Paving the piper: Argentina's recovery faces a serious pothole--billions in legal claims by foreign investors.

• Author: Estevez, Matthew
• Position: Ilustraci

Osvaldo Cesar Guglielmino has his hands full these days. Argentina's Attorney General is trying to clean up a legal mess created by the country's economic breakdown earlier this decade.

Several dozen foreign companies, burned by Argentina's economic crisis of late 2001, have mounted a legal offensive against Argentina's government, seeking compensation for investments gone sour. The list reads like a who's who of utilities giants from the 1990s, including AES, Enron, Vivendi, Anglian Water, Enersis and El Paso. Even non-utilities giants like DaimlerChrysler and Siemens are piling on, looking for satisfaction.

Guglielmino is busy launching a counter-offensive to save his country from billions of dollars in potential payouts. The short answer: We simply cannot pay.

The Argentine economy has been booming of late as exports zoom and its consumer economy reignites, but outstanding bills from jilted foreign investors, Guglielmino has said, could swamp the recovery. "There is nothing fair about hammering a country into insolvency for acting swiftly, decisively, and effectively to preserve public order and defend its essential security interests at a time when its very existence was at stake," Guglielmino told the courts in one case.

The situation has sparked a fierce debate both in Argentina and abroad: Should the current administration have to foot the bill for economic promises and policies of past governments, decisions that led to the greatest foreign debt default in history--more than US$100 billion.

"Governments have the sovereign power to adopt measures to deal with a crisis, but when those measures are in violation of specific treatyprovisions, they must pay the consequences," says Paulo Di Rosa, a Washington D.C. attorney who has brought claims against Argentina on behalf of French companies EDF and Saur International, along with Chile's Compania General de Electricidad, seeking damages totaling $1.50 billion.

How did Argentina get into this state? In the nineties, it put up for sale huge chunks of poorly managed, state-run industries in an effort to make the country more competitive. The idea was that foreign investors would bring new technology to the region's dilapidated power grids, sewage systems, telecommunications networks and roads. The resulting efficiency would create higher tax revenues, more jobs and a higher standard of living.

Jittery investors were offered investment treaties. Such contracts have been used successfully in...