Post date : 02.06.2015 11:41 am
CFK Compelled to Insure the Loan from China
Now that Argentine President Cristina Fernández de Kirchner has pulled up stakes, and folded the tent on her diplomatic carnival – departing Beijing with what has been reported as either 15 signed agreements or 22 such “cooperation deals” – we thought it important to delve a bit deeper into the details, see exactly what we are able to glean from the little information that has so far been made public.
Just a few of the questions that guide our investigative efforts:
– How lopsided, and truly China-centric, are these deals?
– What will be their long-term effects on the Argentine economy and its labor-force?
– How much Argentine sovereignty is Kirchner willing to cede?
– To what extent does Kirchner pawn the Republic’s vast natural treasures?
– What is the exact nature and extent of the “cash” Argentina will receive?
We expect this examination to be an ongoing process, one that builds now upon the historical endeavors of this blog, and that will also surely occupy ample space in future posts.
For certain, though, we are now able to decipher more clearly the meaning of La Nacion’s claim that Kirchner is “open to all kinds of concessions,” in her haste to “consecrate” China as Argentina’s “greatest ally.”
Yes, “unlike the Western powers and foreign banks that refuse to give credits,” thanks to Kirchner’s decision to default on her loan obligations, and her steadfast refusal to negotiate with her creditors, “it is key that China has fresh funds and is willing to lend at a subsidized rate.”
But, at what cost to the Argentine people?
When El Cronista reports that Finance Minister, Axel Kicillof, declares “the yuan is a reserve currency for Argentina,” inquiring minds can be excused their heightened curiosity…and their determination to learn all there is to learn about this “comprehensive strategic partnership” that features “agreements of cooperation in criminal matters, tourism, culture, health, science, mining, nuclear, communications, space activities, information systems, peaceful use of nuclear technology and financing.”
The Chamber of Exporters of Argentina was quick to join other Argentine interests who’ve criticized the accord in the past, requesting yesterday that the House of Deputies conduct a public hearing on the accord…
In an official statement, the Chamber warned that the agreement would have “a severe impact on employment and industrial development…”and would generate “asymmetries” and important “inequalities”.
Of the multiple agreements reached yesterday, La Nacion reports further: “With the agreements in place, China will have the facilities for investments with direct awards. In addition, it will build a space observation base in Neuquén to put three astronauts on the moon in 2016 with tax exemptions for 50 years.”
And, there seems to end much of the “detail” as reported in the news these last few days…
But, readers of this blog are aware that Kirchner’s China strategy is an ambitious beast, with multiple initiatives apparently in the works, very much including the Hydroelectric projects in Santa Cruz, as well as the Belgrano freight rail projects.
For these two initiatives at least, the paper trail is readily available to those who seek it…
A few of the highlights:
– So as to deter Argentina’s well-known debt-shenanigans, China has established a “credit facility agreement.” This is an insurance policy that will protect the loan principal and interest (up to 95%) that is being extended to Argentina.
– The credit facility agreement is being handled by the “Sinosure,” or China’s state-owned China Export & Credit Insurance Policy.
– Sinosure is insuring the Hydro-electric loan, for a premium of 7.1% of the credit contract, 30% of which will be paid during the first month after the loan payment is advanced, and the rest in 4 equal payments over the next 48 months. Also, the payments on this loan are supposed to be paid out of the Hydro plant’s revenues.
– Sinosure is apparently well aware of the “historical debts” of Argentina, and thus the loan has been structured with a “contingency mechanism” to protect against any blowback from these debts.
– China’s exposure is further limited by a structure that stipulates much of the infrastructure is paid for up front, even as the disbursements under the credit facility are triggered incrementally.
This past July (2014), China and Argentina set up an organization called, “Mecanismo de Diálogo Estratégico para la Cooperación y la Coordinación Económica entre Argentina y China”, or, the “Strategic Dialogue Mechanism for Economic Cooperation and Coordination between Argentina and China”.
The purpose of this body is to focus on an extensive and dynamic agenda of trade and investment matters, and to create a high-level channel between the two countries to identify, promote and implement priority projects for development in areas such as energy, infrastructure, transportation, manufacturing, telecommunications, mining, agriculture, ranching, fishing and finance.
