Argentina’s Defaulted Sovereign Debt: Dealing with the “Holdouts”

J. F. Hornbeck
Specialist in International Trade and Finance

In December 2001, following an extended period of economic and political instability, Argentina suffered a severe financial crisis, leading to the largest default on sovereign debt in history. It was widely recognized that Argentina faced an untenable debt situation that was in need of restructuring. In 2005, after prolonged, contentious, and unsuccessful attempts to find a mutually acceptable solution with its creditors, Argentina abandoned the negotiation process and made a one-time unilateral offer on terms highly unfavorable to the creditors. Although 76% of creditors accepted the offer, a diverse group of "holdouts" opted instead for litigation in hopes of achieving a better settlement in the future. Although Argentina succeeded in reducing much of its sovereign debt, its unorthodox methods left it ostracized from international credit markets for a decade and triggered legislative action and sanctions in the United States. 

Argentina still owes private creditors $20 billion in defaulted debt and $10 billion in past-due interest, as well as $6.2 billion to Paris Club countries. Of the disputed privately held debt, U.S. investors hold approximately $3 billion. The more activist investor groups have lobbied Congress to pressure Argentina to reopen debt negotiations. Some Members of Congress have introduced punitive legislation in both the 110th and 111th Congress, but to date it has not received any legislative action. Nearly five years after the original debt workout, however, a confluence of circumstances has persuaded Argentina to restructure the holdout debt, particularly the need to secure long-term public financing. 

On April 30, 2010, Argentina announced a new $18.3 billion offer to exchange new bonds and cash for defaulted bonds held by the so-called "holdouts." The exchange will be open from May 3 to June 22, 2010. Two distinct offers have been made, one for retail (small) investors, the other for institutional (large) investors. Retail investors will receive replacement bonds for the full face value of the defaulted bonds they currently hold. Past due interest will be paid in cash. Institutional investors will receive a discount bond equal to a 66.3% reduction in the face value of the defaulted debt they currently hold. Past due interest will be covered by a separate seven-year "Global" bond. Interest rates vary depending on the bond. Both groups of investors will receive a GDP-linked security called a warrant that provides for additional payments should the Argentine economy grow at rates higher that anticipated and stipulated in the prospectus. Analysts value the deal at between 48 and 51 cents on the dollar, compared to 60 cents for the 2005 exchange. 

For Argentina, a successful restructuring requires a sufficiently large participation rate to eliminate most of the existing judgments and attachment orders. Argentina expects, with no guarantee, that such an outcome will lead to renewed access to the international credit markets. Historically, sovereign debt workouts with at least a 90% participation rate have achieved this goal. Since holdouts compose 24% of the original bondholders, a 60% participation rate for this group would allow for the total participation rate to reach the 90% threshold, including those that participated in the 2005 exchange. If the exchange succeeds, Argentina will have completed a sovereign debt restructuring with the deepest write-off of principal in history. Many original bondholders were severely hurt by this deal, as was Argentina by the crisis. Secondary market participants may see a sizable profit. If there is a legacy to the Argentine case, it may be in the changes to bond contracts that seek to improve outcomes for creditors. One option is the use of collective action clauses (CACs), now standard for sovereign debt, which require all creditors to bargain collectively, with a compulsory majority decision applicable to all bondholders. It is no coincidence that both the 2005 and 2010 Argentine exchanges are governed by CACs.


Date of Report: June 17, 2010
Number of Pages: 18
Order Number: R41029
Price: $29.95

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FY2010 Supplemental for Wars, Disaster Assistance, Haiti Relief, and Court Cases

Amy Belasco, Coordinator
Specialist in U.S. Defense Policy and Budget

Daniel H. Else
Specialist in National Defense

Bruce R. Lindsay
Analyst in Emergency Management Policy

Rhoda Margesson
Specialist in International Humanitarian Policy

Kennon H. Nakamura
Analyst in Foreign Affairs

Maureen Taft-Morales
Specialist in Latin American Affairs

Curt Tarnoff
Specialist in Foreign Affairs

The Administration requested $63.4 billion in FY2010 supplemental appropriations: 

• $5.1 billion to replenish the U.S. Disaster Relief Fund administered by the Federal Emergency Management Agency (FEMA); 

• $33 billion for the Department of Defense (DOD) primarily for deploying 30,000 additional troops to Afghanistan; 

• $4.5 billion in war-related foreign aid to Afghanistan, Iraq, and Pakistan; 

• $2.8 billion for Haiti reconstruction and foreign aid in the wake of the earthquake; 

• $243 million for activities related to the Deepwater Horizon oil spill. 

• $13.4 billion to compensate veterans exposed to Agent Orange; 

• $3.4 billion to settle land trust claims of American Indians in the Cobell case and $1.2 billion to pay for discrimination claims of 70,000 black farmers in the Pigford II case. 

