Fact Check: Argentina

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U.S. Congress Makes Federal Case Over Argentina’s Refusal to Negotiate With Creditors

You might have missed this, but late last week, the U.S. Congress approved language (see House Report 113-499) requiring the U.S. Departments of State and Treasury to report back to Congress early in the new year about the “steps that Argentina is taking to normalize relations with its creditors.”

Report language addressing Argentina’s refusal to negotiate with U.S. creditors had previously passed a House Committee this summer and is put into effect by the omnibus appropriations bill that just passed both Houses of Congress. Here is what it says:

Debt repayment. The Committee is concerned about the continued dispute between Argentina and its creditors and notes that the Secretary of State, in a hearing before the Subcommittee, said that he has urged Argentina to repay its debts to the United States Government and to engage with creditors, public and private. The Committee directs the Secretary of State and the Secretary of the Treasury to submit a report to the Committees on Appropriations, not later than 45 days after enactment of this Act, on steps the Government of Argentina is taking to normalize relations with its creditors.

According to the report’s directive, both the Secretary of State and the Secretary of the Treasury must report back to Congress within 45 days on “steps that Argentina is taking to normalize relations with its creditors.”

This isn’t the first time U.S. officials have taken a position on Argentina’s refusal to negotiate. As the report states, Secretary of State Kerry has called upon Argentina to engage with creditors, public and private. This summer, Senator Menendez called out Argentina for its behavior, stating that there was no reason for a G-20 member to fail to meet its obligations.

For years, Argentina’s creditors have asked the country’s leaders to sit down and negotiate a final resolution to Argentina’s outstanding debts. Creditors have made it clear that they can be flexible on negotiating terms, including incorporating elements of past Argentine negotiations with the Paris Club and Repsol into a final bondholder resolution. However, Argentina’s officials have refused to engage in even basic dialogue with its creditors. By refusing to negotiate, Argentina’s leaders, specifically its Economy Minister Axel Kicillof, have created a disastrous economic situation for Argentina’s citizens, and have isolated the country from financial markets.

This latest action by the U.S. Congress is a constructive step aimed at promoting a settlement between the two parties. Argentina’s creditors are waiting to negotiate. Will Argentina join them?

Florencio Randazzo’s Ties to Construction Tycoon Raise Questions About a Presidential Run

Interior Minister Florencio Randazzo has reportedly emerged as Cristina’s favored candidate for president next year, but allegations of improper dealings with a construction tycoon allegedly serving as Randazzo’s front man have complicated his rise. Randazzo’s alleged front man, Eduardo Wassi of the firm Dinatech, also has extensive holdings in Miami that have not been previously disclosed, and whose acquisition coincides with Randazzo’s tenure as interior minister.

Multiple media reports indicate that Randazzo is the preferred candidate of Cristina and her inner circle. While the campaign season has not yet officially started, Randazzo has publically announced his intention to run, and he and his team have launched a social media drive to boost his candidacy. Cristina appeared at a pseudo-campaign event with Randazzo earlier this month.

Not coincidentally, Randazzo is also among the favorites of the Cámpora, the political youth group started by Maximo Kirchner and fanatically loyal to Cristina. Randazzo made an appearance with Camporista big shots Andrés Larroque and Mariano Recalde in October. In November, he travelled with prominent Cámpora members to Río Gallegos, the Kirchners’ hometown and Máximo’s current place of residence. During the Río Gallegos event, Randazzo slammed Daniel Scioli, the Peronist Buenos Aires governor and presidential hopeful who has long had a rocky relationship with the Kirchners. Randazzo has also founded his own youth group, called La Florería, aimed at emulating Cristina’s success with the Cámpora.

His electoral ambitions have brought greater attention onto Randazzo, which has dredged up some unflattering allegations. In September, Perfil reported that Dinatech, a construction firm owned by local businessman Eduardo Wassi, collected $134 million from the Interior Ministry during three years with Randazzo at the agency’s helm. Dinatech also collected public moneys from Randazzo in his prior job as cabinet chief to Buenos Aires Governor Felipe Solá. Largely as a result of the largesse of Randazzo’s agencies, Dinatech’s assets increased by more than 1,000 percent in a decade. Other news organizations like Clarín indicated that Wassi served as a testaferro, or front man, for Randazzo, meaning that the contracts his agency awarded would have been filtered back into his own pockets.

