Inquiry regarding Argentine sovereign debt bonds

August 30, 2004
Considering the potentially grave consequences of the Securities and Exchange Commission (SEC) authorizing the massive trading of a Mega-Swap of Argentine Sovereign Debt Bonds, we request you please inform the international public accordingly. Thank you. Adrian Salbuchi, Buenos Aires, Argentina.

Buenos Aires, 27th August 2004

Mr. Russell Clause,
Office of International Affairs,
Securities & Exchange Commission,
450 Fifth Street, NW
Washington DC – 0908

Dear Mr. Clause,

I would like to thank you for your kind message dated 5th August last answering our previous inquiry on the above mentioned matter, which we have duly noted. We, naturally, fully appreciate that the SEC does not at present have the proper staffing to address the complex issues we raised relating to the impending Mega-Swap of Argentine Debt Bonds.

We would, however, like to stress that this matter has potentially far-reaching international implications – of legal, financial and political natures – considering the following points which we would like to share with you:

Tens of billions of dollars of Argentine Debt Bonds would soon be swapped, some of which will run for as long as 42 years. They therefore represent a key factor conditioning the well-being of our people and the very future of our country.

Hundreds of thousands of international investors would be involved in the proposed debt swap operation and they would be once again running the risk of seeing their investments diminished if not wiped out altogether in the future because of the following:

The bulk of these Debt Bonds can be traced back directly to the public debt generated between April 1976 and December 1983 by the de facto illegitimate military regime which usurped power, suppressed the Constitution and perpetrated all manner of crimes against our population. In principle, such debt can be classified as “Odious Debt” within the framework of legislation presently in force in the United States and the United Kingdom. For example, similar arguments can be used as are now being put forward at the highest political levels with respect to Iraq’s foreign debt incurred by the regime of Saddam Hussein starting in 1979;

In Argentina, there exists a formal Court Sentence indicating this (Case No. 14.467 with the Buenos Aires Federal Economic Crimes Court No 2, “Olmos Gaona, Alejandro versus/ Various former government officers” – Sentence given by Federal Judge Jorge Ballesteros on 14th July 2000);

The Argentine Ministry of Economy is implicitly stating in the 18-K form submitted to the SEC on 10th June 2004, that the Argentine State will have economic and financial capacity to pay these various Bonds’ future yields and capital payments on the dates indicated on them. The figures and projections, however, are not consistent nor credible. This means that any Mega-Swap of this sort would be generating conditions for massive future defaults, even greater than the one which took place in Argentina in December 2001 when the Government defaulted on 90 billion dollars worth of Public Debt Bonds.

Additionally, National Congressional Deputies (Representatives) Mario Cafiero (SP) and María América González (ARI), with whom we are working closely, sent you a letter on 20th July regarding this same matter, the contents of which are self-explanatory and confirm what is mentioned herein.

The new debt bonds would also include the revamping of around US$54 billion in exorbitant interest and capital generated by the ministry of economy in June 2001 under the first so-called “Mega-Swap” implemented by former economy minister Domingo Cavallo and former Government Advisor Daniel Marx, both of whom have been indicted for fraud, negligence and conflict of interest over the way they proceeded on this case.

To a great extent, the new Mega-Swap which the economy ministry is now promoting would be traded in the New York Stock Exchange and other US markets. Formal approval by the SEC of this operation would be tantamount to incurring liability for future Argentine Debt Bond defaults, the scale of which would dwarf such cases as Enron, WorldCom, Tyco, Parmalat and other high-profile scandalous cases.

As you may surely appreciate, this is not a matter which can be easily left aside. This brings us to seek your advice and guidance regarding whom you feel we should refer this matter to within the US Government, considering that the SEC cannot address these issues. The goal is, among other considerations, to ensure that international investors and the public in general are made aware of the dangerous situation that the impending Mega-Swap of Argentine Debt Bonds in the US and other markets poses.

As we know that the SEC is presently analysing this matter and your approval to the Argentine Government to move forward with the proposed new Debt Bond swap is presently pending, we very much look forward to hearing further from you as soon as possible.