On March 23, 2010, the House passed H.R. 4899, the Disaster Relief and Summer Jobs Act with $5.7 billion in funding to replenish FEMA's Disaster Assistance Fund, and $600 million for a Labor Department summer jobs program. After four days of floor debate from May 24 through May 27, 2010, the Senate passed H.R. 4899 by a vote of 67-28, including not only the $5.7 billion for FEMA but also $36.6 for the Afghan and Iraq wars, $2.9 billion for Haiti relief and reconstruction, $193 million for expenses related to the Deepwater Horizon oil spill, and $13.4 billion for veterans affected by Agent Orange. The Senate bill also adds about $600 million in U.S. disaster aid, $400 million for other foreign aid and deletes the$600 million for summer jobs. 

The $58.9 billion total in the Senate bill is about $4 billion below the Administration request primarily because funds for the federal two court settlements are not included. Funding for those settlements is included in the House but not the Senate version of H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, and is likely to be settled in conference. 

The Defense Department, the State Department, FEMA, and the court plaintiffs have all cited funding deadlines in May and June but there appears to be some flexibility in these dates. The DOD war funding may not be needed until the end of July. In response to a letter from Admiral Thad Allen, and Department of Homeland Security Secretary Jane Napolitano stating that the Coast Guard would run out of money that could be drawn from the Oil Spill Liability Trust Fund in two weeks to pay for its oil spill response activities, the House and Senate passed S. 3473 raising the limit on the amount available for the Deepwater spill to $1 billion. While FEMA originally said it would run out of money for disaster relief projects in June, it currently has $952 million in its Disaster Relief Fund because it has only paid claims for urgent needs. And while the plaintiffs in the Cobell and Pigford cases could reject the settlements, support in Congress and the Administration could persuade them to wait. 

Senate debate focused on proposed ways to respond to the Gulf oil spill, border security, and cut spending to pay for the supplemental. The House Appropriations Committee cancelled its May 27, 2010 markup of their alternative version and has not announced another date. Floor action, without markup, may occur as early as next week or could be delayed.


Date of Report: June 11, 2010
Number of Pages: 76
Order Number: R41232
Price: $29.95

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The Haitian Economy and the HOPE Act

J. F. Hornbeck
Specialist in International Trade and Finance

In December 2006, the 109th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I), which included special trade rules that give preferential access to U.S. imports of Haitian apparel. These rules were intended to promote investment in the apparel industry as one element of a broader economic growth and development plan. HOPE I allowed for the duty-free treatment of select apparel imports from Haiti made from less expensive third-country inputs (e.g., non-regional yarns, fabrics, and components), provided Haiti met rules of origin and eligibility criteria that required making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing. The 110th Congress responded by amending HOPE I in the Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extended the preferences for 10 years, expanded coverage of duty-free treatment to more apparel products, particularly knit articles, and simplified the rules, making them easier to use. Early evidence suggests that apparel production and exports are responding to these changes. 

HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program. The TAICNAR program provides for the United Nations International Labor Organization (ILO) to operate a firm-level inspection and monitoring program to help Haitian apparel factories comply with meeting core labor standards, Haitian labor laws, and occupational health and safety rules. It would apply to those firms that agree to register for the program as a prerequisite for utilizing the tariff preferences. The TAICNAR program is also designed to help Haiti develop its own capacity to monitor compliance of apparel producers in meeting core labor standards. 

The earthquake that rocked Haiti on January 12, 2010, caused considerable damage to the apparel sector, although much has been done to return capacity to pre-earthquake levels. Estimates of rebuilding costs for the industry begin at $38 million to refurbish damaged buildings, replace machinery, and train new employees. The U.S. Congress has chosen to respond to Haiti's needs by amending the HOPE Act to enhance even further U.S. market access for Haitian apparel and other exports. Two important considerations guided congressional action in addition to a broadbased concern over Haiti's economic and social problems. First, legislation appeared to focus on enhancing those preference rules that have so far shown the most promise for promoting investment, production, and apparel exports. Second, Congress, in considering amendments to the preference rules, openly considered the possible negative effects on U.S. producers and workers. In so doing, Congress sought a policy coherence that attempts to balance domestic and foreign policy considerations. 

Major changes to the trade preferences include extending the Caribbean Trade Partnership Act (CBTPA) and the HOPE Act through September 30, 2020; allowing the value-added rule to remain at 50% through 2015; increasing the woven tariff preference level (TPL) to 200 million square meter equivalents (SMEs), with many exclusions to accommodate U.S. industry; expanding the knit TPL similarly; reducing the 3-for-1 earned import credit to 2-for-1; and expanding the list of products eligible for duty-free treatment under special assembly rules. The HELP Act requires U.S. Customs and Border Protection (CBP) to verify that apparel articles imported under the TPLs are not transshipped illegally into the United States. CBP is also to evaluate Haiti's customs requirements and set out a plan to improve their capabilities.


