Schäuble caught in debt row

Argentine Cabinet Chief Jorge Capitanovich on Wednesday lashed out at Germany's finance minister, denouncing Berlin's "hostile attitude" toward Argentina's debt restructuring effort. He added that Germany had always had a hostile attitude toward Argentina from an economic and financial point of view.

The criticism came after local newspapers ran an advertisement quoting German Finance Minister Wolfgang Schäuble as saying the Latin American country's debt policy was "a prime example of fiscal mismanagement." Schäuble allegedly made the remark in Berlin in August this year.

The advertisement was posted by US lobby group American Task Force Argentina (AFTA) on behalf of several hedge funds suing Argentina for full repayment of bonds they bought at a steep discount after Argentina's default in 2002. These hedge funds specialize in buying up distressed debt on a speculative basis, and then using lawsuits to try to collect the full nominal value of the debt.

AFTA's ad campaign marks the latest spat generated by Argentina's July default, which sealed the country's exclusion from the international capital markets. Last week, Buenos Aires expressed "deep indignation" after a US diplomat had referred to the country as being in default.

Argentina has repeatedly claimed it is not in default because it made every effort to pay interests on bonds restructured after an agreement with nearly all of its creditors about a decade ago. The government said it had deposited $539 million (421 million euros) with an intermediary bank in New York.

The coupon payment, however, was blocked by US District Judge Thomas Griesa, who said Argentina must first pay the hedge funds $1.3 billion before any more payments can be made on Argentina's restructured debt. Argentine President Cristina Kirchner has described the US hedge funds as "vultures" that are bent on ruining the country's finances in pursuit of unearned and unethical profits.

Capitanovich also noted that Germany was among 11 countries that voted against Argentina's proposal at the United Nations to adopt a multilateral legal framework for sovereign restructurings. On September 9, the UN resolution easily passed, but Germany joined the United States in voting no, arguing that market-based mechanisms are the best way of curing defaults.

"You have to wonder why the big powers of the world do not have a firm attitude toward these minuscule groups that pulverize any possibility of allowing the international financial system to function properly," Capitanovich said, suggesting that Germany might have been "co-opted by the vultures."

The German government has not yet reacted to the criticism.

uhe/nz (Reuters, dpa)