Yours sincerely,
Adrian Salbuchi
(international advisor)
Centro de Estudios Económicos Mariano Fragueiro
Buenos Aires – Argentina
+00 5411 5339 7481

From: Clause, Russell
To: ‘Adrian Salbuchi Priv.2’; Juan Manuel Soaje Pinto
Cc: Carlos Louge ; Hector Giuliano (2); Julio Cesar Lascano
Sent: Thursday, August 05, 2004 6:40 PM
Subject: Your Inquiry Regarding Sovereign Debt Bonds

Dear Messrs. Salbuchi and Pinto, we have received your second request for information regarding Sovereign Debt Bonds. Although it is clear that your Center is conducting an extremely thorough and complex analysis of the issues related to these bonds, our office, unfortunately, is not staffed to answer detailed research-based requests like yours. After reviewing your inquiry, it is clear to us that an attempt to give it the sort of attention it demands would require a very significant amount of labor which we just are not staffed to provide. We do wish you the best in your endeavors and hope that you can locate other sources that shed light on your important questions.

Very truly yours,
Russell Clause

From: Adrian Salbuchi Priv.2 []
Sent: Wednesday, June 30, 2004 11:47 AM
To: Russell Clause (SEC – Wash. DC); SEC New York
Cc: Carlos Louge; Hector Giuliano (2); Juan Manuel Soaje Pinto; Julio Cesar Lascano
Subject: Letter to Mr Russell Clause

Buenos Aires, June 30, 2004


Securities & Exchange Commission,
450 Fifth Street, N.W.,
Washington D.C. 20549-0908,
United States of America

Attn. Mr. C. Russel Clause – Staff Attorney, Office of International Affairs

Ref: Inquiry regarding the imminent public offer of Sovereign Debt Bonds of the Argentine Republic

Dear Sirs,

We have pleasure in writing to you, in order to thank you for your kind letter dated 22nd April last, signed by Mr. C. Russell Clause (Staff Attorney of your Office of International Affairs), which answered our letter of March 12th. The information which you kindly provided to us, is very important for our on-going investigations on matters pertaining to Argentina’s foreign debt situation.

In this respect, and as a private Economic Studies Center, we would now be most grateful if you would kindly supply us with some further clarifications regarding the recent presentation which the Government of the Argentine Republic submitted to the SEC last 10th June, through Form 18-K/A.

Although we understand that the SEC’s intervention in such presentations made by foreign Governments and Agencies is optional, we would nevertheless ask you to kindly let us have your information regarding various key aspects which we consider need to be taken into account with respect to this presentation made by the Government of the Argentine Republic. We would describe these questions for you below and would appreciate receiving your opinion and clarifications at your convenience:

Type of Offer

First of all, we understand that this is a public offer, as Argentina’s Minister of Economy, Mr. Roberto Lavagna, made this offer to Argentine Sovereign Debt Bondholders publicly and officially, and has done so through the international mass media.

Although in the first part of Form. 18-K/A, it says that “the information contained below is included for the sole purpose of presenting the basic terms of the sovereign debt restructuring of Argentina and does not imply a bondsale or swap offer”, further on, however, in the paragraph under the title “Public Sector Debt” is reads that “we foresee that the restructuring exercise shall include a global swap offer with tranches in the United States of America, Argentina and various countries in Europe and Asia.” The rest of Form. 18-K/A also clearly states that this restructuring offer constitutes, in practice, an official bond swap offer. We would appreciate if you would please let us know what the SEC’s interpretation thereof is.


In some of the Bonds which are being offered for this swap operation, extraterritorial jurisdictions are being recognized by Argentina, as our country has ceded its sovereignty on certain bonds in favour of other nations’ laws.

In the case of US jurisdiction, said cession of sovereignty has been implicitly accepted by the United States. The Court of the State of New York has accepted that it has jurisdiction over these Bonds, having accepting law-suits filed by various Bondholders subject to its jurisdiction, against the Argentine Republic.

Similarly, Form. 18-K/A indicates that for “par bonds” A1/A2 and for discount bonds B1/B2, applicable law is that of the State of New York (both for Argentine Peso as well as US Dollar denominated bonds), that of the United Kingdom (for Euro denominated bonds), that of Japan (for Yen denominated Bonds) and that of the Argentine Republic (Peso and US Dollar denominated bonds). For “quasi-par” bonds C1/C2, and for new bonds tied to GDP (Gross Domestic Product) growth which will form part of these new Bond issues, applicable law is that of the Argentine Republic.

We see that Form. 18-K/A indicates that the issuing agent of these new Sovereign Debt Bonds is the Argentine Republic, which means that in order for them to be valid, legal and legitimate, they must comply with Argentine law, particularly the “Hiding and Laundering of Assets of a Criminal Nature Law No. 25.246”, of the 13th April 2001 which was passed and published in the Public Record (Boletín Oficial) on 10th May 2001. In Chapter III of this Law, under the title “Duty to Inform” – articles 20 and 21 – this Law describes the duties which must be fulfilled by all agents dealing with all types of commercial transactions, both national and international:

CHAPTER III – Duty to Inform (Arts. 20 a 22):

ARTICLE 20 – The following have the duty to supply information to the Financial Information Unit, within the terms of Article 21 of this law:

Section 4. Stock Agents and Brokers, Common Investment Fund Managers, Electronic Open Market Agents, and all brokers and intermediaries involved in the purchase, leasing or rental of bonds, operating under the framework of stock exchanges, whether or not involving associated markets;

Section 5. Intermediation agents and brokers registered to operate in Futures and Options markets, irrespective of their objectives and goals.

