Fact Check: Argentina

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Argentine Case Sets No Precedent, Says S&P

Standard and Poor’s announced today the release of a report which concludes that Argentina’s historic legal defeat to creditors in no way sets a precedent for future sovereign debt restructurings.  Titled, “Why Argentina’s Legal Defeat to Creditors Is Unlikely to Set a Precedent for Other Sovereign Debtors,” S&P’s pronouncement follows on a similar report issued by Moody’s, March 3, 2014, titled, “Impact of Court Ruling on Argentina’s Debt on Future Sovereign Debt Restructuring Is Likely Limited.”

The S&P rationale is straightforward:  In the U.S. Federal Court of Appeals ruling issued in favor of NML Capital in 2013, there were highly idiosyncratic factors that contributed to Argentina’s legal defeat. Those factors included the Argentine government’s notoriously confrontational negotiating strategy along with “credit-friendly bond documentation” (i.e., the highly specific pari passu bond covenants that guaranteed equal treatment to all bondholders).  This confluence of factors, argue the authors, “rendered this unique litigation by holdout creditors more promising.”

Will the court’s action in favor of holdouts embolden creditors to take similar actions in other sovereign debt battles?  The answer again, according to the ratings experts is definitively: no.  Keep in mind that the nearly 15-year legal battle to enforce payment by middle-class Argentina (Latin America’s third largest economy and a G20 peer) has demonstrated the exorbitantly high cost of litigation over a protracted timeframe against a debtor who has had the means to pay, but repeatedly sought refuge behind claims of sovereign immunity and threats of global contagion. The cost of litigation alone would in most all cases outweigh potential gains resulting from a successful settlement.

For those of our readers who have followed the Equal Treatment case in the aftermath of the U.S. Federal Court Decision in 2013, you’ll recall that a central strategy of the Argentine government and its law firm Cleary Gottleib in asking for U.S. Supreme Court review was the (now debunked) argument that should holdout creditors prevail in this landmark dispute, it would undermine future restructurings. There remains a chorus of “Chicken Littles” (Columbia University’s Joseph Steiglitz and Jubilee USA’s Eric LeCompte, and the UN Human Rights Council among them) who continue to espouse these spurious arguments, but this new report adds to the body of evidence against them.

A press release issued today by S&P concludes undramatically:  “We’ve taken no sovereign rating actions as a result of the ruling, other than declaring a selective default on Argentina after the holders of discount exchange bonds did not receive payment.”

View the full S&P report here.

New Money Trail Player Cards Detail Báez-Kirchner Hotel Deals

It’s been one month since the launch of our first set of Money Trail Player Cards.  We’re grateful for all of the great tips from readers, and our Money Trail Player Cards are still getting attention in the media.  Yesterday’s Buenos Aires Herald mentioned the cards in a story about our blog post from Monday.

This week, we have a new set of cards on a timely theme: the players and companies involved in the Báez-Kirchner hotel deals.

The set of includes:

 – Hotesur, the holding company for Alto Calafate, a Kirchner hotel

 – Roberto Saldivia, a lawyer for Lázaro Báez who is connected to the Kirchner hotel operations

 – Osvaldo “Bochi” Sanfelice, a business partner of Máximo Kirchner and a Hotesur board member

 – Valle Mitre, a Báez-owned hotel management firm

Last month, we created an infographic to illustrate the flow of money from Argentina, through banks in Nevada, all the way to banks in Europe and the Seychelles.

This week’s featured player card has a new infographic: Valle Mitre is the hotel management firm Báez owns with which he has used to keep the Kirchner’s hotel business running at “full occupancy.”

Valle-Mitre-EN-PSD    Valle Mitre Card pic

Also featured in this week’s set is Hotesur. As reported in the media, Hotesur, the holding company for President Cristina Kirchner’s Hotel Alto Calafate, was raided last week.

Enjoy this week’s set.  And Happy Thanksgiving from all of us at ATFA!

UN Should Be Looking at Argentina, not Argentina’s Creditors

ATFA member NML Capital recently received a letter from the UN Office of the High Commissioner for Human Rights (OHCHR), which supports the UN Human Rights Council. The current membership of the Council includes Argentina, China, Cuba, Ethiopia, Kazakhstan, Russia, Venezuela and Vietnam. Given the track record of many of the Council’s member countries, the experience of reading the letter is akin to reading a lecture on fire safety from a group that includes several confirmed arsonists.

