Fact Check: Argentina

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Kicillof gives unequal treatment, refuses to negotiate… with his own workers

Today, Kicillof and his top appointees may face an ugly protest by frontline workers at the Economy Ministry because of supremely unfair treatment under orders by the Minister himself.  Kicillof refused to authorize end-of-year bonuses for 2014 to the members of the ministry’s public service union, ATE, despite 40% real inflation eating up the purchasing power of workers in the country.  This is in line with Kicillof’s broader rhetoric denying there is an inflation problem in the country, and refusing national trade union demands for income tax cuts for Argentine workers plus wage top-ups to ease the blow of high prices.

But then comes the news that while he refused any bonuses for frontline workers in his ministry, Kicillof quietly authorized 2014 bonuses for a small group of aides in the office of Deputy Minister Emmanuel Álvarez Agis.  (Readers of this blog will recall that Álvarez Agis was widely reported as the go-between for Kicillof and shady speculative businessman Diego Marynberg in a US$200 million closed bond deal with the Central Bank only days before Argentine defaulted last year.)  Then word came that bonuses were also extended to employees at the embattled statistical agency, INDEC, but with a catch: whoever has objected to the Kirchner government’s manipulation of the agency’s economic statistics – which began in 2007 – was denied a bonus, and those who went along with it were rewarded with a bonus.

This insider treatment for Álvarez Agis’s staff and the lackeys at INDEC enraged the leadership of the ATE, who demanded the treatment that Kicillof gave political sycophants in the ministry be granted to 100% of the ministry’s staff.  So far, Kicillof has refused to negotiate with them.  One union source said that Kicillof has confided that he is unwilling to pay the political price for granting equal treatment to everyone.

Let’s not forget that Kicillof is largely to blame for Argentina’s runaway inflation, which is depleting wages for everyday Argentines.  By choosing to take Argentina into default instead of negotiating with creditors who have consistently stated their willingness to help bring an end to this mess, he has created a miserable situation for workers in the first place.

Argentina Ceding Sovereignty and Jobs to the Chinese

As Latin American leaders meet with Chinese President Xi Jinping in Beijing this week, President Cristina Fernandez de Kirchner will be unexpectedly absent due to an ankle injury. Yet, what will be missed in high-level, personal interaction, Argentina has made up for in legislative intent – in a lasting way.

On December 29th, in the dark days between holidays, Argentina’s Senate passed a regulatory framework for Chinese investments in Argentina, hereinafter referred to as the Argentina-China accord, which originated from the Presidents’ July meeting. Within the accord is an agreement to subvert Argentina’s labor force in favor of Chinese workers.

As one source put it, “Fernández’s party rushed a bill through the upper house of Congress that 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— a move that angered Argentina’s influential labor unions.”

The sweetheart contracts refer to long-term, low-rate credits that are not subject to the rules of a tender – as a result, China can offer poor quality goods and force Argentina to pay high prices.

And according to the Buenos Aires Herald, “Ex-ambassador Pérez Llana said that Chapter 5 of the agreement with Beijing allows China to bring in manpower “overriding the entire Argentine labour legislation.””

In essence, the passage of the Argentina-China accord is equal to the direct hiring of Chinese firms and Chinese labor to do what Argentine firms and workers could do instead. And furthermore, it establishes Argentina’s relationship with China as one more similar to an impoverished African nation than it does Chile or Costa Rica’s more even-footing approach to China.

Learning from Africa’s experience with China is important. “Critics say that Beijing is only interested in Africa as a potential wellspring of mineral resources, and that its projects there often benefit governments more than local people.”

Why would Argentina so explicitly cede its sovereign rights to the will of the Chinese government, you may ask?

Because Argentina’s refusal to negotiate with its creditors – which the nation’s leaders feel would create the illusion of losing sovereignty to U.S. courts – is leading Argentina to cede real sovereignty to China. Argentina is finalizing this one-sided accord in the face of blocked access to international capital markets, as well as obstructed IMF funding.

Reports show that within the overall Latin American engagement with China, nations like Costa Rica and Chile are better able to pursue a partnership. Such a win-win arrangement was not on the table for Argentina due to the weakened state of the government led by Cristina Kirchner. The streamlined manner in which the Argentina-China accord traversed Argentina’s Senate, and reported efforts to preclude dissent in the Chamber of Deputies, is demonstrative of Argentina’s weak governmental institutions.

Instead of signing a deal with China in such a fragile state, the government of Argentina should negotiate with its creditors. Such a negotiation would not impede Argentina’s relationship with China, but would allow Argentina to engage China on a more level playing field – not through a hat in hand, last ditch effort to access international financing.

Continual delays by Argentine leaders to engage in a true negotiation have hurt Argentina’s economy, if Argentina codifies into law the preferential treatment for the Chinese laborers, Argentina’s workforce will be the first to suffer the next blow.

