Fact Check: Argentina

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“Like Russia, Argentina is So Bad it Almost Can’t Get Any Worse”

Things only seem to be getting worse for Argentina. Since its default, the economy has deteriorated rapidly with each passing day.  Consumption is falling, exports are down, consumer confidence is sinking, the peso is hitting record lows while prices are rising, wages are deteriorating, and labor unrest is expected to pick up as the 2015 election approaches. And the government only seems to be aggravating the situation.

A Reuters piece from yesterday titled, “After default, Argentina economy falling into deeper hole,”summed up the situation well. The article stated, Argentina’s government is ramping up state intervention in the economy to try to prevent a new debt default from triggering a balance of payments crisis but its policies are also battering business confidence and may deepen a recession.”

Argentina’s reserves are at an eight-year low of $28.4 billion, equivalent to less than five months of imports. An economist at Jefferies, Siobhan Morden, believes that reserves could drop as low as $7 billion by the end of 2015. The Central Bank has increased the minimum monthly salary required by Argentine citizens to buy dollars and strengthened its restrictions on dollars available to importers. El Cronista just reported today that the Brazilian subsidiary of GM will suspend auto exports to Argentina due to a lack of hard currency. The President of General Motors America, Jaime Ardila, apparently believes the lack of access to hard currency is temporary and “will normalize when the problem is solved with the holdouts.”

Instead of dealing with its debt crisis and seeking a resolution with its holdout creditors though, Argentina’s government is implementing more restrictive economic measures by the day. The government is in the process of passing an update to a law that allows it to intervene in various aspects of private companies, from the setting of prices and profit margins to production levels.  This so-called “Supply Law” has alarmed businesses, and prompted the leaders from the agricultural, construction, banking, industry and retail sectors to threaten legal action against the bill.

Jim Grant, of Grant’s Interest Rate Observer, apparently thinks that “Like Russia, Argentina is so bad it almost can’t get any worse.” Grant, who cited the country’s recurring power outages, skyrocketing inflation, and plunging real estate deals, puts the economic crisis squarely in Cristina’s lap. “In misgoverning, she’s wrecked the economy,” Grant observed. “By stepping down, she’ll improve it.”

Discussing the prospects for a post-Kirchner Argentina, Grant concludes that, whatever the differences between the presidential candidates, the contenders seem to agree that capital controls must be lifted, real rates of interest must be restored, and a settlement with creditors must be achieved.

Cristina can still turn this situation around. Negotiating a solution with creditors would restore investor confidence and allow Argentina to re-enter the capital markets. It’s not too late to come to the table.  

Kicillof’s Meltdown

Argentine Economy Minister Axel Kicillof is at it again. Yesterday, during a speech to the Lower house of Deputies on President Kirchner’s debt evasion bill, he took the opportunity to blame the Argentina’s creditors and the US judicial system for Argentina’s many ills.

During his testimony, Kicillof accused creditors of “forcing a devaluation” of the Argentine peso.

In another desperate attempt to deflect blame for the failing economy, Kicillof stated, “They know that attacking the peso will cause a negative effect in Argentina’s economy.”

Unfortunately, Kicillof has no one but himself and Cristina to blame for the economic mismanagement that led to the informal exchange rate hitting a new record yesterday. The blue dollar was up to 14.25 pesos yesterday.

Axel seems to forget that default was his stated preference from the beginning, and it was also the recommendation of Argentina’s lawyers at Cleary.  It’s not working out well: the devaluation of the peso, isolation from global markets and rapidly depleting currency reserves are the new reality for Argentina.  It’s no wonder that Axel would want to blame this meltdown on creditors, or on Judge Griesa, or on Special Master Daniel Pollack, or on the Obama administration, or on law-abiding US companies, or on [insert Kicillof’s scapegoat-du-jour], but the reality is that his own team’s decision to stonewall negotiations at every turn and to deliberately default on bond obligations has created this mess.

In his speech, Kicillof revived Argentina’s accusations that Judge Griesa is corrupt, stating that the “vulture funds found a complicit judge to make a scandalous profit.”

 Add this to the list of insults and attacks that Cristina and her companions have hurled at the US judicial system over the past two months.

Kicillof and Cristina conveniently ignores the fact that not only has Judge Griesa ruled against Argentina, but the Second Circuit unanimously agreed with Judge Griesa’s ruling, as did the US Supreme Court by refusing to take the case. Judges at all level of the US judicial system, appointed by both Republicans and Democrats, have consistently ruled against Argentina.

 Time for Kicillof to face reality and solve this dispute.

 

Argentina’s “Secret” Investor Meetings

Yesterday, Argentina’s ambassador to the United States, Cecilia Nahon, and Argentine finance secretary Pablo Lopez met with investors at its consulate in New York City.  The meetings were intended to be secret but there’s no such thing as a secret in Argentina. According to news reports, a purpose of the meetings was to discuss schemes designed to evade a federal court order, including participation in Argentina’s newly proposed debt swap and a “refinancing” of exchange bonds with cash from newly sold Argentine law bonds.

As Robert Cohen, counsel for NML reminds: “The court’s pari passu order strictly forbids taking steps to effectively nullify the order. Any third party participation in such schemes, whether it is a debt swap, an effective “refinancing”, or any similar plan, is not permitted and won’t be tolerated.”