In October, judge Marcelo Martínez de Giorgi gave a green light to a federal investigation of Randazzo and Wassi, which is being led by prosecutor Ramiro González. Diego Bossio, the head of Anses, and Vice President Amado Boudou are also under González’s microscope for their alleged ties to Wassi.

The testaferro charge is one Randazzo (like Boudou) has faced before. In 2009, he was accused of purchasing a 3,600-acre property in Buenos Aires province, via a company called ADM Pigue S.A. Randazzo was subsequently investigated for his alleged role in the purchase; it is not clear if he was ever cleared or if the investigation simply petered out. Randazzo was one of several figures associated with the Kirchners accused of acquiring rural property through front groups while the government was engaged in a massive fight with the agricultural sector, leading to charges that the Kirchners’ policies were simply a ploy to allow friends to snap up properties at bargain prices.

Wassi’s alleged role in fronting Randazzo’s wealth is further interesting because of the former’s substantial holdings in Miami. In November 2011, he founded a firm in Miami called Technology Dinamic. A month later, public records indicate that Wassi acquired a luxury condo in downtown Miami’s Marquise Condos for $1.075 million. Wassi appears to work closely with a lawyer named Marcell Felipe, whose firm has offices in Miami, Buenos Aires, and elsewhere in Latin America. Felipe is listed as Wassi’s representative for the condo and is Technology Dinamic’s registered agent.

Wassi’s status as a construction magnate whose growth stems largely from relationship with government officials can’t help but call to mind Lázaro Báez. Both men who came out of relative obscurity, befriended powerful political figures and then grew rich by bidding on government contracts. Would a Randazzo presidency be as generous to Wassi as the Kirchners’ tenure has been to Báez?

 

Infobae Reporting New Argentine Justice Investigation into Kicillof – Marynberg Connections

Until now, the K in the “K money trail” has clearly referred to the Kirchner family.  But an Argentine prosecutor is advancing on what potentially could become a money trail of a different “K”.

As we have reported extensively here, Diego Marynberg has connections to shell companies and financial maneuvers passing through Panama, Uruguay, Russia, Venezuela and the United States.  Marynberg was revealed to be a crony of Economy Minister Axel Kicillof, and has been linked to a mysterious insider bond transaction with the Central Bank of Argentina (BCRA) only days before Kicillof intentionally took the country into default earlier this year.

Yesterday, Infobae reported that prosecutor Guillermo Marijuan is advancing apace in the federal investigation of both men and the transaction between them involving public funds that is described in the complaint.  Recall that the discovery of the alleged insider deal worth US$200 million by then-Central Bank President Juan Fabrega may have been the reason for Fabrega’s spectacular ouster, reportedly at the hands of Kicillof himself.

Did Fabrega uncover a spectacularly unethical maneuver by Kicillof and his staff behind the scenes?  And did Kicillof maneuver for Fabrega’s ouster in order to hide his trail?

Against a backdrop of almost daily revelations chronicling the depth of corruption by nearly every major figure of the Kirchner government – and the panicked scrambling to give themselves immunity from prosecution by the Argentine justice system – it will be very interesting to follow the developments of this investigation.  With so much already out in the open from the criminal complaint that was filed earlier this year, any journalist or independent researcher has plenty to start digging into.

Who knows what might be uncovered by Marijuan?  Or others.

Fact Check Launches RUFO Countdown Clock

Today, Fact Check Argentina launched an official “Countdown to RUFO” clock on our homepage to mark the hours until RUFO expires at the end of this year.  To date, RUFO has been Axel Kicillof’s favorite excuse for not negotiating with creditors.

