Post date : 07.25.2014 5:29 pm
On Tuesday, Judge Griesa ordered that Argentina’s officials meet continuously with the country’s creditors to try to negotiate a settlement. It is Friday, and Argentina has yet to come to the table.
Yesterday, both sides met separately with the Special Master Daniel Pollack, who stated that he “proposed and urged direct, face-to-face talks between the parties. The representatives of the bondholders were agreeable to direct talks. The representatives of the Republic declined to engage in direct talks…The time for the Republic to avoid default is short.”
Bloomberg reported that Argentine bonds posted the biggest drop in more than a month after the Argentines (again) refused to come to the negotiating table with its creditors. In the article, Marco Santamaria of AllianceBernstein is quoted as saying, “In the absence of direct talks between the two parties it’s kind of hard to see how a settlement could be reached…Hope is quickly fading.”
This morning, the Argentine delegation met with the Special Master for just one hour – the shortest of any known meeting to have taken place thus far.
The Argentine delegation is now returning to Argentina to apparently seek further instructions from the government. Let’s hope that rational voices within the government prevail. There is still time to avoid a default, and according to the Special Master’s statement today, the creditors have reiterated their willingness to meet with him and the Republic “at any time.”
But there are less than five days left for Argentina to take them up on that offer. The time for deciding is now.
Post date : 07.25.2014 12:48 pm
A dedicated reader of our blog has passed along a form letter to Members of Congress this is currently being circulated to potential signers in the economist community by Marc Weisbrot, co-director of the Center for Economic and Policy Research (CEPR).
Here is a copy of the draft letter.
In an email to an economist that was shared with this blog, Weisbrot declares:
“Robert Solow has already agreed to be an initial signer, and we hope that you will join him as another initial signer. We believe that your signature will encourage other respected economists to also add their support.”
We’ll get into the letter momentarily, but before we do, it’s worth reminding our readers that Weisbrot has been a perennial apologist for Argentina’s shabby treatment of courts and creditors. In 2011, he authored a report entitled, “The Argentine Success Story and its Implications” which examined the time period from 2002 – 2011.
Economists like Weisbrot and also Joseph Stiglitz often point to the economic growth that occurred in Argentina during this period without noting that this growth was largely driven by a global commodity boom that Argentina benefitted from, and that has proven to be unsustainable.
Stiglitz, a paid consultant to Argentina who also wrote an amicus brief on its behalf, is no doubt a target signer for this letter. Here’s a favorite Joe Stiglitz quote of ours: “Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung from a bit too much government to much too little.”
There’s nothing new or surprising in Weisbrot’s letter to Congress. It’s full of the same tired arguments from Argentina and its allies. So let’s revisit the facts of this case and what its implications truly are:
– The court’s ruling does not, as Weisbrot claims, hamper the ability of creditors and debtors to conclude an orderly restructuring in future sovereign debt crisis. Argentina waived sovereign immunity, agreed to be bound by New York law, and agreed to a pari passu provision in its bond contracts. Nobody forced it to agree to any of these provisions, but it did so voluntarily. Many bond contracts today have collective action clauses which address Weisbrot’s stated concern, but Argentina’s bonds did not.
– It’s simply not true that the plaintiffs bought bonds on the secondary market for cents on the dollar. 13 of the plaintiffs are par holders, and the largest plaintiffs bought bonds before and after the default. Doesn’t Weisbrot understand how the secondary market works?
– The court’s ruling, rather than posing a risk for New York’s status as the center of world finance is protecting New York’s reputation and status. Weisbrot’s letter completely ignores the fact that just days after the U.S. Supreme Court vindicated the lower courts’ jurisprudence in the Argentina bond cases, Ecuador raised $2 billion under New York law, leading Bloomberg News to call out Stiglitz by name and brand his concerns “overstated.” Here’s a question for Marc Weisbrot: Why would there be future bond issuances in New York if contracts became unenforceable?
– Weisbrot’s letter laughably asserts that Argentina has been willing to negotiate. Everybody knows this has never been true and remains untrue to this day. Instead of negotiating, Argentina has embarked on a global campaign to smear U.S. Courts, a federal judge and its creditors. Argentina and its lawyers use excuses like RUFO as an excuse not to negotiate. The simple facts are that Argentina’s creditors have offered to meet anytime, anywhere and without pre-conditions. Argentina refuses. Weisbrot’s ludicrous claim to the contrary should eviscerate any credibility he has on this subject.
Weisbrot’s letter concludes by urging Congress to “look for legislative solutions to prevent this court decision, or similar rulings, from causing unnecessary harm.” While vague in its wording, this is also naïve. We have a separation of powers in this country, which the Obama Administration noted to the OAS.