The Hydroelectric projects in Santa Cruz, and the Belgrano freight rail projects seem to be the two that are closest to implementation. Both have been in the works for some time, although press reports differ on the exact date of their conception…the Belgrano contract was, according to some press reports, signed in 2010. Still, other media also consistently report that the contract was signed last July, during Chinese President Xi’s visit to Argentina.
Although this is exactly the sort of opacity that we’ve come to expect from the Argentina-China accord, it may be that the credit facility for this project was signed in July, while the construction contract was signed in 2010.
This past September (2014), Bank of China disbursed what the press described as “the first USD $370 Million for the Belgrano Cargas project.” Argentina’s national news agency, Telam, touted this investment as a sign that China was pursuing its strategic investment program in Argentina despite its voluntary default.
At that time, a Chinese official, Xu Shaoshi, was quoted as saying “what happens in the rest of the world will not affect the decision to go on collaborating and working with Argentina, because we have a strategic association.” He also said he was confident that Argentina would find a “fair” solution to its conflicts with its creditors.
The first half billion or so for the Hydro project was going to be disbursed during CFK’s planned trip to China in November, 2014. Of course, neither the trip, nor the payment happened at that time.
It was Kirchner’s hope, reportedly, that this first payment would be unlocked during this current trip, but we’ve encountered no news on its disposition.
News reports and publicly available information this blog has been able to peruse allows us to identify the following entities associated with both these projects:
– China Development Bank Corporation
– Industrial and Commercial Bank of China Ltd.
– China Machinery Engineering Corporation (CMEC)
– China Development Bank Corporation
– Industrial and Commercial Bank of China Ltd.
– Bank of China Ltd.
– Gezhouba Group
– Electroingenieria S.A.
– Hidrocuyo S.A.
(these latter two are Argentine companies who were part of the winning consortium to carry out this project)
Stay tuned. We will continue our examination of the Argentina-China accord, and will report all fresh developments here.
Post date : 02.04.2015 2:15 pm
Desperate for cash and seeking shelter from a series of avalanching investigations and the ever-expanding news coverage they’ve spawned, Argentine President Cristina Fernández de Kirchner was reportedly hopeful her four-day China trip would “change the narrative” and showcase her talents as a successful diplomat and well-respected world leader…But, one imagines that even her ample ego would not have aspired to accomplish this, on Day 2, in “just 140 characters, or less!”
“Did they only come for lice and petloleum?” CFK, in Spanish, to her 3.52 Million twitter subscribers (retweeted more than 1,800 times as of this posting), in reference to 1,000 businessmen who attended a conference where she spoke.
Kirchner has indeed changed the narrative with her “incredibly insulting” Tweet that “mimicked the Chinese accent…replacing r’s with l’s”. She might well be featured in future case studies at the famed Georgetown School of Foreign Service for how NOT to treat your host country.
Not only is Kirchner’s warped judgment now further on display for the world, as well as her Chinese hosts, but as the Business Insider observes, her faux pas doesn’t just represent cringe-inducing bad manners, it’s actually “bad for Argentina’s economy. Fernandez needs China. Badly. Since last year, Fernandez has been working with Chinese President Xi Jinping on a currency swap to get cash to her country and replenish Argentina’s notoriously low reserves.”
Kirchner’s Presidential spokesman, Alfredo Scoccimarro, may be desperately seeking new employment, or could be curled up in the fetal position somewhere on the periphery of official events. Difficult to know. What is certain is that he “didn’t answer his mobile phone or return an e-mail seeking comment on the tweets.”
It has been reported that Kirchner had earlier signed “15 agreements with Xi on issues ranging from nuclear energy to agriculture as part of her four-day state visit to the world’s second-largest economy.” This blog continues to examine all available information regarding those China-centric agreements, and will shortly be expounding upon them here.
Post date : 02.04.2015 9:46 am
It has been exactly one year since President Cristina Fernández de Kirchner and her co-conspiring Finance Minister, Axel Kicillof, subjected Argentina to the embarrassment – and real-world economic consequences – of an historic censure by the International Monetary Fund (IMF) for providing what was charitably characterized at the time as merely “inaccurate” financial data.
The ensuing 12 months have featured a series of reckless Kirchner/Kicillof fiscal policies – culminating in the decision to voluntarily default on the Republic’s loan obligations – that have debilitated Argentina’s economy to the point where Kirchner is currently on mainland China, begging for the chance to sell the Republic’s national treasures for urban sidewalk-sale prices.
