Nielsen in Euromoney

Guillermo Nielsen, Argentina’s finance secretary during that country’s endlessly-drawn-out

debt exchange, has the cover story of Euromoney

magazine this month. (Sorry, it’s behind a subscriber firewall.) "Nielsen

reveals all," says the headline, which might be over-egging the pudding

a little, but the story is a lively enough read all the same.

Surprisingly few people get name-checked in the article, which I hasten to

say I had nothing to do with. Love goes out to Argentina’s lawyers, Cleary Gottlieb;

hate goes out to Anne Krueger and Domingo Cavallo. But whole fraught episodes,

such as the deal delay when Bank of New York mysteriously dropped out of the

deal and then came back in again, are conspicuous by their absence: the true

inside story of the Argentine debt exchange has yet to be written.

Nielsen is at his juiciest when he’s attacking the IMF:

Naively, I expected IMF missions to arrive in Argentina with a set of well-developed

suggestions successfully tested in previous economic crises elsewhere. That

was not the case. Evidence of an accumulation of knowledge from previous crises

was non-existent and, on top of that, there was no awareness – or even

concern – for the institutional constraints under which we were forced

to operate. Most of the IMF officials we had to deal with in those early days

found it difficult to distinguish between running an Excel spreadsheet and

running a country.

He’s also interesting on the way that Argentina initially managed to circumvent

the IMF by appealing directly to its board – a tactic which involved the

expenditure of a lot of time and energy and political capital in the service

of something (Fund support) which Argentina ultimately decided it didn’t need.

One noteworthy part comes in a sidebar about a presentation Nielsen gave to

an audience of 1,300 retail Japanese investors in 2002:

I had made my presentation when an elderly Japanese lady stood up to ask

me a question. I was told that it’s rare for Japanese women to speak

in public, so I was surprised when this happened. She said she was 83 and

that she had put all her life savings in Argentine bonds. She said she just

wanted to ask me one thing: “Can you pay me before I die?” I felt

heartbroken.

Later I had a discussion with some of my G20 colleagues about the possibility

of paying more to retail investors and less to institutional – it was

something we were keen to do – but we were told not to do it, that it

broke all the rules, so it never happened.

It’s interesting to me that Nielsen looked for advice to his G20 colleagues,

rather than to capital-markets professionals. They seem to have agreed that

discriminating between different types of bondholder was not a good idea: Ecuador

tried that, once, and very quickly regretted it.

But if Nielsen really wanted to help out retail investors, he could have done

much more for them than he did. Most notably, he could have extended the period

during which bondholders could tender their bonds. Towards the end of the tender

period, when it became clear that the deal was going to have the critical mass

needed to go ahead, many retail investors tried to enter into the exchange but

were rebuffed by their banks, who didn’t want to run the risk of not getting

the bonds in on time. Everybody in the markets expected an extension of the

deadline, but none was forthcoming, despite the fact that such an extension

would have both made the deal significantly more successful and would have benefitted

mainly retail investors. To this day, it’s very unclear why Argentina didn’t

extend the exchange.

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