Date of Report: June 2, 2010
Number of Pages: 28
Order Number: RL34687
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Latin America and the Caribbean: Fact Sheet on Leaders and Elections

Julissa Gomez-Granger
Information Research Specialist

Mark P. Sullivan
Specialist in Latin American Affairs

This fact sheet tracks the current heads of government in Central and South America, Mexico, and the Caribbean. It provides the dates of the last and next elections for the head of government and the national independence date for each country.


Date of Report: June 2, 2010
Number of Pages: 5
Order Number: 98-684
Price: $19.95

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Mexico-U.S. Relations: Issues for Congress

Clare Ribando Seelke
Specialist in Latin American Affairs

The United States and Mexico have a close and complex bilateral relationship, with extensive economic linkages as neighbors and partners under the North American Free Trade Agreement (NAFTA). U.S.-Mexican relations are characterized by strong commercial and cultural ties and cooperation on a range of bilateral and international issues. In recent years, security issues have dominated the bilateral agenda, as the United States has supported Mexican President Felipe Calderón's campaign against drug trafficking organizations (DTOs). Immigration and border security have also returned to the forefront of the bilateral agenda since Arizona enacted a controversial state law against illegal immigration (SB 1070) on April 23, 2010, a measure opposed by President Barack Obama. On May 25, 2010, in response to rising state and local concerns about border security, President Obama authorized sending up to 1,200 National Guard troops to support law enforcement efforts along the U.S.-Mexico border. 

Now in the fourth year of his six-year term, President Calderón of the conservative National Action Party (PAN) is focused on restarting the Mexican economy, which contracted by 7% in 2009 (largely as a result of the U.S. recession), and combating drug traffickers and organized criminal groups in Mexico. Although the Calderón Administration has arrested several top drug kingpins, the persistent and increasingly brazen violence committed by the DTOs has led to significant criticism of Calderón's anti-drug strategy. As the 2012 presidential elections approach, the Mexican Congress, which is now dominated by the Institutional Revolutionary Party (PRI), could be reluctant to give President Calderón any major legislative victories. 

In recent years, U.S.-Mexican relations have grown stronger as the two countries have worked together to combat drug trafficking and secure their shared border. President Obama met with President Calderón in Mexico on April 16-17, 2009, to discuss counterdrug cooperation, immigration reform, and climate change. The leaders met again in August 2009 alongside Canadian Prime Minister Stephen Harper at the North American Leaders Summit in Guadalajara, Mexico to discuss how to coordinate their responses to the global economic crisis, climate change, and security issues. On May 19, 2010, President Calderón traveled to Washington D.C. for a state visit with President Obama during which both leaders reaffirmed their commitment to working together on a wide range of bilateral issues. 

The 111th Congress has maintained an active interest in Mexico with counternarcotics, border, and trade issues dominating the agenda. To date, Congress has appropriated some $1.3 billion in assistance for Mexico under the Mérida Initiative, an anti-crime and counterdrug package first funded in FY2008. The Senate-passed version of, H.R. 4899, the FY2010 Supplemental Appropriations measure, would provide $175 million in additional assistance for Mérida-related programs in Mexico. The House is reportedly considering inserting additional funds for justice sectors programs in Mexico and for border security into its version of the supplemental measure. The Obama Administration asked for $346.6 million in assistance for Mexico in its FY2011 budget request, including $310 million in Mérida-related funding. Congress is likely to maintain a keen interest in how implementation of the Mérida Initiative and related border security initiatives are proceeding, particularly now that the President has authorized National Guard troops to be sent to the Southwest border. Congress may also consider proposals for comprehensive immigration reform. On the trade front, Congress is likely to maintain interest in how the Obama Administration moves to resolve the current trucking dispute with Mexico now that P.L. 111-117 would permit the resumption of a U.S.- funded pilot program for Mexican trucks.


Date of Report: June 3, 2010
Number of Pages:40
Order Number: RL32724
Price: $29.95

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Political Status of Puerto Rico: Options for Congress

Keith Bea
Specialist in American National Government

R. Sam Garrett
Analyst in American National Government

The United States acquired the islands of Puerto Rico in 1898 after the Spanish-American War. In 1950, Congress enacted legislation (P.L. 81-600) authorizing Puerto Rico to hold a constitutional convention and in 1952, the people of Puerto Rico ratified a constitution establishing a republican form of government for the island. After being approved by Congress and the President in July 1952 and thus given force under federal law (P.L. 82-447), the new constitution went into effect on July 25, 1952. 