The Kirchner Administration claims that it has bondholders who would be willing to participate in the debt swap. Following the meetings, Argentina’s Cabinet Chief Jorge Capitanich told the Argentine media that “there is obviously willingness among many creditors, or bondholders, to participate in the sovereign debt payment law.”  Not all investors seemed excited.  La Nacion provides more insight from people that directly participated in yesterday’s meetings:

  “‘He [Lopez] came to test out the proposed exchange, but the rejection was collective for several reasons,’ said a source in the financial sector in a telephone interview from Manhattan.

 “The reasons are that ‘no one wants to run the legal risks of being in contempt of court for being an accomplice of Argentina, there are many funds that do not have a mandate to invest in bonds with law other than from New York and also large bondholders have the chance of waiting until 2016 to collect here rather than in Buenos Aires,’ the private sector source said.

 “For this reason, another source from New York endorsed the same view: ‘No financial institution will help swap the bonds and that will remove liquidity from such securities in the future, by which they’ll lose appeal, even for those who want participate.’”

Despite the chilly reception, ATFA takes nothing for granted, and that’s why we were positioned along with some reporters outside the consulate yesterday – just to see who was in attendance.

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Here’s Argentina’s Ambassador to the United States, Cecilia Nahon, leaving the embassy at about 5:15pm last night.  (She doesn’t look very happy with how the day went).

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This sure looks like Jonathan Kelly, Portfolio Manager of Fidelity Investments’ Emerging Market Debt Fund. What was he discussing at the meetings?  (Compare to the profile picture of Kelly on the “debt outlook” tab of this page.) 

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We don’t know this guy yet, but he doesn’t look happy.  

We have loads more pictures of others in attendance…and video too!

Instead of meeting with investors about schemes to evade court orders, Argentine officials should be listening to citizens like Domingo Cavallo who said this week that “Argentina should comply with Judge Griesa’s decision” and settle its debt by negotiating with holdout bondholders.

MORE ON THAT ICEBERG…

Today ATFA hosted a teleconference call for reporters to update on additional subpoenas that had been served last week by NML Capital to Argentine businessman and Cristina Kirchner crony Cristobal Lopez.  The subpoenas are part of NML’s ongoing quest to uncover stolen funds laundered through shell corporations that have been set up by businessmen close to Kirchner.

Earlier this month, the New York Post reported on Cristobal Lopez and one of his companies Nevada-based Centenary International, which despite having no business operations and reporting almost in $1million in losses last year, recently signed a 10 year lease of office space in Manhattan at a cost of $34,000 month.

The call was hosted by ATFA Chairman Robert Shapiro and featured NML’s lead attorney Robert Cohen.  Here’s a link to an audio recording and to the teleconference transcript.

Last month, we reported that NML counsel Robert Cohen characterized the discovery of 123 Nevada-based shell companies controlled by yet another friend of Kirchner, Lazaro Baez, as “just the tip of a very large iceberg”of rampant corruption by Argentine officials.

ATFA Chair Robert Shapiro had this to day on today’s call:

“Here’s the bottom line:  Argentina’s leaders cannot be allowed to steal money from their country’s treasury and then try to launder it here in the United States, or Switzerland, or the Seychelles.  And if they try, the perpetrators will be exposed and the funds will be used to satisfy judgments owed by Argentina.”

 

A New Front in the Corruption Scandal –Drug Trade Linked to Casa Rosada

Last month, in an article titled “In Argentina, Mix of Money and Politics Stirs Intrigue Around Kirchner,” The Wall Street Journal stated, A string of judicial inquiries have roiled national politics by calling attention to the business dealings of top politicians and their associates.”

Things have only gotten worse.

Argentina’s Vice President, Amado Boudou, has been indicted yet again. Boudou was already under indictment for an array of charges, including bribery, and now faces charges of “falsification of a public document.”

Last year, construction tycoon and Kirchner confidant Lazaro Baez was under federal investigation until the government stepped in and suspended the lead prosecutor. But last month, Baez was back in the spotlight when a Nevada federal court ordered Baez’s shell companies to disclose details regarding their business activities as they are suspected of laundering money stolen from the Argentine government.

Now, an Argentine magistrate has announced that the Argentine equivalent of the White House, the Casa Rosada, or the “Pink House,” could be raided in connection with an investigation into the burgeoning Argentine drug trade, specifically that of ephedrine, used in the illicit manufacture of methamphetamine.

In an article titled, “Judge warns of Pink House raid,” the Buenos Aires Herald described the scandal, stating, “The controversial magistrate is investigating a case of ephedrine trafficking and has already indicted a former head of the Sedronar anti-drugs agency [the Argentine equivalent of the DEA], saying there had been phone calls between officials working at the Government House and drug-traffickers…Drug-trafficking is somehow backed by politicians, the magistrate repeatedly insisted yesterday.”

The article continued, “Servini de Cubría questioned former employee of the Chemical Precursor Registry Pedro Lucas Paradelo, who said there were phone calls between the Government’s Military Household with other offices of the Pink House, including offices of employees of the president and the Cabinet Chief. Those phone calls were made when they were discussing authorizations to import ephedrine.”

The Magistrate announced that if the government fails to respond to the court’s demand for information regarding these phone calls, she will issue another writ, and if the government still refuses to cooperate, the judge will order a raid on the President’s office.

Things do not look to be getting better for Cristina.

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