Fact Check: Argentina

Argentina's countdown to default

in 6 days, 22 hours, 40 minutes

For Argentina to Negotiate with Creditors or else it Chooses to Default

The RUFO Smokescreen

A headline from today’s La Nacion declares “This Year, There Will be No Payment to the Holdouts, Warned Government”.

Ahead of today’s hearing in a Manhattan courtroom, Argentina’s entrepreneurial legal team has filed a lengthy brief arguing that the country must be granted a stay so it can negotiate a “global resolution” that would include all bondholders.

According to Argentina’s lawyers, a settlement with holdout creditors would trigger the so-called “RUFO clause” and produce additional claims on Argentina from other bondholders that would run into the billions.

We’ve addressed the RUFO issue and Argentina’s ability to pay here and here. But let’s cover some of the high points again:

 1)      There is nothing within the RUFO clause that would prevent Argentina from negotiating with creditors, or even creating a term sheet or outline of an agreement.  Argentina could choose to engage in talks with creditors and come up with an agreement factoring in the RUFO timeline (recall that RUFO clause expires on December 31st).

 2)      Argentina’s creditors have stated publicly and frequently that they would agree to give Argentina more time in return for actual progress toward talks.  But this requires Argentina to come to the table and negotiate.

 3)      The RUFO clause could be waived by exchange bondholders if a deal was struck between Argentina and holdouts creditors.

 4)      News reports have indicated that leading investment banks have submitted proposals to Argentina on how to settle with creditors in a way that deals with RUFO and additional claims.

Here’s the bottom line:  RUFO is not the obstacle to settlement that Argentina and its lawyers claim.

In fact, in yesterday’s filing, Argentina’s lawyers appeared to acknowledge that Argentina’s RUFO risk is minimal. They even implied that, if correctly interpreted, RUFO shouldn’t pose any problem at all. But in an incredibly childish jab at Judge Griesa, they argued that the real risk to Argentina was that U.S. courts would misinterpret the RUFO clause, just as they allegedly misinterpreted Argentina’s Equal Treatment provision.

Although difficult to quantify, this risk clearly exists as there is no precedent on the issue and, as this litigation demonstrates, novel interpretations can be applied to seldom-litigated sovereign debt contract provisions … .

 This insulting line completely ignores the fact that the Second Circuit Court of Appeals had “little difficulty” upholding Judge Griesa’s ruling because “even under Argentina’s interpretation of the Equal Treatment provision … the Republic breached the provision.”

Argentina’s leaders are the obstacle to a settlement.  They’re using RUFO as a smokescreen or an excuse to explain to why they are refusing to negotiate.

By refusing to negotiate, Argentina is choosing to default. And, regarding a default, experts have said that Argentina’s people will feel the brunt of their government’s choice.

Argentina’s leaders would rather blame anybody but themselves for a default, so they have invented the RUFO issue rather than deciding to negotiate.  They also continue to blame U.S. courts and creditors for their predicament.

But this doesn’t change their situation.  The country will still default in one week unless its leaders decide to begin behaving in a constructive, accountable manner.

Argentine business leaders and presidential candidates agree: “It’s time to negotiate”

Just seven days left before it defaults and Argentina still refuses to come to the negotiating table, despite Argentine businesspeople and politicians favoring a settlement to put this issue to rest.

In an article titled “Holdouts: businessmen want to avoid a default,” La Nacion reported on Sunday that a group of Argentina’s leading business executives are “anxious and worried” by the stalled negotiations between Argentina’s creditors and the government.

The executives, businessmen and industry leaders from the country’s industrial, banking, and service sectors who form the Foro de Convergencia Empresarial (the Business Convergence Forum), held a luncheon on Saturday in Buenos Aires. The mood was described as tense.

 “It is with great anxiety that we follow the development of the negotiations, and we expect a quick solution,” said Jaime Campos, president of the Argentine Business Association. “It’s the missing step, given that we’ve already resolved the [issue] with the ICSID and Repsol.”

