It’s Pensioners on the Side of Hedge Funds Making Their Case Against Argentina

From left to right, Maria Teresa Muñoz, Horacio Vazquez and Eva Geller are all Argentine pensioners who hope that the government will one day repay them in full. Don Emmert/Agence France-Presse — Getty ImagesFrom left, Maria Teresa Muñoz, Horacio Vazquez and Eva Geller are all Argentine pensioners who hope that the government will one day repay them in full.

Maria Teresa Muñoz, a retired secretary from Buenos Aires, has something in common with Paul E. Singer, the billionaire hedge fund manager who is suing Argentina’s government.

They are both “holdouts” — the term given to owners of defaulted Argentine sovereign debt who refused to swap their debt for restructured government bonds that had a much lower value. Instead, they have chosen to hold out, in the hope that the government will one day repay them in full. Argentina’s government, led by President Cristina Fernández de Kirchner, vigorously rejects these claims.

But Ms. Muñoz has another connection with Mr. Singer.

She and 14 other holdouts were brought to New York this week by a lobbying group that is partly financed by Mr. Singer’s firm, Elliott Management. The group, American Task Force Argentina, paid for the holdouts’ flights and lodging, according to Robert Raben, its executive director.

He declined to say how much the trip was costing the group, which held a meeting for the 14 holdouts at the Warwick Hotel in Midtown Manhattan on Tuesday. He said his group met most of the holdouts through contacts with Argentine lawyers.

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The timing of their trip to New York was no accident. It came just weeks before an appeals court is scheduled to make an important decision on a legal case that has pitted Mr. Singer against the government of Argentina.

Mr. Singer and other hedge fund holdouts have recently enjoyed a series of legal victories, including a ruling from a federal judge that demanded that they be paid when holders of restructured Argentine bonds are paid. The judge gave the ruling real teeth. He effectively said that the third-party banks that transfer payments from the Argentine government to holders of the restructured bonds also had to comply with this order. That means the restructured bonds would potentially be deprived of payments.

On Feb. 27, the United States Court of Appeals for the Second Circuit is scheduled to take up the judge’s ruling, which has been delayed by a stay. The appeals court will decide whether the tough ruling should take effect, or whether it should be softened in some way. This is where the hedge fund holdouts could lose. The appeals court may decide that the ruling has gone too far, and would be needlessly disruptive, especially the part that forces third-party banks to comply.

As a result, in the days leading up to that decision, it makes sense for American Task Force Argentina to show a human face, and present some middle-class losers. After all, the last big public action orchestrated by Elliott Management — the seizure of an Argentine naval ship by the government of Ghana — arguably lacked the human touch. (The ship was later released.)

The stories of those at the Warwick Hotel should generate sympathy.

Ms. Muñoz, 76, said she was holding $65,000 of Argentine government bonds at the time of the 2001 default. “From then on, it was a nightmare,” she said. Her mother was ill and Ms. Muñoz said she lacked the funds for proper medical care. Her mother died in 2009, and Ms. Muñoz, unmarried, said she was living on a pension of about $1,000 a month.

Another ordinary holdout was Eva Geller, 66, a Uruguayan who declined to disclose the amount of defaulted Argentine bonds she was holding. “For me, it was an enormous amount of money,” she said.

Ms. Geller said she had no government pension. Instead, she gets by on money left by her deceased husband, and on a German pension collected by her 90-year-old mother, who Ms. Geller said is a Holocaust survivor.

The ordinary holdouts said their fight was as much about principle as the money.

Ms. Geller said that if the government offered to fully repay the bonds of ordinary holdouts, but not those of big hedge funds, she’d refuse. “Equality is for all,” she said.

Some analysts argue that Argentina’s default, while a shock, at least cut the country’s debt load. In other words, the country might have been stuck in a protracted slump if it had kept trying to pay back all the debt it owed.

But Horacio Vazquez, a Buenos Aires native who was also at the Warwick, thinks that analysis too simplistic. He said the government had other ways to restructure its debt short of forcing such large losses on creditors. “The default was not necessary,” said Mr. Vazquez, who was holding $73,000 of bonds when the government reneged on them.

Elliott Management, through one of its hedge funds, owns over $1 billion of Argentine debt.