All of which may seem like fairly damning evidence that the world’s economic super-powers – the proverbial “adults in the room,” as represented by the venerable G-20 – should cease to take Argentina seriously…at least as long as President Kirchner is in power.
It’s a view that many might find receptive, reading between the lines of a piece in yesterday’s Wall Street Journal…
An article by Paul Hannon details a just-released report by the Organization for Economic Cooperation and Development (OECD) that says the annual rate of inflation in its 34 members fell from 1.5% to 1.1%, during the November to December period, representing the “the lowest level since 2009”.
It’s a decline the OECD attributes “largely” to the steep decline in energy prices over the second half of 2014, but also to the “disappointingly weak performance of the global economy.”
Importantly, and independent of the larger conversation regarding disinflation and its effects on the global economy, there was this telling gem: “After many months of concern about the accuracy of its data on consumer prices, the OECD counted Argentina in its calculation of the G-20 inflation rate. By this expanded measure, it rose to 2.8% in December from 2.4% in November.”
What more compelling recent demonstration does one need of Argentina’s outlier status?
The OECD, a thoroughly fact-based, non-political organization, actually considered excluding data from a country due to accuracy issues? It is alarming. And, entirely in conjunction with all other evidence of Argentine fiscal mismanagement.
But will it serve as impetus for the global community to reexamine Argentina’s membership in the G-20?
Turns out, this is not an entirely novel argument, even if it has been a while since it was articulated.
Henry Smith, a British Tory MP, addressed the House of Commons in September of 2013. He gave an impassioned defense of booting Argentina from the G20. Here below are just a few of his eloquent soundbites:
“Argentina has expropriated the property of European companies, provides a safe haven for drug dealers bringing methamphetamine to Europe, is developing a strategic relationship with Iran, it deliberately falsifies its economic statistics, it refuses to abide by international court judgments and refuses to pay its debts to other nations and institutions and even refuses to honour the most basic laws of contracts.“
“Argentina’s refusal to repay its debt obligations, even though it has billions of dollars in reserve, sets a terrible precedent for other nations…”
“It is simply unacceptable that a country that is a member of the G20, one of the most important and prestigious international bodies, should behave in this manner.”
“I believe that Argentina’s membership of the G20 should be revoked.
“The country has been named and shamed by Transparency International as one of the worst in Latin America for corruption, even outstripping Venezuela, and the International Monetary Fund (IMF) has starkly stated that Argentina’s government is lying about its economy and cannot be trusted.
“We cannot and should not allow Cristina Kirchner to be rewarded with a welcome at the world’s top table.”
“Argentina is an international outlier – no other country, including in Europe, is behaving so irresponsibly in relation to its debts, no other country is in receipt of an IMF censure for falsifying inflation figures.”
“We should stand up for the rule of law, sanctity of contract, and respect for international legal and financial obligations.”
“We should not stand with those who refuse to abide by court judgments and who steal private property.”
Well said, Mr. Smith. We urge the global community to heed your argument and its reasonable conclusion: “It is time now to take a tough position on Argentina’s membership of the G20.”
Post date : 01.30.2015 12:15 pm
The New York Post reports this morning that Diego Marynberg – who was favored by Economy Minister Axel Kicillof’s ministry days before Argentina’s default last year with a suspicious US$200 million insider bond operation – has put his luxurious Manhattan apartment on the market. Here’s an excerpt from the article:
“Argentine financier Diego Marynberg — who has been called a crony of his country’s economy minister, Axel Kicillof, and is reportedly linked in a lawsuit to an alleged insider bond transaction with Argentina’s central bank before Kicillof took the country into default — is selling his sprawling Manhattan apartment.
“We’re told that Marynberg, who lives in New York, where he runs his fund, Latam Securities, is quietly putting his 17th-floor unit at 110 Central Park South on the market for $30 million.
“A Latam rep sniffed of the sale offering, “I don’t know anything about that.” Asked if it’s because of recent reports alleging a probe into the bond transaction, he added, “It doesn’t have anything to do with anything.”