Puerto Rico is subject to congressional jurisdiction under the Territorial Clause of the U.S. Constitution. Over the past century, Congress passed legislation governing Puerto Rico's relationship with the United States. For example, residents of Puerto Rico hold U.S. citizenship, serve in the military, are subject to federal laws, and are represented in the House of Representatives by a Resident Commissioner elected to a four-year term. Although residents participate in the presidential nominating process, they do not vote in the general election. Puerto Ricans pay federal tax on income derived from sources in the mainland United States, but they pay no federal tax on income earned in Puerto Rico. In the 111th Congress, the Resident Commissioner may vote in legislative committees and in the Committee of the Whole. 

Elements of the U.S.-Puerto Rico relationship have been and continue to be matters of debate. Some contend that the current political status of Puerto Rico, perhaps with enhancements, remains a viable option. Others argue that commonwealth status is or should be only a temporary fix to be resolved in favor of other solutions considered permanent, non-colonial, and nonterritorial. Some contend that if independence is achieved, the close relationship with the United States could be continued through compact negotiations with the federal government. One element apparently shared by all involved is that the people of Puerto Rico seek to attain full, democratic representation, notably through voting rights on national legislation to which they are subject. 

On April 29, 2010, for the first time since 1998, the House approved (223-169) status-related legislation for Puerto Rico. H.R. 2499 (Pierluisi) would authorize a two-stage plebiscite in Puerto Rico to reconsider the status issue. As passed by the House, the bill provides that if a majority of voters opt for a change in status in the first plebiscite, a slate of four options (independence, sovereignty in association with the United States, statehood, and commonwealth) would be on the ballot for the second plebiscite. Approval of any one of these options by the Puerto Rican voters would arguably set the stage for, but would not mandate, further congressional action. On May 19, 2010, the Senate Energy and Natural Resources Committee held a hearing on H.R. 2499. Leaders of the three major political parties in Puerto Rico testified on the legislation.


Date of Report: May 19, 2010
Number of Pages: 59
Order Number: RL32933
Price: $29.95

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The Haitian Economy and the HOPE Act

J. F. Hornbeck
Specialist in International Trade and Finance

In December 2006, the 109th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I), which included special trade rules that give preferential access to U.S. imports of Haitian apparel. These rules were intended to promote investment in the apparel industry as one element of a broader economic growth and development plan. HOPE I allowed for the duty-free treatment of select apparel imports from Haiti made from less expensive third-country inputs (e.g., non-regional yarns, fabrics, and components), provided Haiti met rules of origin and eligibility criteria that required making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing. The 110th Congress responded by amending HOPE I in the Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extended the preferences for 10 years, expanded coverage of duty-free treatment to more apparel products, particularly knit articles, and simplified the rules, making them easier to use. Early evidence suggests that apparel production and exports are responding to these changes. 

HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program. The TAICNAR program provides for the United Nations International Labor Organization (ILO) to operate a firm-level inspection and monitoring program to help Haitian apparel factories comply with meeting core labor standards, Haitian labor laws, and occupational health and safety rules. It would apply to those firms that agree to register for the program as a prerequisite for utilizing the tariff preferences. The TAICNAR program is also designed to help Haiti develop its own capacity to monitor compliance of apparel producers in meeting core labor standards. 

The earthquake that rocked Haiti on January 12, 2010, caused considerable damage to the apparel sector, although much has been done to return capacity to pre-earthquake levels. Estimates of rebuilding costs for the industry begin at $38 million to refurbish damaged buildings, replace machinery, and train new employees. The U.S. Congress has chosen to respond to Haiti's needs by amending the HOPE Act to enhance even further U.S. market access for Haitian apparel and other exports. Two important considerations guided congressional action in addition to a broadbased concern over Haiti's economic and social problems. First, legislation appeared to focus on enhancing those preference rules that have so far shown the most promise for promoting investment, production, and apparel exports. Second, Congress, in considering amendments to the preference rules, openly considered the possible negative effects on U.S. producers and workers. In so doing, Congress has attempted to achieve a policy coherence that reconciles domestic and foreign policy considerations. 

Major changes to the trade preferences include: extending the Caribbean Trade Partnership Act (CBTPA) and the HOPE Act through September 30, 2020; allowing the value-added rule to remain at 50% through 2015; increasing the woven tariff preference level (TPL) to 200 million square meter equivalents (SMEs), with many exclusions to accommodate U.S. industry; expanding the knit TPL similarly; reducing the 3-for-1 earned import credit to 2-for-1; and expanding the list of products eligible for special assembly rules. The HELP Act requires U.S. Customs and Border Protection (CBP) to verify that apparel articles imported under the TPLs are not transshipped illegally into the United States. CBP is also to evaluate Haiti's customs requirements and set out a plan to improve their capabilities.


Date of Report: May 20, 2010
Number of Pages: 28
Order Number: RL34687
Price: $29.95

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.