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U.S. warning: Argentina must accept the rulings of ICSID
Clarin
September 01, 2008

The government still refuses to recognize a decision against it for US$133 million

by Marcelo Cant n

WASHINGTON. SPECIAL REPORT.

The recurring word is "confidence". In the U.S. State Department they repeat it over and over. The confidence that Argentina must recover to get investments. The confidence that comes only, they insist, with "complying with contracts." And they mark an inevitable path for them, the payment on rulings by the judges at ICSID, an issue that seemed to be put aside on the bilateral agenda.

In public, U.S. officials keep up the line that the relationship with Argentina is marked by its "friendship". Also, it's the first thing that is said by the State Department in Washington during a meeting with a group of Argentine journalists, among them this reporter, in which the only condition was not to cite the names of the officials participating.

"We are not always in agreement", they say when asked about the differences between the two countries during the Doha Round, where Argentina voted against the U.S. proposal. And immediately they plunged into an issue that they will not allow to be brought up again during the extensive chat: the rulings of the UCSID, the tribunal of the World Bank before which demands have been made for compensation from Argentina for more than US$17 billion by foreign companies, soon after the devaluation. "The Argentine government has not paid the CMS ruling," they said. "There was a ruling and they didn't pay. According to a contract signed by your country, the decision must be binding, there is no other way. The contract must be honored."

CMS is a U.S. company, a shareholder in the pipeline company TGS. In 2005 it obtained a ruling against Argentina for US$133 million as an indemnization for the impact of the devaluation and pesification of power rates. The government asked for an annulment of the ruling. It's not the only case of a U.S. company with this type of demand at the ICSID. Enron won a similar ruling and facing Argentina's lack of acknowledgment, appealed to a U.S. court which in December ratified Argentina's obligation to pay the sentence. Both cases are based on the bilateral treaty on investments signed with the United States.

"The Argentine government has not paid on any of those rulings," they say in the State Department. The issue, they say inside the entity, was not taken up last week by the head diplomat for the region, Thomas Shannon, in his meeting with Cristina Kirchner in Buenos Aires. "Nor did they speak of the Paris Club," they said. But they made it clear that they were seeking to make sure that the visit by the official to Buenos Aires to participate in the Council of the Americas would not have any conflictive issues by any means.

When asked what other issue is seen as urgent on the Argentine agenda, they have no doubt. "We are following grain prices, which are dropping. It's not a very rapid movement, but it is as if it will be coming out of a bubble by a bit. That impacts the fiscal situation and economic growth in Argentina. There are reserves for more than US$40 billion, that's for sure, but we have already seen on other occasions how very big reserves disappear when a government doesn't have adequate policies. They are still growing, yes, but it will be interesting to see what happens if grain prices continue downward."

In that context, in the State Department they urgently demand "remaking the investment climate." And for that, "the problem of the ICSID ruling is enormous," because "if the government changes contracts and businessmen cannot turn to the courts, who is going to invest in Argentina? They have many energy resources in the south of the country but they need investments, and the businessmen want contracts to be complied with," they added.

"You can't buy confidence," they said. When INDEC is mentioned, the same is said. "How can it be known what is the growth rate in Argentina if we don't know the inflation rate?" they said. And they returned to the issue of confidence: "If a businessman can't know what the growth rate is, how is he going to invest?"

Sidebar: "From the Civil War to the bondholders"

At the State Department they minimized bigger issues on the economic agenda of Argentina, like the holdouts, whose investors hold Argentine bonds in default and who fell outside, by their own will, the debt swap.

The officials let it be understood that this is a problem for the private sector.

However their abstention is not total. They recall that "in the midst of the hardships of the Civil War, our Treasury decided to pay the country's whole debt. The argument was that it would lower interest rates. There were doubts. But that's how it went, it was paid off and the rates went down. It was a key decision in the development of this country. It created confidence," they said.