RUFO is gone. It’s time to negotiate.

Over the weekend, Argentina’s Economy Minister Axel Kicillof gave a battery of interviews to media, and it was encouraging to us to note that he acknowledged that the so-called RUFO clause has expired, saying it khad been “a trap.” Kicillof had repeatedly cited the clause as the most “dangerous” barrier to holding a real negotiation, since any voluntary offer to the remaining creditors – he argued – would “trigger a cascade of claims” that different times he estimated to be between US$20 billion and US$500 billion.

This blog has written extensively about RUFO and we’ve always maintained that it was nothing more than a smokescreen – an excuse that Kicillof and others in the government used in refusing to negotiate with Argentina’s creditors.

Whatever the case, now RUFO has expired, and so there should be no barrier to negotiation anymore. Argentina’s creditors have consistently stated that a settlement could be reached in a day. So why isn’t Argentina negotiating?

In one of his interviews, Minister Kicillof noted that in his view, the expiration of the RUFO “took a huge weight off” the situation. This is encouraging. He also noted that this, however, “does not resolve other problems.” He is correct in that it does not provide a framework for a settlement—the lack of which is at the root of Argentina’s current economic problems. To settle, both parties must come to the table.

One interesting proposal for a settlement was offered last November by Argentine economist Juan José Cruces of the highly respected Tocuato di Tella University in Buenos Aires. He issued an extensive paper on his views, and summarized it in a column in La Nacion on Sunday, November 16. His main points, as he wrote them, were:

 1. “No more bravado: change the manner of relating to the court and abide the order that the judge has issued.  Our Congress voted for budgets with deficits, which required debt issuance, and we waived sovereignty in favor of international courts because they gave more security to investors, we did it before and we do it now.  However more aggressive our discourse may be, the greater our promises of future payment must be, in order to raise a certain quantity of cash to settle this litigation.”

 2. “Settle the amount payable cheaply: show willingness to resolve the problem in reasonable terms, recognizing the rights of the litigants. Historical evidence suggests that this does not imply paying everything they are asking.”

 3. “Settle the form of financing the amount payable cheaply: we want to take advantage of the decline in country risk that will result from the settlement; there are several possibilities for doing so.”

 4. “Begin to negotiate on January 1, 2015, early.”

 5. “Return to the IMF: it is the cheapest form of funding that Argentina has and can buy us a lot of credibility vis-à-vis our interlocutors and mitigate the effect of respecting the RUFO time period.”

 6. “Execute competently: the proposal contains bold moves whose costs are mitigated and benefits are maximized if it is executed by someone who understands financial markets and the international arena, who inspires much confidence in the interlocutors.”

These ideas from Dr. Cruces are interesting for a number of reasons, mostly because they seek to promote pragmatism on the part of the Argentine government, something that has been lacking to date. Dr. Cruces specifically calls out the 2005 exchange as “aggressive” and casts doubt on it as a serious negotiating position for Argentina.

For their part, Argentina’s creditors have been pragmatic about a solution. They have pledged to accept a combination of cash and bonds under conditions that would be sustainable and affordable for Argentina given its current and future economic conditions. And many of the points laid out by Cruces would also be very consistent with Minister Kicillof’s widely hailed settlements with Repsol over YPF, and with the Paris Club.

All the analysts in Argentina and abroad agree that a negotiation relies entirely on a political decision taken in Buenos Aires to start one. One of the most notable lessons of history has been that no matter how rough the battle has been, peace is always a welcome finality. It is within reach today, no matter what the skeptics and the cynics on the sidelines are saying.

Argentina, let’s turn the page, and start talking.

U.S. Congress Makes Federal Case Over Argentina’s Refusal to Negotiate With Creditors

You might have missed this, but late last week, the U.S. Congress approved language (see House Report 113-499) requiring the U.S. Departments of State and Treasury to report back to Congress early in the new year about the “steps that Argentina is taking to normalize relations with its creditors.”

Report language addressing Argentina’s refusal to negotiate with U.S. creditors had previously passed a House Committee this summer and is put into effect by the omnibus appropriations bill that just passed both Houses of Congress. Here is what it says:

Debt repayment. The Committee is concerned about the continued dispute between Argentina and its creditors and notes that the Secretary of State, in a hearing before the Subcommittee, said that he has urged Argentina to repay its debts to the United States Government and to engage with creditors, public and private. The Committee directs the Secretary of State and the Secretary of the Treasury to submit a report to the Committees on Appropriations, not later than 45 days after enactment of this Act, on steps the Government of Argentina is taking to normalize relations with its creditors.

According to the report’s directive, both the Secretary of State and the Secretary of the Treasury must report back to Congress within 45 days on “steps that Argentina is taking to normalize relations with its creditors.”

