Fact Check: Argentina

958 days, 18 hours, 37 minutes ago

SINCE RUFO EXPIRED

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A Financial Time Bomb Is Ticking

A new article by Southern Methodist University business professor Bernard Weinstein in Investors Business Daily, entitled, Argentina on the Verge of Default – Again, looks at the repercussions of default on Argentina’s energy sector.

A leading expert in global energy development, Weinstein discusses how “another default would diminish the prospects for foreign investment…the economic sector with the most promising growth potential.” Ironically, as a net importer, Argentina sits atop one of the largest (undeveloped) oil plays on the planet.

Weinstein estimates that full development of Argentina’s vast Vaca Muerta unconventional oil reserves may cost as much as $250 billion.  Chevron recently signed an accord to invest $1.6 billion this year and up to $15 billion in future investments.  But if Argentina defaults on July 30, Chevron may have second thoughts and “other foreign investors are likely to either wait on the sidelines or demand more favorable terms for participation,” says Weinstein.

Don’t tell this to Economy Minister Axel Kicillof. Instead of finding a path to settlement and future investment, he’s been spinning the default option as the “not so bad” and the preferred outcome. This from an ideologically-driven administration that would rather import heating oil in perpetuity – or perhaps mortgage the Vaca Muerta to China and Russia than settle its disputes with holdouts.

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Dr. Claudio Loser Points to the Real Costs of Default

International economist and former IMF Western Hemisphere Director Claudio Loser published a new study today on the Centennial Group’s website, entitled,  Argentina v. Holdouts:  The Real Costs of Default and Benefits of Settlement, in which he paints a vivid picture of the impact of a default on the Argentine economy, which is already staggering under double-digit inflation.

Last week the Economy Ministry proclaimed that a so-called “selective default” would be the preferred scenario. Minister Kicillof contends that Argentina’s macro economy would be less hurt by a default than it would be by the contingent claims from exchange bondholders and other holdouts.

This is a very dangerous and irresponsible analysis.  Not coming to a settlement would be bad for everyone, but the biggest losers would be the Argentine people.  That¹s why so many prominent Argentine economists and analysts have spoken out to say:  default must be avoided by any scenario. They’ve warned that given the current conditions of a worsening recession and double-digit inflation, a default would create a significant decline within months.

Default isn’t a game, or a political tool.  According to Dr. Loser¹s analysis, here¹s what the government¹s default plan would produce:

– no growth;
– even worse inflation;
– a spike in unemployment;
– less access to financing, and at much higher interest rates;
– less foreign investment (in the energy industry and elsewhere);
– capital flight, as citizens continue to protect their savings by moving it outside of Argentina;
–  limitations on imports; and
–  extraordinary pressure on the poor, who will feel the economic distortions most acutely.

Dr. Loser also point to the huge benefits to Argentina from a settlement with creditors, including:

– 1% growth in GDP
– Up to $70 billion in lower interest costs
– Billions in savings for businesses
– Lower inflation
– No need for capital controls.
– An improvement in real wages.

But Argentina can’t achieve this unless it chooses to negotiate with creditors.  And right now, its leaders are refusing to do so.

Is This the Rhetoric of a Man Who Wants to Negotiate?

Economy Minister Axel Kicillof recently posted a letter to the Financial Times responding to an op-ed published there by one of Argentina’s creditors. Right off the bat, Kicillof calls the creditor’s firm a “vulture fund” and accuses it of trying to “clean its reputation” by daring to mention that it is only one bondholder out of thousands that are still waiting for the right to negotiate a fair resolution with Argentina.

Kicillof would certainly like to pretend that these small bondholders do not exist. But as the Wall Street Journal recently pointed out, they most certainly do. The stories of individual Argentines who lost their life savings when Argentina first defaulted and then refused to negotiate a fair settlement are real and they are heartbreaking. One might say it is Kicillof who is trying to clean Argentina’s reputation by pretending it did not break its promises to its own citizens.

Kicillof follows this accusation with a real howler:

“Mr. Newman is trying to portray Argentina as a country that does not negotiate. This is completely false. After lengthy negotiations, Argentina offered two debt exchanges in 2005 and 2010, which were voluntarily accepted by 92.4% of the country’s bondholders.”

This claim pits Kicillof against everyone else who observed the way Argentina’s exchanges played out in reality.

– Of Argentina’s exchange offers, the IMF noted, “no constructive dialogue was observed and the authorities presented a non-negotiated offer.”

– The London Club, an informal group of private creditors similar in function to the Paris Club, has stated in the context of other sovereign debt restructurings that it would not want a “non negotiated process and a unilateral offer as the one launched by Argentina.”

– Moody’s has observed, “the case of Argentina was and remains unique in its unilateral and coercive approach to the debt restructuring.”

Argentina only achieved a 92% acceptance rate after more than a decade of attrition and threats that bondholders would get nothing if they declined the unilateral exchanges. According to the Moody’s study linked above, the average sovereign debt exchange involving good-faith negotiations is completed in a matter of months.