 The President of the Chamber of Importers of Argentina, Diego Perez Santisteban, was quoted as saying that a settlement of the country’s debt was favorable as it would allow Argentina to return to capital markets for external financing at lower rates. Santisteban was joined by Jorge Brito, the president of both Banco Macro, Argentina’s second largest private bank, and of the Association of Argentine Banks, who stated in an interview today that a settlement with the creditors would bring immediate investment to Argentina. Brito also questioned some of the Argentine government’s decisions, chief among them its decision to insult Judge Griesa.

Argentine political analyst Joaquin Morales Solá was quoted in Mercopress today, stating, “Reluctance to dialogue is a bad image for a country with already a bad image and before a Judge that waited six years for a solution between the litigating sides.”

Morales Solá also pointed out that in a default situation, neither the World Bank nor the Inter-American Development bank can be expected to extend loans to Argentina.

Perhaps most telling, Reuters reported earlier this month that Argentina’s top presidential candidates say that a settlement to resolve the debt issue is essential for their planned economic reform programs.

The article stated that the leading candidates for the October 2015 elections – Governor of Buenos Aires Daniel Scioli, Mayor of Buenos Aires Mauricio Macri and Congressman Sergio Massa – “All favor a negotiated settlement with the funds as a way to unblock much-needed energy investment and global bond financing to take pressure off depleted central bank reserves.”

Scioli, who has been careful not to criticize President Kirchner as she leads the Peronist party he belongs to, was quoted as being confident “that a solution can be found and that we can normalize our relationship with the international markets, defending our country, but defending it intelligently.” The Wall Street Journal quoted Scioli as saying, “The solution is to reach an agreement, and an agreement obviously means paying.”

Martin Redrado, a former central bank chief who now advises Congressman (and anticipated presidential candidate) Massa, stated, “There is no objective reason for Argentina to fall into default,” Redrado said. “It is through unfortunate policy improvisation and arrogance on the part of the government that we have fallen into this situation. But it is a solvable situation.”

The Argentine government seems to be the only party not taking the prospect of default seriously. It should try listening to its leading citizens.

Who Are The People that Argentina Calls “Vultures”?

The Argentine government continues to vilify its creditors, calling them “vultures” and claiming that they are out to extort the country. The government is conveniently ignoring the fact that thousands of Argentinean and European pensioners haven’t been paid a dime on their bonds for more than a decade and are still waiting for payment. Individuals, like Eva Geller, who lost her life savings when Argentina defaulted on roughly $100 billion, are being hung out to dry.

Last week we called attention to a piece in the Wall Street Journal chronicling Argentina’s forgotten individual creditors, who in many instances invested their pensions and life savings at the urging of the Argentine government. These individual bondholders are still awaiting payment 13 years later.

This week, another article in the Journal has called attention to this issue:

 There are also thousands of individual pensioners and investors both in Argentina and abroad who bought small amounts of Argentine bonds before the 2001 default. At the time, they were tempted by some of the highest interest rates available and the false belief that they couldn’t lose.

 Italian lawyer, Italian lawyer Pietro Adami, who represents about 30 of the individual holders, stated “These aren’t vultures. They’re real people.”

In addition, the president of Rome’s Task Force Argentina, Nicola Stock, has written a letter to the Financial Times blasting Argentine Economy Minister Axel Kicillof’s for making a number of false claims in his unhinged response to a creditor’s public offer to negotiate.

Stock writes:

 I suppose that when the 2005 and 2010 Exchange Offers were presented to the market Mr Kicillof had a different job, since he totally ignores that his predecessors never (I repeat, never) negotiated those offers with the creditors, even though, at the time, the Argentine government officials were literally overwhelmed with negotiation requests from all over the world.