Section 18. Those parties who have the duty to inform under this Section shall not have the right to invoke legislation pertaining to banking, tax or professional secrecy, nor confidentiality agreements indicated by any law or contract or agreement, when information requirements of this nature are formalized to them by a competent judge in the jurisdiction where such information must be supplied.

ARTICLE 21 – The persons indicated in the foregoing Article must comply with the following duties:

Section (a). Obtain from the clients, requiring contacts or information suppliers, all necessary concrete documentary proof regarding their identity, legal standing, domicile and other information as may be indicated in each case, in order to properly carry out any type of business activities in which they are involved. However, this obligation may be waived when the amounts traded are below the minimum amounts indicated in the relevant rules in force. When clients, requiring contacts and information suppliers act on behalf of third parties, then the necessary measures must be taken to properly identify such parties, on whose behalf they are operating.

We would point out that in order to comply with said Law 25246, the Argentine Government recently tried to set up a “Bondholders Registry”, thus clearly indicating its good faith and willingness to comply with local legislation in force.

However, these efforts were thwarted by the political pressure exerted by the IMF – International Monetary Fund – and the World Bank. The Argentine Government was, consequently, forced to leave this initiative aside and the proposed Registry was never set up.

We would also point out that other related international agreements referring to money laundering entered into by Argentina with the governments of the United States of America, the United Kingdom and Japan should be complied with. Although we understand that it is not a specific function of the SEC to combat money laundering operations and similar financial crimes, we do however understand that the large amounts involving the proposed Debt Swap operations requested under Form. 18-K/A, and the fact that the SEC must control and approve this operation, warrants that all necessary measures be taken in order to ensure that this swap operation is properly carried out and that no potential risk of fraud is run.

In this connection, we would point out that if any breach of Law 25.246 when restructuring operations of Argentine Sovereign Debt is incurred, then this would make such operations illegal, void and null. This could, in turn, open the way for major legal actions and class-action law-suits by future Bondholders on account of fraud, against any Institution – local or foreign, public or private – taking part in such swap operations. Once these new Sovereign Debt Bonds have been issued in compliance with the aforementioned Argentine legislation, then it would be appropriate for them to be held subject to the jurisdiction of the Courts of the State of New York, the United Kingdom, Japan and the Argentine Republic.

Lastly, we would also point out that cession on the part of the Argentine Republic of its sovereignty on such bond issues is in respect of all legal aspects and matters. This would imply that the laws of the United States of America would thus have to be complied with in all its aspects.

Compliance with Norms in Force

We understand that the SEC shall require presentation of all documentation normally required to parties involved in Sovereign Debt Bond operations in the United States. This includes documentation showing proper compliance with various laws, including but not limited to, the Sarbanes-Oxley Act, anti-fraud legislation, Insider Trading legislation, anti-money laundering legislation, and other relevant laws, rules and acts mitigating/preventing fraud and financial crime.

Form. 18-K/A recently presented by the Argentine government is construed as being a continuation of the previous Form submitted in the year 2000, which would mean that the SEC acknowledges that the Argentine Government is in up-to-date compliance regarding presentation of relevant Public Budget and Financial Reports documentation.

This is of key importance regarding – amongst others – general anti-fraud legislation, stock legislation, and errors and omissions regulations involving material investment information.

Ilegitimacy and Illegality of Origin

We would also like to point out that the Bond Swap operation which is being proposed shall apply to all or many of the 152 different Bond issues making up the Sovereign Debt of the Argentine Republic. On many of these issues, Argentine Federal Court sentences have been handed out indicating that these bond issues are potentially illegal. In other cases, bonds have been issued in breach of Law No. 224 of 29th September 1859, which would imply that only damages caused by legitimate governing authorities would be recognized and accepted and not those emanating from illegitimate (de facto) administrations.

