Fact Check: Argentina

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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?

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.

How an Argentine Default Would Dash the Hopes of Argentine Companies and Provinces

A Bloomberg article published today further illustrates the enormous costs that a voluntary default by the Argentine government would inflict on the Argentine people.

The article notes that Argentine companies and provinces in need of financing are waiting for Argentina’s government to settle with its creditors before issuing any dollar-denominated bonds. The companies and provinces have been forced to rely on local financing in recent years, because the central government’s expropriation of YPF from Repsol caused borrowing costs to soar.

According toFrederico Tomasevich, president of Puente Hermanos Sociedad de Bolsa SA, Argentina’s largest underwriter of provincial debt, “Argentine corporate and sub-sovereign issuers are waiting for a favorable solution to the holdouts case, which the market is pricing will come soon, to get better financing conditions.” Tomasevich expects that a settlement could unleash as much as $2 billion in bond sales this year.

The provinces of Buenos Aires and Mendoza have already delayed plans to sell bonds abroad in recent months as borrowing costs rose amid speculation Argentina would default. Buenos Aires is reportedly ready to issue a much needed $500 million in debt if the crisis is resolved successfully. Tomasevich expects that a resolution of the decade-long fight between Argentina and the holdouts would help restore market access to Argentina, decreasing the country’s risk and allowing it to stop depending on central bank reserves.

Of course, the provinces and companies, not to mention the central government and the Argentine people, will be deprived of all of these benefits if the Kirchner administration chooses to put the country into default. Instead of being able to obtain new financing at historically low rates, Argentina’s provinces and companies would see their access to financing greatly reduced, if not completely cut off.

The clock is ticking. Argentina has just 16 days to come to an agreement in order to prevent another default. And yet the government continues to refuse to meet directly with creditors, even in the presence of the court-appointed Special Master Daniel Pollack.

Reuters reports that the Argentine government doesn’t look as though it will even be sending any representatives to discuss this issue with the Special Master, opting instead for a telephone exchange. The government’s failure to send representatives with negotiating authority raises serious alarms that the Argentine government is not even trying to prevent another default.

As Siobhan Morden from Jefferies put it in his latest note to clients:

It’s worrisome that Argentina remains defiant and is using technical default as leverage when Argentina would suffer worse than the holdouts on that outcome. We assume this high stakes game continues to the deadline with the odds probably tighter than what the market implies as bondholders continue to assume that President CFK is a rational economic agent. There is now risk of an asymmetric market reaction with less upside versus downside risk on a technical default.

ATFA Launches New Advertising Campaign Urging Argentina’s Leaders Against Default

Denounces Economy Minister Kicillof’s Reported “Preference” for a Default

“Argentina, Default is Your Choice – It’s Time to Negotiate!” states a new advertising campaign by ATFA.  The ads will run throughout Argentina and in select U.S. publications, including La Nacion, Clarin, the Washington Post, the Wall Street Journal and the Financial Times on Wednesday, July 16, 2014.

A link to the advertisement can be found here.

ATFA’s new advertisement is an answer to news reports that Argentina’s Economy Minister Axel Kicillof says that a Default would be more “preferable” to reaching a settlement with creditors.

This site has covered Mr. Kicillof’s numerous rants here and here, and we’ve noted that, rather than negotiating, Kicillof prefers to trash U.S. courts and creditors.  This is destructive behavior during a negotiating process.  But now comes the kicker –Kicillof actually thinks default is a good idea – or at least a better one than settling with creditors.

Seriously?  What is he thinking?

Default is not a political game, so why would Mr. Kicillof even contemplate it?  Especially when those hurt most by a default would be Argentina’s people!  

Mr. Kicillof should quit playing games with Argentina’s future, and start negotiating with creditors to reach a settlement.  These creditors have stated publicly and frequently that they would accept bonds as part of a settlement, and that they would negotiate to give Argentina more time in exchange for progress toward a settlement.  But first, Argentina’s leaders have to agree to negotiate.

It’s time for the people of Argentina to demand serious behavior from its leaders to save the country from default.

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