45 cases against Argentina remain unresolved at the ICSID

Argentina is ready to accept 5 adverse verdicts at the ICSID and pay for rights trampled by policies executed after 2002. This abrupt change in attitude suggests that the policies carried out in the last decade were guided mainly by improvisation and lack of expertise than by ideological conviction. Anyhow, the important issue is that this precedent makes clear that an enormous effort will be necessary in order to resolve the remaining disputes.

The International Centre for Settlement of Investment Disputes (ICSID) arbitrates between adhering countries and private companies to facilitate arrangements in case of business disputes. It thus seeks to fill the legal vacuum that exists in international law for resolving disputes between States and foreign private companies in cases of nationalization or radical reforms in the regulatory frameworks. The Center, part of the World Bank Group, started operating in 1966 and has 158 adhering countries. The only two major countries that do not participate are Brazil and India.

The ICSID is not a court but a place for conciliations. Therefore, its opinions can or cannot be obeyed. But, because of their prestige and impartiality, it helps resolve disputes. Its role, in a globalized world, is important because it helps to generate favorable investment conditions since it reduces the risk of possible unilateral and arbitrary State decisions.

It has been learnt that Argentina is preparing to accept 5 adverse verdicts in cases of energy and water disputes for contracts broken during the 2002 crisis. To gauge the importance of this decision, it is helpfull to take a look at the ICSID official site which shows that:

· In the ICSID there are a total of 439 conflicting cases between States and private companies.

· Of these, 159 are disputes involving Latin American countries, 99 African countries, 84 Eastern European countries and 71 Asian countries.

· Argentina is the country that has the highest number of controversies accumulated, with 50 cases followed by Venezuela with 37 cases.

This data shows that Argentina, along with Venezuela, place Latin America as one of the riskiest zones in the world to do business. Latin America is located well ahead Africa and the ex Soviet Union countries, which are all characterized by extremely weak institutions. Excluding the 5 cases that are going to be solved, Argentina would still maintain its leadership position in the ranking of non-compliance.

The central issue is that, in order to solve only 10% of the conflicts, Argentina has to make an important financial effort and to capitulate in its ideological confrontation against international financial agents. Such a change of attitude casts doubts over the consistency and conviction of the policies carried out in the last decade. By contrast, it suggests that the decisions that led to so much international conflict were the result of inexperience and improvisation. It should be noted that the 45 pending cases will require further sacrifice in payments and self criticism. Among them are, for example, the nationalization of AYSA to the Suez and Vivendi companies and the nationalization of YPF to REPSOL.

The main factor that drives the government’s change of attitude is the fiscal deficit that has exceeded 4 points of GDP. Without access to international markets, fiscal imbalances are being financed by pension savings and a massive printing of unbaked money. The limits of this strategy are made explicit by the inflation and the decline in central bank reserves. In this context, adhering to ICSID’s decisions can provide a palliative – since payments will be made in bonds, while it will open the access to World Bank cash loans– but this is a transitory relief.

In practice, this means that unregistered debt will be reduced (debt financed by pension savings and unbacked monetary emission), being replaced by new registered debt (bond issuance to pay enterprises and World Bank loans). This alerts about the urgency for a profound rearranging of public finances. Otherwise, continuing to delay these decisions will require a much more abrupt and costly adjustments in the future.