By Arturo Porzecanski of American University
José Antonio Ocampo, a former United Nations official and co-president with Prof. Joseph Stiglitz of Columbia University’s Initiative for Policy Dialogue, which promotes the adoption of heterodox economic policies in developing countries, recently wrote a guest post welcoming a UN General Assembly resolution calling for the launch of negotiations on a multilateral framework for sovereign debt restructuring. The resolution was Argentina’s initiative and it passed with the backing of a coalition of developing countries (the so-called G-77 plus China) in the wake of, as Ocampo put it, “the absurd decisions of a New York judge on Argentine debt.”
By José Antonio Ocampo of Columbia University
On September 9, the United Nations General Assembly approved a resolution to launch negotiations on a multilateral framework for sovereign debt restructuring. The vote was overwhelmingly in favour of the resolution: 124 in favour vs 11 against with 41 abstentions. But it was a deeply divided one. It was essentially approved with the votes of developing countries, but the no votes included the US, Japan, Germany and the UK; the remaining European Union members abstained.
This is, of course, a continuation of the saga of the absurd decisions of a New York judge on Argentine debt: the decision to force the country to pay on the original terms to holders of bonds not tendered at the 2005 and 2010 renegotiations, the ratification of this verdict by the New York Court of Appeals, and the decision of the US Supreme Court not to consider an appeal by Argentina against the latter decision.
The bust-up between Argentina and its holdout creditors is getting uglier by the day. As the “vulture funds” do their best to prove that there is corruption at the highest levels of government, President Cristina Fernandez responded yesterday by accusing them of engaging in terrorism.
The increasingly dirty fight comes as the holdouts disdainfully reject the possibility that a deal with the private sector might materialise, so rescuing Argentina from its default situation. Aurelius Capital Management said on Wednesday that none of the offers presented by a group of Wall Street banks were even “remotely acceptable.”
Argentina’s debt default at the end of last month might have been expected to plunge emerging markets into a new paroxysm of panic. But the saga has for the most part been brushed off by fixed income fund managers.
True, prices of Argentine bonds have fallen, but not by very much. An issue due in 2033 actually gained slightly last week to close on Friday at 84 cents on the dollar, down from 96 cents two weeks ago but well above its 2014 low of 65 cents, let alone the 20-30 cents in the dollar level to where defaulted Latin American paper might have been expected to sink.
What’s more, demand for new high yield Latin American paper continues to surge.
By Mark Stefanini of Mayer Brown
While global markets watched the clock tick down on Argentina’s default this week, the holdout creditors’ camp would have already started considering redoubling their efforts to extract payment from Argentina. The potential for NML to target Argentina’s overseas assets could provide the next twist in the tale – and set a precedent for exposing previously hidden transactions and assets in other emerging markets and worldwide.
Argentina’s national motto is En unión y libertad (In Union and Liberty). Should it, perhaps, consider changing it to Sui Generis?
Having found a variety of ways throughout its history to break new ground in macroeconomic and sovereign debt mismanagement, Buenos Aires this week may be forced into a new one.
Who will jump first in Argentina’s game of chicken with its holdout creditors as they race towards the abyss of sovereign debt default? Or will both drive off the edge?
Although just a few days remain until Argentina’s July 30 deadline to make bond interest payments – a failure to do so would result in default – it is still possible that one of the two parties will make a last-minute concession that would allow a deal to be made. Indeed, if a compromise is made, it is most likely to come at the eleventh hour.
As Argentina comes to terms with its 1-0 defeat by Germany, it is already half time in a critical showdown with so-called “holdout” creditors.
Two weeks have elapsed since Argentina entered a month-long grace period after failing to make interest payments to bondholders on June 30, and two weeks remain until it will default for a second time in a dozen years if those payments have still not been made by July 30. Yet talks with the holdouts appear to have made precious little progress so far.