As noted by Roberta Jacobson, U.S. assistant secretary of state for western hemisphere affairs, while attending a meeting of the Organization of American States (OAS):
“Both sides of this dispute have said at different times they would be willing to negotiate, which we believe offers the parties the best path to a resolution…We are hopeful that Argentina will find a solution to this matter that resolves its issues with the bondholders and allows it to return to inclusive growth.”
For its part, members of Congress from both parties have repeatedly stated to Argentina that it should settle with creditors.
There’s still time for Argentina to do this…Just five more days until default.
Post date : 07.23.2014 8:51 pm
Argentina appears to be stuck in some sort of alternate reality, where if they say something enough times, or hope for it enough, it becomes fact.
Argentina insists that it welcomes a “dialogue” on this issue, when in reality it refuses to even sit down in the same room as its creditors to hold a discussion.
Argentina insists that it has and continues to “negotiate,” when all it has offered for over 12 years are unilateral, coercive, take-it-or-leave-it offers.
Argentina insists that it “can’t default” because it “paid its debt” by depositing $539 million in the Bank of New York Mellon, despite this being a clear violation of Judge Griesa’s orders (who deemed the payment “illegal” and ordered the bank to return the money to Argentina).
And Argentina insists that, if it is held to be in default when its exchange bondholders don’t receive their money, that this will merely put it in some kind of “technical,” “managed” or “transitory” default, failing to recognize that in reality, it is already in default on bonds held by more than 61,000 bondholders, many of whom paid 100 cents on the dollar for their debt and haven’t seen a penny in more than 12 years. On July 30, should Argentina continue to refuse to negotiate, it will simply be in default on the exchange bonds as well, to the tune of billions of additional dollars.
President Kirchner and her government fail to realize that merely having a strong desire or intention to do something does not solve real-world problems. Argentina owes it to its citizens and to its creditors to start taking its potential default seriously. Judge Griesa stated yesterday that a default would be “about the worst thing” he can envision. “People will be hurt by that,” Griesa said. “Real hurt. Not ‘vultures,’ but real people.”
That is why he ordered the parties to meet continuously to resolve the dispute. Will Argentina finally agree to meet with creditors? If President Kirchner’s speech today is any indication, we shouldn’t get our hopes up. President Kirchner deployed all of the excuses above, plus the RUFO smokescreen, in what sounded very much like an attempt to lay the groundwork for a post-default blame game.
Many commentators in the market continue to discount the likelihood of this potentially disastrous outcome given the widespread assumption that Argentina will act rationally and finally come to the table to work out a settlement with its creditors. Maybe they are the ones living in an alternate reality.
Argentina has less than 6 days to decide. The clock is ticking.
Post date : 07.23.2014 7:03 pm
Tonight, Argentine President Cristina Kirchner took to the airwaves in an impromptu television address. According to news reports, she reiterated her hilarious position that “Argentina can’t default because Argentina pays its bills.”
She then rambled on to say “they will have to invent a new name” [for default] “because Argentina pays its bills.” President Kirchner also cited Argentina’s refusal to make an agreement with creditors, citing RUFO and saying that it would “destroy previous debt restructuring.”
We reported yesterday that RUFO is a smokescreen for Argentina, an excuse likely invented by its law firm Cleary Gottlieb as a reason for not negotiating. In yesterday’s hearing, Cleary’s lawyer Jonathan Blackman argued that RUFO would prevent Argentina from reaching an agreement with creditors, but the judge didn’t see it that way, and ordered Argentina and its creditors to negotiate.
Argentina’s creditors have stated time and again that they would negotiate to give the country more time in exchange for progress toward a settlement. Exchange bondholders could decide to waive RUFO in the event of a settlement, and investment banks have come forward with creative solutions for Argentina to solve this. What’s needed is for them to sit down and talk these things through.
But at this hour, that’s not happening. Instead, Argentina’s leaders make speeches and excuses. Tonight President Kirchner said “I don’t know whether to laugh or cry,” when describing Argentina’s situation. It’s unfortunate that her behavior is pushing her citizens to tears.
Who benefits from all of this? Certainly not Argentina. It’s worth noting that Cleary Gottlieb has been the most prolific in arguing RUFO as reason not to negotiate. Back in May, a leaked Cleary memo advised Argentina to default as a strategy. Cleary advised that after a default, Argentina could re-issue bonds under Argentine law, thereby evading the jurisdiction of U.S. courts.
The leaked Cleary memo sparked outrage, but Argentina appears to be following Cleary’s advice to the letter: Default, Re-issue, Evade U.S. Courts. And we’ll keep representing you.
Post date : 07.22.2014 10:07 am
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.