Fact Check: Argentina

958 days, 18 hours, 35 minutes ago


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The RUFO Smokescreen

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.