Guillermo Nielsen, Argentina’s finance secretary during that country’s endlessly-drawn-out
debt exchange, has the cover story of Euromoney
magazine this month. (Sorry, it’s behind a subscriber firewall.) "Nielsen
reveals all," says the headline, which might be over-egging the pudding
a little, but the story is a lively enough read all the same.
Surprisingly few people get name-checked in the article, which I hasten to
say I had nothing to do with. Love goes out to Argentina’s lawyers, Cleary Gottlieb;
hate goes out to Anne Krueger and Domingo Cavallo. But whole fraught episodes,
such as the deal delay when Bank of New York mysteriously dropped out of the
deal and then came back in again, are conspicuous by their absence: the true
inside story of the Argentine debt exchange has yet to be written.
Nielsen is at his juiciest when he’s attacking the IMF:
Naively, I expected IMF missions to arrive in Argentina with a set of well-developed
suggestions successfully tested in previous economic crises elsewhere. That
was not the case. Evidence of an accumulation of knowledge from previous crises
was non-existent and, on top of that, there was no awareness – or even
concern – for the institutional constraints under which we were forced
to operate. Most of the IMF officials we had to deal with in those early days
found it difficult to distinguish between running an Excel spreadsheet and
running a country.
He’s also interesting on the way that Argentina initially managed to circumvent
the IMF by appealing directly to its board – a tactic which involved the
expenditure of a lot of time and energy and political capital in the service
of something (Fund support) which Argentina ultimately decided it didn’t need.
One noteworthy part comes in a sidebar about a presentation Nielsen gave to
an audience of 1,300 retail Japanese investors in 2002:
I had made my presentation when an elderly Japanese lady stood up to ask
me a question. I was told that it’s rare for Japanese women to speak
in public, so I was surprised when this happened. She said she was 83 and
that she had put all her life savings in Argentine bonds. She said she just
wanted to ask me one thing: “Can you pay me before I die?” I felt
heartbroken.
Later I had a discussion with some of my G20 colleagues about the possibility
of paying more to retail investors and less to institutional – it was
something we were keen to do – but we were told not to do it, that it
broke all the rules, so it never happened.
It’s interesting to me that Nielsen looked for advice to his G20 colleagues,
rather than to capital-markets professionals. They seem to have agreed that
discriminating between different types of bondholder was not a good idea: Ecuador
tried that, once, and very quickly regretted it.
But if Nielsen really wanted to help out retail investors, he could have done
much more for them than he did. Most notably, he could have extended the period
during which bondholders could tender their bonds. Towards the end of the tender
period, when it became clear that the deal was going to have the critical mass
needed to go ahead, many retail investors tried to enter into the exchange but
were rebuffed by their banks, who didn’t want to run the risk of not getting
the bonds in on time. Everybody in the markets expected an extension of the
deadline, but none was forthcoming, despite the fact that such an extension
would have both made the deal significantly more successful and would have benefitted
mainly retail investors. To this day, it’s very unclear why Argentina didn’t
extend the exchange.