NML has informed us that they will not be dignifying the letter with a formal response, because its premise – that NML’s pursuit of its legal rights under New York law is somehow inconsistent with the UN’s guiding principles on business and human rights – is fundamentally absurd.

However, given the OHCHR’s stated intention to “issue a news release in the near future,” we here at ATFA are more than happy to respond to the letter’s many inaccurate assertions before the OHCHR tries to present them to the world.

Here are the facts:

 - The OHCHR has presented no evidence to support its thesis that NML’s successful lawsuits against Argentina “threats [sic] heavily indebted countries from using resources freed up by debt relief for their development and poverty reduction programmes, and therefore diminishes the capacity of these countries to create the conditions necessary for the realization of human rights for their people.” Argentina is not a “heavily indebted country” (as the OHCHR admits earlier in the letter).  It is a middle income country which spends lavishly on subsidies for its citizens, regardless of income. Its debt-to-GDP ratio is an enviable 40%. Argentina can easily settle its dispute with creditors by issuing new bonds, which would have the added benefit of lowering its risk profile and thus its average cost of debt. Argentina’s human rights issues –, which include  the denial of basic press freedom,  attacks on the independence of the Argentine judiciary, and massive systemic corruption by government officials – are self-inflicted and in no manner a consequence of U.S. court decisions.

- The OHCHR’s letter asked NML to show compliance with Guiding Principle 21 of the UN’s Guiding Principles on Business and Human Rights, which states that enterprises should communicate externally when human rights are at risk in relation to their business operations. As stated above, the OHCHR has failed to make the case that NML’s “business operations” – i.e. the enforcement in U.S. courts of a bond indenture – put human rights at risk. The OHCHR bases its rather forced argument on a report by an “Independent Expert” on the impact of “vulture funds” on debt relief and human rights. This report states, with no supporting evidence, that the benefits of official creditor debt relief are diverted to private creditors who litigate. But this document – A/HRC/14/12 – discusses Highly Indebted Poor Countries (HIPCs) and has no relevance whatsoever to Argentina, the third largest economy in South America and a member of the G20. Moreover, unlike HIPCs, Argentina has not received “debt relief” from its official creditors (the Paris Club): In fact, it has just agreed to pay that entire debt (USD 10 billion) in cash!  Did the OHCHR overlook this fact? As for “communicating externally”, NML has continually publicized its willingness to negotiate a settlement with Argentina, an invitation that Argentina has refused. Instead, Argentina chose to defy court orders, demonize its creditors and tip the country into a totally unnecessary default.

- Argentina had sophisticated counsel when it drew up the bond covenants being enforced here, and chose to issue debt under the laws of New York, to obtain the benefits of this international market. Now, however, Argentina seeks refuge behind the Guiding Principles on Foreign Debt and Human Rights, which enjoin creditors to take paternalistic responsibility for deciding on debtors’ ability to pay. The fact that some creditors agreed to Argentina’s coercive restructuring offer does not obligate other creditors, including thousands of small bondholders in Argentina and in Europe, to take the same offer. Courts have consistently found that these creditors still have rights under the law that Argentina agreed to be bound by.

- Attempts by the Argentine government to denigrate its creditors as “vultures” are nothing more than a childish distraction from its refusal to abide by the terms of its contracts, or engage in good-faith efforts to settle disputes. The OHCHR should be denouncing, not defending, this kind of lawless and destructive behavior.

 - Argentina has appealed every U.S. court judgment ordering it to pay its debts, and has enjoyed the protection of U.S. courts when it has succeeded in winning certain of those appeals. However, since losing its bid for an appeal of the Equal Treatment ruling at the U.S. Supreme Court this June, it has refused to abide by the court’s ruling or even meet with creditors to negotiate a consensual solution. Instead, it has publicly attacked members the U.S. judiciary by name and contrived to engineer one hopeless workaround scheme after another, finally earning a contempt citation from a U.S. judge in September. This is outrageous behavior and not in compliance with the UN principles cited in the OHCHR’s own letter (see below on Principle 15 from the UNCTAD’s Principles on Responsible Sovereign Lending and Borrowing).