Marynberg’s long career of shady dealings in Argentina, in Russia and Venezuela, and his money trail through the United States and Uruguay – where Kicillof has a vacation home – have been widely reported on this blog. The suspicious US$200 million bond operation with the Central Bank of Argentina last year, and the possible involvement of Economy Minister Axel Kicillof, is currently under federal criminal investigation by Argentine prosecutor Guillermo Marijuan.
We will continue following the developments of this new “K money trail” where ‘K’ might also stand for Kicillof.
Post date : 01.29.2015 2:24 pm
Vaca Muerta now behind the pawn shop glass
Amidst increasing domestic turmoil President Cristina Fernández de Kirchner plans to embark next week on a grovel-fest to China, where she will bow and scrape for the only financing deal now available to her.
Both the timing, and the China-centric terms she will reportedly accept, underscore once again the extent to which Kirchner’s decision to default on the Republic’s loan obligations has isolated Argentina from international capital markets. Despite possessing the power at any time to alleviate the economic plight of her country and its people by negotiating a final resolution of its outstanding defaulted debts, Kirchner is poised anew to cede both Argentine sovereignty and vast natural resources in “agreements directly tailored for China.”
These lopsided, China-favored agreements have been examined within this blog several times, most significantly here and here.
Kirchner tried to rush the arrangement through the legislature in the waning days of 2014 to preclude dissent. In fact, a quorum was achieved in the Senate by only one vote, and then, only after former President, and convicted arms smuggler, Carlos Menem, was dragged in to cast it. The accord has not been approved by the Chamber of Deputies. Despite enjoying a majority there, President Kirchner didn’t even bring it to the Chamber, indicating a well-spring of hostility for the accord, even among Kirchner’s political allies.
None of this should be surprising because the accord – a “battery” of agreements including a $2.9 Billion renovation of the Belgrano Cargas freight rail system, an $11 Billion currency swap, and a $4.7 Billion lending facility to fund two hydroelectric dams (one of them named after Kirchner’s deceased husband, former President Nestor Kirchner) in Patagonia – was swiftly assailed during its forcible penetration of the Senate, because it “would give the cash-strapped Argentine government access to Chinese financing in exchange for sweetheart contracts that would allow the Chinese firms to import their own labor [into Argentina].”
Those “sweetheart contracts” refer to long-term, low-rate credits that are not subject to the rules of the tender… in other words, China is free to offload poor quality merchandise, while Argentina is compelled to pay artificially high prices for them.
José Ignacio de Mendiguren, the Secretary of the Argentine Industrial Union and national Deputy, penned a compelling op-ed in El Cronista, in which he established the following salient point…“In a context where unemployment is reaching more than 1.4 million Argentines and at least 4 million compatriots are in a precarious situation, assuming the inevitability of the agreement with China will make these figures worse.”
Additional scrutiny has revealed that the accord doesn’t just subvert Argentina’s labor force in favor of Chinese workers…
And, it doesn’t just require Argentina to spend the money it borrowed on Chinese goods and services…
The hydroelectric deal appears specifically to mandate that Argentina contribute its own $1.3 billion, which will go directly to China.
As this blog has earlier documented, La Nacion conducted its own examination of the loan agreement between Argentina and China, discovering a cross default clause in that contract. The clause expressly states that an Argentine government default on other debt constitutes an Event of Default on the Chinese loans themselves…which means Argentina is currently in default on the terms of those agreements based on its ongoing exchange bond default.
Significantly, the hydroelectric deal was signed in mid-July of 2014, which means Argentina went into default on that contract within a few weeks of signing it…the moment President Kirchner committed to defaulting on her loan obligations, July 30. This default on the Chinese obligations could be construed as a willful misrepresentation of the terms of the contract. It is that contract that specifically compelled Argentina to stipulate no imminent event was on the horizon…
This serves as another egregious example of President Kirchner’s irresponsible management of the government’s contractual obligations and the Argentine economy in general. Her unwillingness to resolve the existing default has placed fresh and heavier burden on the Republic’s finances.
