Four hedge funds suing Argentina over payments they claim are due on instruments linked to the country’s GDP told a London judge on Monday that the government had a “propensity” to manipulate economic data to save billions of dollars.
As reported by Reuters, the funds, Palladian Partners L.P., HBK Master Fund L.P, Hirsh Group LLC, and Virtual Emerald International Limited, filed suit in 2019, alleging that the South American republic owed them payments in euro-denominated securities linked to Argentina’s Gross Domestic Product in 2013.
The PBI Coupon was used in 2005 by then Economy Minister Roberto Lavagna and Finance Secretary Guillermo Nielsen, which triggered payments to bondholders when the year’s economic growth exceeded 3%.
This debt security was criticized for manipulating INDEC figures related to economic growth.
Investors assigned virtually no value to it in 2005, at the time of its issuance during the sovereign debt restructuring undertaken by President Néstor Kirchner.
Therefore it was not considered an asset that would substantially improve the swap offer.
However, it cost Argentina a fortune, as the economy grew well above the target level of 3% during the following years.
Then the product was distorted because manipulating INDEC’s figures also contaminated activity levels. As of 2012, there were no more disbursements.
On March 27, 2014, the then Minister of Economy Áxel Kicillof announced that economic growth in 2013 was 3%, below the 3.2% required for the payment of the GDP Coupon to be executed -in December of that same year- for a total of US$3 billion.
According to the debt restructuring proposal made by the country in 2005, the increase in the GDP had to reach a percentage higher than 3.2% to pay this warrant.
The curious thing was that on February 21, 2014, the INDEC announced that the economy had grown 4.9% in 2013, according to the estimate made based on calculation in 1993.
But since January 1, INDEC opted to start applying a new methodology to calculate GDP, based on 2004.
In February 2014, INDEC reported a GDP growth of 4.9%; a month later, the government said that the expansion was lower: only 3%.
The Ministry of Finance reported that “with the publication of this index, the information referring to the country’s National Accounts based on 2004 begins. The previous measurements were based on 1993, which is discontinued”.
“This change is significant because it is another weighting scheme that arises from developing a new estimation base. The change is not minor because what has changed in these ten years is the national productive structure”, stated Áxel Kicillof, minister in Cristina Kirchner’s second government.
Already during the government of Mauricio Macri, the INDEC reviewed, in 2018, the data on economic growth during the previous administration and determined that during 2013 the GDP grew 2.4%; therefore, based on this update, the payment of the GDP Coupon demanded by the funds before the British courts would not correspond either.
With information from Infobae