 - The OHCHR’s letter essentially accuses creditors of “impeding Argentina from repaying its restructured bondholders and pushing the country into a debt crisis.” As noted above, Argentina’s default was entirely voluntary and self-inflicted. Argentina refused to negotiate a settlement, or even to make a good-faith gesture in return for a stay of the court order. Instead, it has launched entirely inappropriate diplomatic attempts to pressure the U.S. executive branch to interfere with the U.S. judiciary, misusing the International Court of Justice in the same way that it has misused the OHCHR here.

 - The OHCHR’s assertion that NML’s claim against Argentina will encourage other holdout creditors to disrupt sovereign restructuring is baseless, and a cursory review of the literature on this topic would quickly disprove this: A 2013 Moody’s analysis analyzed 34 sovereign restructurings going back to 1997 and found that the Argentina’s was the only case that involved “persistent litigation.” Moody’s called Argentina “unique in its unilateral and coercive approach to the debt restructuring,” and added that “sovereign bond restructurings have generally been resolved quickly, without severe creditor coordination problems, and involving little litigation.”

In fact, after reviewing the Principles cited by the UN’s letter, it becomes clear that Argentina, not NML, is the party that the OHCHR should be lecturing. According to these principles, it is incumbent on both the lender and the borrower to behave responsibly in a sovereign debt restructuring process. In order for an agreement to be reached, it is universally accepted that good-faith negotiations must occur. Representatives of NML have offered multiple times to negotiate in good faith with Argentina, but Argentina has never engaged in any good-faith negotiations with NML or any of its other creditors. Instead, Argentina has violated nearly each and every element of the UNCTAD’s Principle 15 on sovereign restructuring: “If a restructuring of sovereign debt obligations becomes unavoidable, it should be under­taken promptly, efficiently and fairly.”

Here are some of the provisions listed within this Principle:

  – The sovereign borrower’s first responsibility in this situation of substantive financial troubles is to move in a timely fashion to communicate with its creditors and commence the process of finding and implementing a transparent and consensual debt rearrangement. Protracted debt restructurings are generally injurious to all concerned parties, both the debtor and its creditors. The sovereign debtor should therefore seek to conclude the operation as efficiently as possible.

 - The sovereign borrower should provide the necessary information which would demonstrate that the sovereign is unable to normally service its debt.

 - The borrower should avoid opportunistic behaviour and arbitrary discrimination among creditors; and it should respect the voluntary basis of the process and the seniority of debts. The restructuring should be proportional to the sovereign’s need and all stakeholders (including citizens) should share an equitable burden of adjustment and/or losses.

Argentina’s refusal to even meet with creditors, or engage in good-faith negotiations, and its attacks on the U.S. judiciary are in clear violation of this Principle.

In addition, many observers have expressed skepticism toward the numbers disclosed by Argentina in negotiations. A June 2014 article by Laura Alfaro in the Harvard Business Review stated: “It also became clear that Argentina had failed to accurately disclose information to creditors. For instance, in an assessment of the Argentinian debt restructuring process, the IMF stated that Argentina may have deliberately understated its economic forecasts in order to enhance its leverage with creditors.”

This action by the Argentine government represents a direct violation of the UNCTAD’s Principle 11, which states that:

Relevant terms and conditions of a financing agreement should be disclosed by the sov­ereign borrower, be universally available, and be freely accessible in a timely manner through online means to all stakeholders, including citizens. Sovereign debtors have a responsibility to disclose complete and accurate information on their economic and fi­nancial situation that conforms to standardized reporting requirements and is relevant to their debt situation. Governments should respond openly to requests for related in­formation from relevant parties. Legal restrictions to disclosing information should be based on evident public interest and to be used reasonably.

Argentina’s refusal to keep accurate financial statistics, which has been pointed out numerous times by the IMF, also puts it squarely out of compliance with this Principle.

Make no mistake: Argentina’s default is a tragedy, and one that is unfortunately being borne by Argentina’s people while its politicians prosper. But it was an avoidable tragedy, and it is reversible, if only Argentina’s leaders would sit down with creditors to arrange a settlement. Their refusal to do so has deepened the country’s economic problems, with consequences for all Argentines. We hope that Argentina will agree to settle this dispute soon.