Back to Kicillof: After railing against Argentina’s creditors and trying to rewrite the history Argentina’s bond exchange, Kicillof proclaims that Argentina’s “willingness to move forward in a dialogue” is evidenced by his meeting with Special Master Daniel Pollack on Monday afternoon.

But as we noted yesterday, Kicillof’s own account of that meeting indicates that it was not a dialogue, but a one-sided harangue that culminated with yet another request for an open-ended, unconditional stay of the district court’s ruling.

Kicillof acknowledges as much in his latest screed (“Argentina requested that Judge Griesa restore the stay”), then complains that, because “the vulture funds opposed” Argentina’s unconditional stay request, that this proves “they do not want to negotiate.”

In fact, in the very op-ed to which Kicillof is responding, the author writes, “Our firm could be persuaded to give Argentina more time if its government took concrete and serious steps towards meeting its legal obligations.”

But Argentina hasn’t taken those steps. Instead, it has taken steps in the opposite direction – threatening to evade the court’s ruling, attempting to make payments on its exchange bonds in violation of the court’s ruling, and issuing “warning[s] to the United States” in full-page newspaper ads and angry speeches.

The balance of Kicillof’s “response” to the op-ed is filled with more insults and accusations. He accuses Argentina’s creditors – whose rights have now been vindicated by the U.S. Supreme Court – of “extortion,” then falls back on the same over-the-top rhetoric about the district court’s ruling that the Second Circuit Court of Appeals branded “hyperbolic.”

His rant culminates with the declaration that “The vulture funds do not negotiate: that’s why they are the vultures.” But the facts remain: Argentina’s creditors have offered to meet Argentina anytime, anywhere for a negotiation. Argentina has not once taken them up on that offer.

This all raises the question: Is this really the rhetoric of a man who wants to negotiate? Clearly, Kicillof prefers rants, screeds and one-sided harangues to the give and take of a real negotiation. That is a big reason that Argentina appears to be laying the groundwork for a default.

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Serious Dialogue does not seem to be part of Kicillof’s agenda

Economy Minister Axel Kicillof evidently called Carlos Burgueno of Ambito Financiero last night to brief him on Kicillof’s meeting with court-appointed Special Master Daniel Pollack.

“It was a very good meeting. All subjects were reviewed and for me was a major breakthrough. We will return on Friday.” Axel Kicillof called around 7.30 pm from New York and gave the official interpretation of his lengthy meeting with the “special master” Daniel Pollack.

From the Ambito Report, it sounds like poor Mr. Pollack was treated to a four-hour version of Kicillof’s recent invective-filled speeches at the UN and the OAS – call it “Kicillof’s Rant: The Director’s Cut”:

The Economy Minister outlined to his interlocutor in Buenos Aires that the mediator appointed by Thomas Griesa always showed interest in the official explanations for the way in which Argentina had fallen into default in 2001, the failed mega-swap of the government of Fernando de la Rua, the two debt swaps of 2006 and 2010 which had an approval rating of 93%, the strict compliance that Argentina has had with its ​​commitments since Nestor Kirchner came to the Casa Rosada and primarily the serious consequences from an unrestricted compliance with the Griesa ruling.

Judge Griesa has not demanded “unrestricted compliance” – he has urged Argentina to negotiate with its creditors, which the Republic has reportedly refused to do. Instead of offering to negotiate with creditors, Kicillof reportedly used his time with the Special Master to simply repeat his demands for an open-ended, unconditional stay of the court’s ruling. Judge Griesa has already denied this request, saying, “there was nothing in [Argentina’s stay request] to indicate any real need for assistance or relief or timing in connection with settlement negotiations.”

This does not sound like it was a productive meeting, especially as it came on the same day that Argentina ran a new series of adstwo full pages! – insisting that the Republic has already complied with its obligations under the exchange bonds because it deposited the money with the Bank of New York. Never mind that a federal judge has declared this to be an “illegal payment” made in violation of an injunction that has been upheld by the U.S. Supreme Court.

Indeed, Kicillof appears to be going through the motions without really advancing toward the goal of negotiating with creditors, which again raises the question: Is Argentina laying the groundwork for a default?

A growing chorus of voices, which now includes the Obama administration, thinks Argentina needs to get serious about resolving this dispute. But serious dialogue doesn’t appear to be on Kicillof’s agenda.

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ATFA Announces Advertising Campaign Urging Argentina to Negotiate with Creditors

“Argentina, It’s Time to Negotiate! state a wave of prominent full-page advertisements sponsored by the American Task Force Argentina. The ads will run this week in a number of publications including the Washington Post, the Financial Times, the Wall Street Journal, La Nacion, and Clarin, as well as a number of other newspapers throughout Argentina.

ATFA’s advertisements are an answer to a campaign of misinformation being waged by the Argentine government, specifically by its Economy Minister Axel Kicillof.

On Monday, ATFA noted in a blog post that Mr. Kicillof’s recent conduct including berating the US courts and judges by name seem to imply a lack of seriousness on the part of Argentina to negotiate.

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