 2014 at 8:36 pm | Reply
  14. Craig

    Right on Ken! Thanks for setting the record straight.

    August 2, 2014 at 9:37 pm | Reply
  15. Miller

    Is the Bank of Mellon New York a fefault to?

    August 5, 2014 at 8:17 am | Reply
    • Steve

      I agree, they haven´t paid the interests of my Argentina Bond which were paid by the Argentina State to them.

      August 5, 2014 at 8:22 am | Reply

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