Bloomberg News

U.S. Opposes Loans to Argentina to Force Debt Accord, Payments

September 28, 2011

Sept. 28 (Bloomberg) -- The U.S. is stepping up pressure on Argentine President Cristina Fernandez de Kirchner by seeking to halt development loans to the country and force her government to make payments owed investors and settle with holders of defaulted debt.

The U.S. voted against financing two projects for Argentina valued at a combined $232 million this month at the Inter- American Development Bank, a spokeswoman for the Treasury Department said yesterday. The Obama administration also plans to vote against additional lending from the World Bank, Marisa Lago, Treasury’s assistant secretary for international markets and development, told lawmakers last week.

While the U.S. alone can’t prevent the Washington-based institutions from making the loans, the move is the strongest to date against Fernandez, who polls show will win a second, four- year term in elections next month. It also responds to concerns of some U.S. lawmakers as Treasury asks Congress for $3.4 billion in foreign aid next year, including $357 million in additional capital for development banks.

“This is a very strong signal on the part of the U.S. that they are very unhappy with Argentina,” said Claudio Loser, an Argentine economist who oversaw Latin America at the International Monetary Fund from 1994 to 2002. It “will be seen positively in Congress.”

Budget Plan

Officials at Argentina’s Economy Ministry didn’t respond to e-mail and phone messages left by Bloomberg seeking comment.

Argentina, which has been locked out of international debt markets since its record 2001 default on $95 billion of bonds, is counting on about 15 billion pesos ($3.6 billion) of loans from international lenders in its draft 2012 budget, being taken up by Congress today.

Fernandez, who last year restructured $12.9 billion of bonds remaining from the default, has yet to reach a promised agreement over as much as $9 billion with the Paris Club group of creditor nations.

The U.S. also wants South America’s second-biggest economy to pay judgments ordered by the World Bank’s International Centre for Settlement of Investment Disputes, for companies including Azurix Corp., which specializes in water services and investment. The Houston-based company received a 30-year concession from Argentina in 1999 and is owed $235 million, including interest, for breach-of-contract, according to its president, Rod Castillo.

‘Rectify These Policies’

“Argentina has failed to honor its commitments as a member of the Group of 20 and its obligations to the IMF, the Paris Club and” the arbitration panel, Treasury spokeswoman Kara Alaimo said via e-mail. “We have consistently told the Argentine authorities that they must rectify these policies.”

Argentine Finance Secretary Hernan Lorenzino has said holders of $4 billion in defaulted debt are “vulture funds” pursuing litigation against the country, which he said has made a good-faith effort to address the default in two restructurings.

The IDB, where the U.S. has a 30 percent voting share, granted Argentina $1.2 billion of loans last year. That compares with $2.2 billion in the fiscal year ended June 30 from the World Bank, where the U.S., as the largest shareholder, has 16 percent of votes.

Loans pending approval at the IDB this year include $300 million to improve road infrastructure in the north of the country and $250 million for water and sanitation in the Buenos Aires metropolitan area.

Lago last week announced the new measures when the House Financial Services Committee’s panel that oversees development banks expressed concerns about Argentina not respecting its international obligations while continuing to receive funding from multilateral institutions. The U.S. won’t vote against projects that target poor and vulnerable populations, Lago said.

Capital Increase

The move is “a tactical decision” by Treasury, which is trying to secure backing from Congress for the capital increase of several development banks, including the IDB and the African Development Bank, said Whitney Debevoise, a former U.S. representative to the World Bank. Failing to obtain funding because of Argentina would hurt many other nations, he said.

“When you have the capital increases as an issue and you risk punishing every other country, you sometimes do what you have to do,” Debevoise, a senior partner at Washington law firm Arnold & Porter LLP, said in a phone interview.

Representative Don Manzullo, an Illinois Republican and member of the House Financial Services Committee, said Treasury has made “the right move.” He said he had asked Treasury to take a tougher stand on Argentina.

“I said ‘The World Bank’s not going to get replenished as long as Argentina continues to be in default and screw American investors, especially at a time when small businesspeople can’t get loans,’” Manzullo said in a phone interview yesterday.

Breached Contract

Azurix President Castillo also saw the decision as “a step in the right direction.” His company had its contract to provide water services in the Buenos Aires province breached in 2001. The arbitration panel ordered Argentina to pay Azurix $165 million plus interest in 2006.

Argentina has also run afoul of the IMF. The country is the only member of the G-20 that has refused to comply with an annual assessment of its economy by IMF staff. Nicolas Eyzaguirre, head of the IMF for Latin America, last week called on Argentina to improve its system for reporting inflation, which private researchers say doesn’t reflect price increases of as much as 25 percent per year. That compares with the 9.8 percent in August reported by the national statistics agency.

The U.S. might find allies in other Paris club members that are losing patience with Argentina, said Loser, who estimates Argentina can’t afford to lose the funding. Paris Club nations include Germany and Japan.

Guillermo Nielsen, a former Argentine finance secretary who oversaw the country’s defaulted debt restructuring in 2005, said other Group of Seven countries might follow the U.S. lead.

“This is neither pleasant, nor constructive,” Nielsen, now a consultant, said in an interview yesterday. “It will need to be resolved, it’s not something that goes unnoticed or that you can remain indifferent to.”

--With assistance from Eliana Raszewski in Buenos Aires. Editors: Bill Faries, Richard Jarvie

To contact the reporters on this story: Sandrine Rastello in Washington at; Eric Martin in Washington at

To contact the editors responsible for this story: Larry Liebert at; Chris Wellisz at Joshua Goodman at

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