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Argentina May Defy New York Courts

"I think it will be important for people in Argentina to realize that offering a new bond is totally outside of what the court asked for, demanded or would accept," Rosner said. "They have to know that they can't win this."

President Fernandez and her economic team are proud of sharply reducing the country's foreign debt burden, and never failing to meet payments on the new bonds her government issued in exchange for the defaulted debt. But it still owes tens of billions to many other creditors, and until it settles those debts, its economy will be strangled by punishingly high borrowing costs, Rosner said.

Because of its deadbeat reputation, Argentina has had to look inward, essentially borrowing from its own people, fueling inflation, and trying to centrally manage the increasingly isolated economy by frequently changing the rules for exchanging currency, importing and exporting goods, setting prices and paying taxes.

Increasingly, Argentines are feeling trapped by the government controls, and foreign companies are being scared off.

Argentina's largest single foreign investment, a $6 billion Rio Colorado mine, railroad and port project to deliver potash fertilizer to Brazil, was suspended this month by Vale S.A. (VALE), the world's second-largest mining company. Executives blamed Argentina's unpredictably high inflation and currency controls for laying off more than 4,000 people, despite having invested more than $1 billion and completed 40% of the construction.

"The controls are being put in place because of these unnecessary ideological battles. My attitude as an analyst is, I really don't care whether Argentina is correct ethically, or intellectually. It doesn't matter. At this point, they need to take care of their population," Rosner said. "How do you provide for the people? You bring in foreign direct investment and have Vale staying in the country and building out."

"There's an easier way out," Rosner said. "The government could say 'you know what, we fought for what we thought was fair and equitable, but for the greater good of Argentina, we have to put this in our past so we can normalize our relations with international markets, so that we can start having negotiations with the companies that have judgments against us with World Bank arbitrators, with the Paris Club, with the IMF, because at the end of the day the only way we can protect the lives of the Argentines we have sworn to protect is by not going down this dangerous path.'"

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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