Fact Check: Argentina

906 days, 20 hours, 56 minutes ago

SINCE RUFO EXPIRED

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Is Argentina Laying the Groundwork for a Default?

En Español 

Argentina will send a delegation to meet with a court-appointed Special Master today, amidst much speculation on whether the country intends to comply with the court and reach an agreement with creditors.

Is Monday an honest attempt to negotiate in good faith, or just a charade?  To listen to recent speeches and declarations by top Argentine officials is to wonder.

On Thursday, Economy Minister Axel Kicillof flew into Washington to make an address to the Organization of American States (OAS).  Unsurprisingly, both Kicillof and Foreign Minister Hector Timerman engaged in an impassioned rant against the courts, including repeatedly denouncing a federal judge by name.  A link can be found here.  ATFA leadership sent a letter to delegates prior to this meeting. The letter can be found here.

In making their speeches, Kicillof and Timerman spared no invective for either American courts or American creditors.  This posture, four days before Argentina’s reported first meeting before the judge’s appointed Special Master, was interesting timing to say the least.

But perhaps the larger picture is that Argentina appears to be laying the groundwork for a default, and that it actually has no plans to work with the court or creditors.

Kicillof’s arguments centered on three major themes:

  1. The court’s ruling is “absurd” because it has placed Argentina at the “precipice of default.”
  2. Argentina can’t possibly pay the judgment amount of $1.5 billion, that paying would create a run on its reserves by other exchange bondholders wanting the same terms.
  3. That, somehow, the global community must counteract the recent court decision, or overturn it.

This detached-from-reality outlook might be one that only a determined La Comporista like Kicillof could pull off.

First, what’s really absurd is that Argentina blames federal judges and the courts for its current predicament.  Let’s be clear:  Argentina got to this place by ignoring more than 100 previous court judgments ordering it to settle with creditors, and by making a mockery of the U.S. court system to the point that, after it told a judge that it would not abide by her ruling, then had the temerity to appeal the ruling to the highest court in the United States.

Nobody is forcing Argentina to default.  By choosing not to negotiate with creditors, Argentina is choosing to default.  This seems to be a choice driven by ideology and not by practicality, nor by any thought to the welfare of Argentina’s middle class.  Polls have shown that the public would favor a settlement, but still Argentina refuses to negotiate.  It can’t blame anybody else for this decision.

Next, Argentina says that it can’t afford to pay, because a settlement would trigger a run on its reserves by other bondholders.  Kicillof cited numbers as high as $15 billion in the short term.  Experts have demonstrated that this number is wildly inflated, and that the total amount of restructured New York law bonds are only about half of that amount.  Besides this, creditors have said that they would work with Argentina on a timeline past December 31st (when the Right Upon Future Offerings or RUFO provision of the 2010 exchange would expire) that would help to mitigate this dynamic.  

Argentina has shown that it can negotiate and come to a settlement when it is serious about it.  That’s what it just did with the Paris Club and Repsol, and for much larger amounts.  But Argentina won’t find out what a settlement with creditors could look like until it comes to the negotiating table and is prepared to act in good faith.

Finally, Kicillof’s speech at the OAS Thursday was the latest in a series of appeals to multilateral institutions like the UN, the Hague, other governments, and even journalists that the court ruling it faces is fundamentally unjust and must be reversed.  Not only is this an utterly destructive and hostile posture to adopt while the court is trying to facilitate a settlement, the implication is that Argentina has no plans to abide by the ruling based on its own interpretation of justice.

Nobody forced Argentina to issue bonds in New York, or to include clauses like pari passu, which provided protection for creditors who were loaning to Argentina.  Nor did anybody force Argentina to submit to U.S. legal jurisdiction when issuing the bonds.  But that’s what Argentina did, and now it has decided that it would rather not submit to courts or judges.  How convenient.

But those facts are beside the point.  Argentina’s deliberate strategy of a global PR campaign as substitute for honest negotiations may belie its true intentions:  never to negotiate at all.