 Besides, Argentina complains about “vulture funds” while it is ignoring tens of thousands of retail bondholders, ordinary people who invested in Argentine bonds after Argentina targeted them. …

 Argentina must face it: the time has come for them at last to make whole the retail bondholders who it once targeted. Indeed, a solution of this longstanding default is in the hands of Argentina. The government has now the chance to negotiate a deal that will effectively solve this relevant issue in the interest of the Argentine citizens as well as the international investors who have trusted the country.

 When will Argentina admit that settling its debts is the best path forward, for the country, and for its creditors – both large and small? When will Argentina get serious about its economic future and finally start negotiating?

Presidente Kirchner: nadie va a invertir en Vaca Muerta después de un default

Ayer, la Presidente Cristina Kirchner dio otro discurso cargado de emoción ante un público internacional y citó un artículo que había sido publicado en este mismo sitio web.

Nos complace que la Presidente Kirchner y su Jefe de Gabinete, Jorge Capitanich, se hayan unido al grupo de lectores que siguen nuestro blog. Los acreedores de Argentina, que también integran nuestros miembros, han estado intentando llamar la atención de los líderes de este país durante varias semanas, con el propósito de convencerles de sentarse junto a ellos en la mesa de negociación. Pero estos líderes se niegan a juntarse, prefiriendo despotricar contra las Cortes y los Jueces estadounidenses en cada oportunidad que se les presenta.

En este momento, Argentina está a menos de quince días de entrar en default, producto de su continua negativa a negociar. Al no negociar, los líderes de Argentina están eligiendo el default.

Los expertos han indicado que entrar en default tendría el efecto de desalentar la inversión extranjera en Argentina, algo que este país necesita imperiosamente para poder desarrollar las reservas de hidrocarburos no convencionales en Vaca Muerta. Si Argentina decide no cumplir con sus arreglos contractuales ni acatar los fallos de la Corte, aquellos inversores capaces de contribuir al desarrollo de Vaca Muerta decidirán alejarse lo más posible del país. Este ha sido el principal argumento de la nota escrita por el profesor Dr. Bernard Weinstein y publicada en el diario financiero Investor’s  Business Daily.    

Los líderes de Argentina dan la impresión de ignorar estas duras verdades, pero no están completamente ajenos a su realidad. Saben que si renuncian al acceso a los mercados de capitales y a la inversión extranjera directa que tanto necesitan, tendrán que hipotecar Vaca Muerta a los rusos y a los chinos. Es por eso que la Presidente Kirchner viajó a Brasil: no fue para alentar a la selección nacional en la final de la Copa Mundial, sino para ofrecer los recursos naturales de su país a Rusia y a China a cambio de nuevas líneas de crédito.

President Kirchner: Nobody will Invest in Vaca Muerta After a Default

Yesterday, in another emotionally-charged speech by an Argentine official before an international gathering, President Cristina Kirchner quoted from an article published on this website.

We’re pleased to have President Kirchner and her Cabinet Chief Jorge Capitanich as readers of our blog.  Argentina’s creditors, who are among our members, have been trying to get Argentina’s attention for several weeks by urging its officials to join them at the negotiating table.  Argentina’s officials refuse to do so, and instead trash U.S. courts and U.S. judges at every opportunity.

Now Argentina is less than two weeks from a default because it refuses to negotiate.  By not negotiating, Argentina’s leaders are choosing to default. 

Experts have pointed out that a default would discourage foreign  direct investment in Argentina, something it definitely needs if it is ever to develop the Vaca Muerta shale.  If Argentina decides that it won’t honor its contracts or court judgments, investors who could help it develop Vaca Muerta will avoid the country altogether.  That was the point of Professor Weinstein’s article in Investors Business Daily.

Argentina’s leaders seem oblivious to these hard truths, but they’re not oblivious.  They know that by foregoing access to capital markets and much-needed foreign direct investment, they’ll need to mortgage the Vaca Muerta to Russia and China, who will be eager to scoop up this resource.  That’s why President Kirchner traveled to Brazil– not to cheer on Argentina’s soccer team in the championship game of the World Cup, no– but to offer up Argentina’s natural resources to Russia and China in exchange for a new line of credit.


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