Argentina settles majority of claims filed with Icsid


Jason Mitchell
Published on:

Move helps normalize relations with international financial community.

Argentina has settled more than half of the 36 cases that multinational companies have filed against it at the International Centre for the Settlement of Investment Disputes.

Most of the claims against it – which total $17 billion – stem from the breach of commercial contracts during the country’s severe economic crisis of 2001/02, when it repudiated on its sovereign debt, sharply devalued the peso and put in place emergency economic measures.

At least 17 of the cases before Icsid have now been settled or suspended, as a result of direct out-of-court bilateral negotiations with the companies. The Argentine government managed to get the claims withdrawn in exchange for concession extensions, tariff increases, subsidies and tax exemptions.

Esteban Fernández Medrano, a partner at economic consultants Macrovision in Buenos Aires, says: "I think resolution of the claims is important because they represent contingent liabilities. In the medium to long term, the country requires a normal relationship with the international financial community. From 2009 onwards, the country’s financial needs will be more pressing and it will want to be able to tap the international capital markets directly, rather than through the placement of joint bonds with Venezuela, for example.

"The claims have also had some impact on the country’s credibility and could discourage foreign direct investment. However, most of them are in specific sectors – energy, transport or telecommunications – and FDI could take place in many other industries. Most companies focus on longer-term growth and tax stability rather than this type of claim."

Most of the contracts with the multinationals were drawn up in the 1990s when a swathe of Argentine industry was privatized and fell under foreign ownership. The multinationals’ claims are among the main hurdles preventing the country from fully reintegrating with the international financial community, along with the hold-outs on Argentina’s defaulted sovereign debt and the Paris Club debt negotiations.

Alberto Saravia, director of fund management consultancy Saravia Financial Management, says: "In settling these claims, the government reduces its future financial burdens, moves closer to solving one of the main obstacles deterring the necessary flow of foreign direct investment and, most important, is able more quickly to reach a solution to the impending energy crisis."

One of the main reasons Argentina decided to settle the cases out of court was because Icsid, which is part of the World Bank, started making rulings against the country. In May, Icsid arbitrators decided Argentina had to pay Enron and its subsidiary, Ponderosa, former shareholders of Argentine gas pipeline operator TGS, $106.2 million. The US firm had filed for compensation of between $453 million and $582 million.

In February, Icsid arbitrators mandated the country to pay the German firm Siemens $208 million, for the cancellation of a contract to make personal identity cards. Siemens had filed a claim in May 2002 for $420 million.

Some of the biggest cases to be settled out of court involve France Telecom and Spanish telecoms company Telefónica. In the case of France Telecom, the firm suspended its $1 billion claim against the country in exchange for telephone tariff increases and a firm government commitment to pass a new telecoms law. Telefónica withdrew its $2.8 billion claim in return for a promise that the new telecoms legal framework be passed by Congress this year.

Theresa Paiz-Fredel, senior director of sovereign ratings at Fitch, says: "Many international investors are already investing in Argentina because of favourable external conditions. However, Argentina needs to resolve the issue of claims before Icsid if it wants to place a global bond or a Eurobond one day."

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