Investment funds have won two battles against Argentina in international courts within a week. In Wednesday’s ruling, a British judge found the South American state guilty of changing the mechanism for calculating gross domestic product (GDP) and, with this change, avoiding paying interest on debt linked to economic growth. Five days ago, a US judge sided with the plaintiffs in an open investigation into the takeover of oil company YPF, and deemed them vulnerable in an action for violating the company’s law. In both cases, these were cases motivated by economic decisions made during the Cristina Fernández de Kirchner era.
In his ruling, Judge Simon Picken of London’s High Court ordered Argentina to pay 643 million euros ($704 million) in damages and compensation to four plaintiff funds: Palladian Partners, HBK Master Fund, Hirsch Group LLC and Virtual Emerald International Limited. According to Reuters, the judge awarded Argentina about 1.33 billion euros ($1.46 billion) “in relation to all bonds linked to GDP, of which four funds hold approximately 48%.”
Funds criticized the Argentine government for changes to a financial instrument known as “PPI coupons”. It was launched in 2005 to replace defaulted bonds from a 2001 bankruptcy and was lured by paying bondholders a large sum if Argentina’s annual economic growth exceeded 3.2%.
Argentina’s remarkable growth in the first decade of the century made bonds an attractive asset. In 2012, GDP fell, but the following year, based on 1993 data, Argentina’s economy grew by 4.9% based on 1993 data based on the methodology in effect at the time the bonds were issued. However, the government changed the measurement system and with this new calculation, the increase in GDP was less than 3% and therefore, the projected $3,000 million was not provided.
The origin of the problem lies in the handling of official figures released by the National Statistics and Census Agency (Indec) between 2007 and 2015. The body intervened and since then it has started understating the inflation data. Reality. This statistical shift began to distort other metrics, such as poverty and gross domestic product, which stopped being published in 2013. In the latter case, statistics showed uninterrupted growth of the economy between 2003 and 2011, even in 2009, when the Lehman Brothers global crisis erupted, with an improvement of 0.5%. When the data was reviewed with the new methodology, Argentina’s GDP shrank 5.9% that year.
The plaintiffs argued that Argentina had a tendency to manipulate economic data to save millions of dollars. On the other hand, they ignored the fact that statistical fraud had benefited them in previous years by exaggerating GDP growth.
The Argentine state may appeal the sentence, but another similar complaint in the United States was filed by the Arellius Fund. The trial could begin later this year in New York’s Southern District Court.
Inquiry into acquisition of YPF
Last Friday, the court also ruled against Argentina in a case related to the expropriation of a 51% stake in YPF in 2012 when it was controlled by Spanish oil giant Repsol. Judge Loretta Bresca sided with Burford Capital, arguing that it was entitled to compensation from the South American state for “breach of contract”. This compensation must be settled in another judicial proceeding.
Burford accused the Argentine state and YPF of failing to comply with the oil company’s law, which requires buyers of more than 15% of the company to offer the same value to all shareholders and not just Repsol. The plaintiff alleged that the damage was caused by the government’s decision to suspend an agreed dividend transfer between the Spanish oil company and Argentina’s Peterson Group, which owned 25% of YPF, when it nationalized the company. That decision forced the Eskenazi family-controlled group of companies into bankruptcy. American Fund bought the bankruptcy proceedings of two companies, Peterson Energy Inversora and Peterson Energy, and filed suit in New York courts.
In his ruling, Judge Bresca found the Argentine state guilty but exempted YPF from liability. According to the plaintiffs, the compensation will fluctuate between 8,000 and 20,000 million dollars, which will cause significant patriarchal damage to the state.
Wednesday’s judicial backlash sent Argentine bonds plunging as much as 5% on international markets, although they eased as much as 2% by the end of the trading day. Country risk, which measures the difference in U.S. Treasury bond yields relative to other countries, was 2,432 points, up 3.4% from the previous day.
The rulings have dealt a blow to the ruling coalition, the Frente de Todos. The divestment of YPF in 2012 and the decision to change the way GDP was measured in 2014 were both taken during Kirchner’s second term. The former head of state, now vice president, is battling Alberto Fernandez in the face of Peronism’s candidacy for next October’s elections. It is Axel Kisillof, the current governor of the province of Buenos Aires, who, as secretary of economic policy, first and head of portfolio, played a key role in the condemned facts.
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