In this specific case, and in spite of the fact that these obligations were later renewed under legitimate authorities, such authorities were not empowered to render legality over matters which can be proven to be illegitimate in their origin. The Doctrine of “Odious Debts,” as per precedents involving such cases as: the United States of America versus the Kingdom of Spain in respect of the Cuban Debt with Spain after the Spanish-American War of 1898; and of the United Kingdom versus the Republic of Costa Rica, regarding public debts allegedly incurred by dictator Federico Tinoco at the beginning of the 20th Century with the Royal Bank of Canada, where arbitration against the UK was handed in 1923 by US Supreme Court Justice (later US President) William Taft, both represent clear precedents at hand.

We would also point out that the last time that such a so-called “Mega-Swap” of Sovereign Debts Bonds was carried out, similar to the one which is now being engineered by the Argentine Government (i.e., in June 2001 when Fernando de la Rúa was president and his economy minister was Domingo Cavallo), law suits were later filed which are presently being heard in our Federal Courts, geared on proving the illegality and fraud surrounding such debt bond swap operations.

They clearly point to the probable fraud and improper management of public funds perpetrated by government officials responsible at that time, promoted by the acceptance and agreement on the part of major international private banks which gave their blessing to that particular Debt Bond Swap operation. A few months later, this “Mega-Swap” deal led to Argentina’s economic meltdown where the responsibility of major banks, international multilateral and national government agencies is a matter that still needs to be investigated (e.g., see the extensive article “Argentina Didn’t Fall on Its Own. Wall Street Pushed Debt Till the Last,” The Washington Post, August 03, 2003 by Paul Blustein, page A01).

Considering all of what we mention above, we would be most grateful if you would kindly inform us whether our interpretation of certain facts surrounding the imminent Sovereign Debt Bonds Swap deal to be publicly offered in US markets under the SEC’s jurisdiction is correct:

  • That regarding bond operations presently under the jurisdiction of the laws of the United States of America, the SEC has controlling and application authority over them;
  • That it would not be possible for risk rating agencies normally acceptable to the SEC, to issue reasonably trustworthy risk rating information for investors regarding the category of the Argentine Sovereign Debt Bonds about to be issued, because the terms and conditions indicated by the Argentine Government regarding these issues cannot reasonably be complied with within the short time span indicated;
  • That the SEC is aware of the sentences and verdicts given by Argentine Federal Courts pertaining to the legality and legitimacy of large tranches of Argentine Sovereign Debt which are included within the Debt Bond Swap now being proposed (notably, the verdict of Federal Judge Dr. Jorge Ballesteros dated 14th July 2000 on the Alejandro Olmos versus the Federal Government and Others case);
  • That a large portion of the Bonds to be swapped could very well be in breach of National Law 224 of 29 September 1859, presently in force in Argentina;
  • That the total issue of new Debt Bonds would be in breach of Law 25.246 of 13th April 2001, presently in force in Argentina;
  • That it would not be reasonably and forseeably possible for the Argentine Government to maintain rate of exchange levels between the Argentine Peso and the United States Dollar as it indicates in this public offer. At best, the present Government might be able to hold such exchange rate levels until its term in office expires on 10th December 2007, however there is no way of knowing what monetary and exchange policies will be implemented by a future successor government;
  • That once the present Government’s term in office is over, the future Government of Argentina, the National Congress or any Argentine citizen shall have the legal right to request that major tranches of this country’s Sovereign Debt be cancelled on account of its illegality and illegitimacy, in accordance with Law 224, even if any other law may have been later passed contradicting it;In view of all the above, we would request the SEC authorities to kindly clarify whether you have verified and controlled the contents of the Debt Bond restructuring request of Argentine Sovereign Debt within the framework of Form 18-K/A of the United States, and within the context of legislation presently in force in the Argentine Republic.We feel that this is an important issue as any debt restructuring operation must comply from the very beginning with such legislation in order that it can later be considered as being truly legal and legitimate. We understand that, in what refers to operations carried out in US investment markets, control is exerted by the SEC in compliance with its supervisory and legal warranty functions over such markets and its operations.We would finally point out that this Sovereign Debt Bond Swap of the Argentine Republic is being formalized through Argentina’s Ministry of Economy and/or Central Bank and/or through a consortium of private banks recently named by the Argentine Government to carry out these new Debt Bonds financial engineering on its behalf (i.e., Barclays Bank, Merrill Lynch, UBS Warburg, Banco BBVA Francés, Banco de Galicia y Río de la Plata, and Banco de la Nación Argentina). Additionally, this should include Lazard Frères Bank who act as international financial advisors to the Argentine Government.

    We would be most grateful to receive your urgent comments on the above. In the meantime, would like to again thank you in advance for all your kind assistance and cooperation.


    Adrian Salbuchi Juan Manuel Soaje Pinto
    International Advisor Corporate Secretary

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