NY Senate Oral Testimony

Argentina Debt Default

Thank you for holding these hearings today Sen. Foley, and for inviting me to speak before you about the Argentine Debt Default. I am the only American citizen that I know of, that owns the amount of defaulted debt that I own, and who has lived in country for so long, so recently.

My name is Mark Hudson Botsford and I am, as far as I know, the largest American retail investor of Argentine bonds in default. Though we currently reside in Washington, D.C., I am a native New Yorker, having been born here on the island, and part of a great New York family, going back generations; the name Hudson, honors our mighty river. My Argentine wife, Marcela, asked only for six months in her homeland back in 1987, but we stayed for 21 years.

The Government of Argentina declared the largest sovereign debt default in history, using 9/11 as cover; and restructured her debt with the largest haircut in history, using an IMF default threat as cover. The government played a game of financial chicken with the international community in 2004, and won, getting IMF loan payments extended without entering into good faith negotiations with her creditors, required under Article 4. Negotiations which require any government in default, to discuss willingness and capacity to pay. Today, the government has launched a second restructuring, under worse terms than the first; again without good faith negotiations with her creditors. Another unilateral, take it or leave it offer, that leaves retail investors and her own citizens with more suffering to look forward to.

After many years there, I’ve observed how all layers of society came to believe that they’d committed the perfect crime. The political, industrial, unionized and agricultural classes, who initially felt guilty, finally felt relief that they had gotten away with the great sovereign robbery. As always, the middle classes and the poor are the ones who have been made to suffer these transgressions. The government uses them like human shields in the battle for justice and public opinion. In fact, an international tribunal has found that it was not exclusively external factors which led up to the default and devaluation, as the government contends, but that the government’s own actions contributed substantially to precipitating the crisis.

The improvement of the lives of the people of Argentina; the reduction of poverty levels, and sustained economic growth, can only come through genuine investment in the country. This can only occur once the country re-engages with the international community. Argentine companies have been prohibited from financing at reasonable rates, which destroys the main source of new employment opportunities. That investment cannot feel welcomed when the President and her ministers consistently attack the very people who would invest. At a recent U.S. Chamber of Commerce luncheon, I had the opportunity to listen to the President speak market friendly words for the first time in seven years; yet with this new second offer, the President continues to insult and berate us.

We are not, as the President states, the enemies of Argentina. On the contrary, the individual primary investor accompanied the country when she needed us the most. Unfortunately, Argentina’s government has framed this sad chapter as a zero sum soccer game, where the country can only win if her investors lose. Interestingly, the government simultaneously berates and courts us in the same phrases and speeches.

To date, Argentina has continued to delay in implementing badly needed structural reforms. If history is any guide, strong commodities demand will only encourage procrastination. A new presidential election next year offers the citizens of Argentina renewed hope that their leaders may once again make decisions in the best interests of the majority of their people.

In 1904, Teddy Roosevelt, a great New Yorker, established The Roosevelt Corollary to the Monroe Doctrine. It stated that not only would the United States prohibit non-American intervention in Latin-American affairs, but it would also police the area and guarantee that these countries met their international obligations. I’m not advocating that we should be sending in the marines to collect, but the Argentine government strategy of riding roughshod over the rights of Americans, in our present climate of unregulated excesses by our own corporations, should not be permitted to continue.

It is the primary investor and the country’s people themselves, who should be the main beneficiaries of any sovereign issue. For the first time, the retail investor was directly and aggressively marketed to by the government, with banks acting as their agents, leading up to the default. As institutional sources dried up, the government ingeniously engineered financial instruments geared to small savers worldwide, with entry levels as low as $1000, and in various currencies to target specific markets, all unprecedented. An expensive marketing campaign was launched, touting the virtues of government bonds, and how it was the most secure investment for individuals. Now, the government claims that the small investor should not have entered markets better suited for institutional investors. That would be like a burglar asking “why did you leave your door open, so I could rob you?” I do not believe the majority of the people in Argentina support this view.

If Argentina wishes to continue to issue sovereign bonds under New York State court jurisdiction, then it behooves us to insure that she is a reliable debtor. It appears by their own actions, that the government of Argentina has no intention of fulfilling her obligations now or in the future, as they now know they can get away with it. If this is allowed to continue, it will not be long before other countries will follow in her footsteps. The Federal Reserve of New York, in my humble opinion, should be more worried about this new superhighway of default leading up to the door of New York State. New safeguards will need to be considered for the future, by New York, to prevent the abuse of our capital markets in this way.

The National Statistic Agency is corrupted, lacking in all credibility, and it is sowing the seeds of renewed declarations of default and future litigation. The people of the country do not appreciate this campaign of deception in their name, and are demanding that changes be made. The only way for the current administration to lower bond rates going forward, is to recognize the S10 billion that will remain as holdouts after this second insult, regain credibility for official dodgy statistics, normalize financial relations with the rest of the world and improve the environment for the business community. Unfortunately, this may only come with a new government next year.

After making the rounds in Washington, I soon realized that, along with a national effort, a state effort and an Argentine strategy needed to be developed going forward. A state effort, because expropriated companies and financial firms need to seek remedy from their home states as well. An Argentine strategy, because international pressure alone has proven so ineffective, that the

2

political class has reduced it to sport. They were able to ignore the holdouts after the first exchange by first striking our debt from the official statistics, and later, lure the international financial markets to Argentina, with high interest rates and local jurisdiction; and out of the reach of embargoes. By the way, they plan to repeat this strategy again with this second exchange.

My effort now is concentrated on unifying all retail individual bondholders of defaulted Argentine debt worldwide, primarily those that invested prior to the default of 2001, in a non profit advocacy group. Our association would advocate for good faith negotiations between the Argentine government and us, her primary individual, retail investors. We wish to strengthen U.S. political and economic relations with Argentina, and accompany the people as they choose the right path in their partnership with investors, going forward.

In addition, the present government argues that they should not be held responsable for the actions of previous governments. We need to stress the need for continuation of policies, across administrations, to strengthen her democracy. Brazil, Chile and Uruguay can be very helpful in this regard.

The effort I envision would center on a strategy to galvanize public opinion in Argentina around this issue. To convince political parties, legislatures, provincial governors, and the press, that the problems of poverty and unemployment can only be surmounted by reinserting Argentina into the world economy, and thereby generating large scale investments. Interestingly, the President finally spoke exactly these words at the U.S. Chamber of Commerce luncheon, in Washington, D.C. on April 9th. Ideology has no place in our vision for the future. Ideologies are archaic, unrealistic visions of utopia, which create obstacles to growth throughout the region. The current government uses ideological rhetoric to confuse and distract the local population, and we need to use transparency and reasoned discourse to combat it.

3