It hasn’t been a good few days for Argentina’s government. First, a New York court ruled to block payments on its restructured debt, leaving the country teetering on the brink of its second default in 13 years. Then, in another judicial blow – this time from Buenos Aires – vice president Amado Boudou was formally charged in a corruption scandal.
Boudou heard about the decision late on Friday evening when in Cuba. The charge is the culmination of an investigation into Ciccone, a printing company rescued from bankruptcy and awarded a government contract to produce pesos. The vice president, charged alongside five other defendants, is accused of using middlemen to gain a 70 per cent stake in return for favours.
The most casual followers of the Argentine debt saga will be familiar with the Latin term pari passu, or “equal footing” – or, in this case, equal payment to all holders of Argentine bonds, whether or not those holders took part in the country’s two restructuring programmes in 2005 and 2010 following its 2001 default.
Now Russ Dallen of Caracas Capital Markets, a veteran commentator on and broker in Latin America’s most exotic bond markets, has introduced another smattering of Latin to the story: pacta sunt servanda, or “contracts are for keeping”.
Imagine an Argentina without holdouts – “it isn’t hard to do”, as John Lennon might sing. Investors are already doing so. The Buenos Aires stock market has soared 9 per cent since Cristina Fernández said last week that her country would negotiate with the holdouts, led by NML Capital. Argentine bonds have also rallied. Meanwhile, the economy has slipped into recession, partly because a shortage of foreign exchange has compressed imports.
Yet if the holdout issue was resolved, credit markets would re-open, foreign investment might soar, and currency shortages would no longer be a binding problem. Just imagine! Then the real economy would grow again, too.
By José Antonio Ocampo of Columbia University
The US Supreme Court decision not to review the prior findings of New York courts on Argentina’s dispute with non-participants in the 2005 and 2010 debt renegotiations (the so-called holdouts) has major implications for Argentina and for those who did take part in the renegotiations. But beyond that it has a paradoxical effect: it makes the negotiation of an international bankruptcy regime inevitable.
Tuesday’s event in Argentina’s fast-unfolding debt saga will be a press conference by Axel Kicillof (pictured), economy minister, at 6 pm local time in Buenos Aires. Perhaps he will add something of substance to the curiously ambiguous TV address on Monday night by Cristina Fernández, the country’s president.
Fernández pulled no punches in attacking the ‘vulture funds’ who were the winners from Monday’s ruling by the US Supreme Court. But she also left the door open for negotiation. As is often the way, the president took free rein to present herself as a promoter of a new world order, in defiance of US and UK hegemony, while the reality is a little different.
Cristina Fernández, Argentina’s president, took to the airwaves soon after 9 pm local time on Monday, minutes after the USA had beaten Ghana 2-1 in the World Cup. Dressed all in white, she was in schoolmistress spirit, giving viewers a brief history of Argentina’s economic woes and the roots of its recent problems, which she put down to the military dictatorship which started with the coup d’etat of March 24, 1976. She traced those issues into the 1980s and the one-to-one dollar convertibility of the 1990s, to the 2001/2002 economic crash. She noted the change of stance initiated under her deceased husband, former president Néstor Kirchner – whom she referred to as “the president of all Argentines” – and continued under her two mandates.
She spoke for about 25 minutes (relatively little for her) and said little to clarify what Argentina’s stance now is, other than underlining that the holdouts were welcome to the same terms as those of the restructuring in 2005 and 2010 and stressing Argentina’s willingness to negotiate, while making sure to paint the “speculative” holdouts in as bad a light as possible.
News on Monday that the US Supreme Court would not, after all, hear an appeal by Argentina against a lower court ruling forcing it to pay all holders of its defaulted debt came as a body blow to Beunos Aires. Investors, too, were rattled, as bond prices slumped and the country’s 5-year CDS, a form of default insurance, spiked sharply.
All eyes now are on the Casa Rosada, from which president Cristina Fernández will address the nation on television at 9 pm local time on Monday evening.