Other La Nacion investigative nuggets regarding the accord emphasize the hypocrisy of the Kirchner administration in its manufactured narrative about the holders of its pre-2001 defaulted debt:
– In the China agreements, Argentina waives its immunity and “submit[s] itself to foreign courts,” prompting La Nacion to observe, “the government of Cristina Kirchner ended up giving the Chinese banks foreign jurisdiction, submission to other courts and everything it wants to take away from the holdouts.” (Chinese insistence that the credit facilities be governed by English law suggests that they assign Kirchner/Argentine promises something less than face-value…)
– The “contracts with China also appear to contain clauses that the Government…repudiate[d] in the cases against the holdouts, such as ‘acceleration’ of debt maturities, which are carried out if the country goes into default on a payment…the creditor is entitled to demand immediate payment of the total principal, even if many years to maturity remain.”
It is also worth noting that the railroad and hydroelectric dam contracts with China contain pari passu clauses. It is well-known how Argentina views its obligations under that provision.
And so, with the Argentine benefits of the accord seemingly illusory, investigative journalist Jorge Lanata devoted an entire show to the “small print” of the so-called “million-dollar” deals with China.
Among Lanata’s findings? The Belgrano Railroad deal required Argentina to buy 2,800,000 railroad ties from China, even though there are at least 5 factories capable of producing these that already exist in Argentina.
And the Argentine levy for this obscene charity to Chinese companies, at the expense of Argentine industry and its employees? An estimated 30%-35% more than it would customarily cost…
Lanata and other informed observers have made the point that this relationship is a classic model for the deteriorating terms of trade: Argentina provides the commodities and China provides the manufactures.
Could this have any bearing on an Argentine economy “struggling to avert a recession”? Oddly, President Kirchner’s “narrative” seems never to indulge this vein of analysis…
Neither are any of Kirchner’s narratives expected to indulge the topic of China’s well-documented degradation of the region, as documented by many, including the UK’s The Guardian. It ran an in-depth piece, entitled, “China’s exploitation of Latin American natural resources raises concern,” with an equally compelling subhead, “Economic benefits countered by environmental damage and fears over lopsided nature of trade relations with Beijing.”
A few choice excerpts:
– An “Amazonian forest cleared in Ecuador, a mountain leveled in Peru, the Cerrado savannah converted to soy fields in Brazil and oil fields under development in Venezuela’s Orinoco belt…These recent reports of environmental degradation in Latin America may be thousands of miles apart in different countries and for different products, but they have a common cause: growing Chinese demand for regional commodities.”
– “The world’s most populous nation has joined the ranks of wealthy countries …that have long consumed and polluted unsustainably.”
– “Even more than Africa, Latin America has become a major focus of Beijing’s drive for commodities.”
– “A study last year by Enrique Dussel Peters, a professor at the National Autonomous University of Mexico, found that the region has been the leading destination for Chinese foreign direct investment – mostly for raw materials and by big government-run companies such as Chinalco and CNOOC.”
– “Since the 2008 financial crisis, China has also become the main lender to the region…in 2010, it provided $37 Billion in loans – more than the World Bank, Inter-American Bank and the US Import-Export Bank combined.”
– “Trade between China and Latin America was just $10 Billion in 2000. In 2011, it had surged to $241Billion.”
The Guardian goes on to say, “Repayments to China are guaranteed by long-term commodity sales, which means a commitment to push ahead with resource exploitation – often with dire consequences for the environment and indigenous communities.”
From Argentina’s perspective, the expose’s conclusion seems particularly prescient (written 14 months or so before the Argentine/China flirtations that spawned the accord):
“The lopsided nature of China-Latin America trade is also questioned because while it is good in terms of GDP quantity, it has not been so beneficial in developmental quality. Commodity suppliers are delighted at the Chinese demand for their exports, but manufacturers complain of a flood of cheap Chinese imports that undermine their competitiveness.”
For certain, it is a description that should embolden opponents of the accord, especially if they hope to safe-guard Argentina’s crown jewel, her national patrimony, the gigantic Vaca Muerta shale formation in remote Patagonia that represents the world’s second biggest shale gas reserves and the fourth largest shale oil reserves…as well as a perpetual dream-source of Kirchner revenue…
Kirchner’s long-harbored desire to transform the Vaca Muerta from crown jewel to fungible asset came a step closer yesterday on news that Argentina’s state-run energy division, YPF, had signed a preliminary agreement with China’s Sinopec to extract oil and gas from the region.
We remind readers that a transfer of patrimony remains preventable. If Argentina negotiated a resolution in good faith with its creditors, it would not need to be on the short end of such one-sided financial arrangements.