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.

Posted by Felix at 22:23 EST