This isn’t the first time U.S. officials have taken a position on Argentina’s refusal to negotiate. As the report states, Secretary of State Kerry has called upon Argentina to engage with creditors, public and private. This summer, Senator Menendez called out Argentina for its behavior, stating that there was no reason for a G-20 member to fail to meet its obligations.

For years, Argentina’s creditors have asked the country’s leaders to sit down and negotiate a final resolution to Argentina’s outstanding debts. Creditors have made it clear that they can be flexible on negotiating terms, including incorporating elements of past Argentine negotiations with the Paris Club and Repsol into a final bondholder resolution. However, Argentina’s officials have refused to engage in even basic dialogue with its creditors. By refusing to negotiate, Argentina’s leaders, specifically its Economy Minister Axel Kicillof, have created a disastrous economic situation for Argentina’s citizens, and have isolated the country from financial markets.

This latest action by the U.S. Congress is a constructive step aimed at promoting a settlement between the two parties. Argentina’s creditors are waiting to negotiate. Will Argentina join them?

Florencio Randazzo’s Ties to Construction Tycoon Raise Questions About a Presidential Run

Interior Minister Florencio Randazzo has reportedly emerged as Cristina’s favored candidate for president next year, but allegations of improper dealings with a construction tycoon allegedly serving as Randazzo’s front man have complicated his rise. Randazzo’s alleged front man, Eduardo Wassi of the firm Dinatech, also has extensive holdings in Miami that have not been previously disclosed, and whose acquisition coincides with Randazzo’s tenure as interior minister.

Multiple media reports indicate that Randazzo is the preferred candidate of Cristina and her inner circle. While the campaign season has not yet officially started, Randazzo has publically announced his intention to run, and he and his team have launched a social media drive to boost his candidacy. Cristina appeared at a pseudo-campaign event with Randazzo earlier this month.

Not coincidentally, Randazzo is also among the favorites of the Cámpora, the political youth group started by Maximo Kirchner and fanatically loyal to Cristina. Randazzo made an appearance with Camporista big shots Andrés Larroque and Mariano Recalde in October. In November, he travelled with prominent Cámpora members to Río Gallegos, the Kirchners’ hometown and Máximo’s current place of residence. During the Río Gallegos event, Randazzo slammed Daniel Scioli, the Peronist Buenos Aires governor and presidential hopeful who has long had a rocky relationship with the Kirchners. Randazzo has also founded his own youth group, called La Florería, aimed at emulating Cristina’s success with the Cámpora.

His electoral ambitions have brought greater attention onto Randazzo, which has dredged up some unflattering allegations. In September, Perfil reported that Dinatech, a construction firm owned by local businessman Eduardo Wassi, collected $134 million from the Interior Ministry during three years with Randazzo at the agency’s helm. Dinatech also collected public moneys from Randazzo in his prior job as cabinet chief to Buenos Aires Governor Felipe Solá. Largely as a result of the largesse of Randazzo’s agencies, Dinatech’s assets increased by more than 1,000 percent in a decade. Other news organizations like Clarín indicated that Wassi served as a testaferro, or front man, for Randazzo, meaning that the contracts his agency awarded would have been filtered back into his own pockets.

In October, judge Marcelo Martínez de Giorgi gave a green light to a federal investigation of Randazzo and Wassi, which is being led by prosecutor Ramiro González. Diego Bossio, the head of Anses, and Vice President Amado Boudou are also under González’s microscope for their alleged ties to Wassi.

The testaferro charge is one Randazzo (like Boudou) has faced before. In 2009, he was accused of purchasing a 3,600-acre property in Buenos Aires province, via a company called ADM Pigue S.A. Randazzo was subsequently investigated for his alleged role in the purchase; it is not clear if he was ever cleared or if the investigation simply petered out. Randazzo was one of several figures associated with the Kirchners accused of acquiring rural property through front groups while the government was engaged in a massive fight with the agricultural sector, leading to charges that the Kirchners’ policies were simply a ploy to allow friends to snap up properties at bargain prices.

Wassi’s alleged role in fronting Randazzo’s wealth is further interesting because of the former’s substantial holdings in Miami. In November 2011, he founded a firm in Miami called Technology Dinamic. A month later, public records indicate that Wassi acquired a luxury condo in downtown Miami’s Marquise Condos for $1.075 million. Wassi appears to work closely with a lawyer named Marcell Felipe, whose firm has offices in Miami, Buenos Aires, and elsewhere in Latin America. Felipe is listed as Wassi’s representative for the condo and is Technology Dinamic’s registered agent.

Wassi’s status as a construction magnate whose growth stems largely from relationship with government officials can’t help but call to mind Lázaro Báez. Both men who came out of relative obscurity, befriended powerful political figures and then grew rich by bidding on government contracts. Would a Randazzo presidency be as generous to Wassi as the Kirchners’ tenure has been to Báez?


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