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Italian Prime Minister Romano Prodi’s government is preparing to pass a law that will create a compensation fund financed by dormant Italian bank accounts that have not seen activity for more than 10 years. Although important aspects regarding the amount of compensation remain unclear, on Tuesday, the Italian Parliament approved a plan that was passed earlier by the Senate’s Finance and Treasury Commission, a source close to commission said.
An estimated EUR 10bn resides in these dormant accounts, the source close to the commission said. Final approval is still pending.
The offer for compensation will be open to all investors that did not accept Argentina’s exchange offer or are currently involved in Task Force Argentina’s claims against the sovereign at ICSID, the World Bank’s International Court for the Settlement of Investment Disputes. The same provision applies for bondholders that were negatively affected by defaults of Argentine corporate borrowers like Cirio and Parmalat.
American Task Force Argentina is another Washington-based creditor-sponsored group lobbying for the recognition and repayment of Argentina’s repudiated defaulted debt. Its current sponsors are Bracebridge Capital, Elliot Associates, FH International Asset Management, Grantham, Mayo, Van Otterloo & Co., Greylock Capital Partners and Montreux Partners.
The law sets a bad precedent for the international financial system but will not change the sovereign’s situation, according to Dr. Robert Shapiro, Co-Chair of American Task Force Argentina. Argentina still cannot access international debt markets because any funds raised would be subject to seizure and attachment as aresult of its repudiation of defaulted debt, he said.
“These reports certainly show the intensity of the public pressures the Italian government is feeling over Argentina’s repudiation of so much of its debt,” Shapiro said in an earlier statement. “While this proposal may help some Italian creditors, Argentina cannot continue to ignore her outstanding obligations without its people paying the price of lower foreign direct investment and being barred from global capital markets. The G7 nations must hold Argentina accountable for her actions. We are working towards that goal.”
Although 20% of the fund will be used to permanently hire temporary public sector workers, the remainder will finance cash payments to victims of “financial crisis”. The commission has been working on this investor relief plan for two years, adopting the idea from similar programs in other European countries.
The government would like the fund to be created as soon as possible but the banking system has been foot-dragging and has not readily provided details of the amount of dormant accounts, the source close to the commission said. The process could drag out through 2008 as banks will be required to give dormant bank account holders six months time to claim their deposits, said a source familiar with holdout creditors.
The source close to the commission was critical of the banking system for marketing Argentine bonds to retail investors that were unaware of the risks and said that planned compensation would not limit their rights or affect pending litigation. Cash payments will be made to 150,000-200,000 individual investors and holders would not have to tender their bonds to qualify for compensation.
A spokesperson for the Japanese Embassy declined to comment on its own restitution plan but said that the country has previously mentioned that it would be prepared to explore measures to resolve the issue. Nevertheless, Japan would always act in accordance with the Paris Club and the G7.
Italy’s plan was welcomed by Argentine presidential candidate Roberto Lavagna who was economy minister when the sovereign’s largest restructuring deal was completed.
“We voluntarily got three out of every four creditors to accept the deal and those who didn’t have not yet given a reason to reanalyze their situation... Argentines saved USD 60bn, some 20m homes or 70,000 schools and we are not going to give back that which we have saved,” Lavagna said in a video posted on YouTube. The video was posted in response to a recorded statement made by Dr. Robert Shapiro from American Task Force Argentina.
An Argentine Economy Ministry spokesperson declined to comment.
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