Marynberg, Kicillof and Uruguay

This week, we’ve been looking into Argentine financier and Kicillof crony Diego Marynberg.  Besides the connections that Argentine media have made between the two, Marynberg holds substantial financial interests in Uruguay that may also be linked to Kicillof.

In 2007, Marynberg founded a brokerage in Uruguay called Mercantil Valores Agente de Valores. Marynberg serves as the firm’s president, and his brother Sergio Gustavo Marynberg is the vice president.

We previously detailed Diego Marynberg’s significant financial interests in Venezuela, and how he has profited from transactions with the Central Bank of that country, much like he profited from transactions with the BCRA courtesy of Axel Kicillof and Team MECON.  But Marynberg’s Venezuelan and Argentine connections have their own money trail, leading right to Uruguay.

Mercantil Valores makes regular filings with the Central Bank of Uruguay, some of which offer insight into Marynberg’s holdings. One declaration from June 30, 2014 includes a list of all of Mercantil Valores’ bond trades that had been ordered but not yet carried out. There were 22 such trades, valued at just under US$57 million.  The trades consisted of five different bond issues, whose ISIN numbers and issuers are as follows:

- USP7807HAR68—PDVSA, Venezuelan national oil company

- XS0270992380—Province of Buenos Aires

- XS0460546442—PDVSA

- US9842451000—YPF, state oil company nationalized by the Kirchners

- USP6460MAJ38—Mastellone Hermanos, Argentine dairy product company

This and other filings by Mercantil Valores refer to a more detailed Annex VI, with a full list of the firm’s bond holdings. This annex was not included in the online version of the filing, though it may be publically available on site.  But even this limited sample suggests a collaborative relationship with both the Venezuelan and the Argentine governments.

President Cristina Kirchner has said repeatedly that “everything is connected to everything” when talking about imagined conspiracies against Argentina.  But in the case of Marynberg, she might be right.  It is notable that a financial player like Marynberg has such privileged connections to political insiders at the same time he speculates on hundreds of millions of dollars in public bonds.

It is probably just a coincidence, but it’s worth noting that Minister Axel Kicillof has a coastal vacation home and additional plots of land in El Ensueño, Uruguay. In 2013, the year he became Economy Minister, his declared personal wealth shot up 30% to more than a million pesos, including tens of thousands of dollars in savings accounts.   Kicillof has declared his Uruguayan assets to be worth only one-sixth what local Uruguayan real estate experts have said the market value would be.

Kicillof Vacation Home

 

Argentina’s former Central Bank president Juan Carlos Fábrega was sacked by Argentina’s government because he started asking questions about Marynberg and his preferential treatment from MECON.  We’re still asking questions, and we keeping asking them, until the truth comes to light.

In the meantime, it is worth keeping in mind the adage coined by President Kirchner: “everything is connected to everything.”

New Player Card Set Features More Baez Cronies

Today, Fact Check Argentina released a new set of Money Trail Player Cards. This week’s set of cards, which include actual photocopies and links to bank transactions, court documents and indictments, features:

- Juan Pedro Damiani, Uruguayan lawyer who set up Báez entities in Nevada

- Federico Elaskar, founder of SGI Argentina and alleged Báez money launderer

- Helvetic Services Group, Swiss company that has fronted for Báez’s money operations

- Nestor Marcelo Ramos, owner of Helvetic Services and accused Báez money launderer

Our research team has uncovered some new facts about Baez – that he has actually threatened some of his “players”.  Take Federico Elaskar, for instance, who said in an interview with investigative reporter Jorge Lanata that Báez forced him out of his own company—SGI Argentina—in 2012, threatening him with bodily harm if he did not comply.

Elaskar also told Lanata that he used his firm, SGI Argentina, to launder at least 50 million euros on behalf of Lázaro Báez in 2011, even detailing the creation of an elaborate offshore financial structure to aid the operation.

Elaskar-EN-PSD infographic-temp-lg

Elaskar started working for Báez through a connection with Leonardo Fariña and other kirchnerista businessmen and real estate tycoons.

As our loyal readers know, the Baez network is extensive, and there’s always more to discover!  Check out our most recent set of Player Cards to find out more.

Have any details we are missing? Think there is another part of the story? Make sure to submit your ideas and information to our tip line—we value our readers’ opinions and frequently use tip line information for new updates.  Stay tuned for more player cards coming your way soon!

 

 

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