RUFO Countdown Clock

We’ve explained to our readers that RUFO is nothing more than a smokescreen aimed at scuttling any negotiations – likely concocted by Argentina’s lawyers at Cleary Gottlieb.  Since trotting it out this summer, Argentina’s leaders have consistently cited RUFO is a primary reason for not settling – or even meeting with its creditors.  Argentina’s leaders like to cite RUFO, in explaining their refusal to help their own economy by settling with creditors, but even exchange bondholders have stated that they would be willing to waive RUFO in exchange for a settlement.

Nevertheless, RUFO has a deadline, and that deadline is approaching rapidly.  Despite ATFA’s disagreement that RUFO would have hindered a settlement in 2014, we’re optimistic that its expiration in 2015 will pave the way for an agreement that will unleash new growth and investment in Argentina’s economy.

As recent news shows, Economy Minister Axel Kicillof has proven Argentina can pay what it contractually owes to the holdout bondholders.  Hopefully when RUFO expires, Crisitna Kirchner and Axel Kicillof will come to the table to negotiate.  It’s time.

Kicillof proves he can pay holdouts

Last Thursday, Argentina’s Economy Minister Axel Kicillof announced a buyback offer for holders of sovereign bonds – known as Boden 2015 bonds – that are scheduled to mature in 2015.  According to news reports, the Argentine government has given bondholders two options: accept $0.97 on the dollar or swap their Boden bonds for new Bonar bonds governed by Argentine law that would become due in 2024.  If all Boden bondholders accepted the cash offer, Argentina would pay approximately $6.5 billion in cash.

The cash offer is clearly unattractive to Boden holders, with the Bodens currently trading in the open market for more than $0.97.  Curiously, Kicillof announced that this offer “proves” that Argentina pays its debts. But by offering less than the par amount owed and less than the current market price is Argentina actually signaling that it may not pay the full 100 cents come October 2015?

The offer to swap Bodens for Bonar 2024s is equally unattractive. Boden holders should be trying to get cash at maturity, not new Argentine law bonds.  Argentina has shown no sign that it’s willing to end its self-destructive policy towards the holdouts which could lead to an unraveling of the previous exchanges. Argentina also shows no sign of discontinuing its unsustainable economic policies including constant money printing to feed local subsidies.  The only scenario in which it is attractive to take extended maturity Argentine bonds is if Argentina intends to resolve the holdout situation and end its current default.

Argentina is also offering to issue new Bonar 2024s for dollars. This is even more unattractive. Kicillof is asking people to part with their hard-earned dollars to buy Argentine law bonds that will have little prospect for value appreciation given Argentina’s stance towards the holdouts and that have the possibility of being pesified at any time. Argentina’s recent history of choosing to pay certain bondholders and not others, gives holders of Bonar 2024s no reason to believe that the Republic won’t at some point decide that the BONAR 2024s aren’t worth paying in U.S. dollars. Also, creating new debt while not paying the debt in default certainly is not consistent with the concept of treating creditors pari passu.

ATFA responded quickly to Kicillof’s new offer.  We released the following statement noting the hypocrisy of Argentina’s leaders claiming they have no money to pay judgments owed to our members:

“Argentina’s announced offer to use billions of dollars in cash to repurchase outstanding bonds – and almost one year ahead of schedule – makes clear that the Republic indisputably has the financial capacity to pay holders of the bonds which have remained in default for over 13 years.  Argentina cannot selectively pay certain creditors and not others and it should use that cash to pay holders of its defaulted debts.”

It’s quite brazen, but unfortunately in character, for Argentina to announce offers of billions of dollars of cash payments for certain bondholders whose claims have not even matured when Argentina has so far refused to even meet with the bondholders who are in default and who the federal courts have ordered the Republic to pay. Through this operation, Argentina is only proving that it has more than enough cash to settle with holdouts.

But it’s even more brazen for Kicillof to claim that Argentina’s new bond swap offer will somehow protect the country’s finances.  That is simply false.  If Kicillof wanted to protect the country’s economy he would settle with bondholders instead of wasting billions of dollars paying Boden debts in advance.  Settle first, then refinance your debts.  That is basic prudent economic management. But Argentina’s refusal to negotiate has nothing to do with economics; instead it is crass political gamesmanship that only hurts the people of the Republic.

As always, we urge Argentina to settle with its creditors.

 

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