May 20, 2013
Steering into the storm
Just when the rest of the planet seems on hold awaiting next Tuesday’s United States presidential elections (themselves on hold due to the ravages of superstorm Sandy), Argentina’s relations with the outside world appear to be entering a decisive stage. The plight of the naval training frigate Libertad in Ghana is the exotic tip of a very big iceberg (perhaps not the best metaphor for its current tropical abode) — last Friday’s ruling in a New York appeals court (the same day the government’s capital market reform bill entered Congress) is another turn of the screw making it easier for holdout creditors to pounce and pointing powerfully towards a total review of all foreign debt policies of the last decade (not that the hint will necessarily be taken). At such a delicate point for national credibility abroad, Argentina is not doing itself any favours with its Geneva talks with Iran over the 1994 AMIA Jewish community centre blast — while some effort seems to have gone into making these talks look like a bid to negotiate the surrender of the Iranian officialdom suspected of organizing the terrorist attack rather than simply letting Tehran off the hook, talking to Iran is much more easily misunderstood than understood in the wider world.
Friday’s US court ruling was rather more than a simple reaffirmation of creditor rights, threatening to turn the 2003-10 haircuts upside down with its assertion of the legal principle of pari passu. This quite simply asserts equality among creditors, making it impossible for the Treasury to meet its commitments to new bond-holders while ignoring the holdouts now impounding the Libertad — not only does this complicate Argentina’s future credit but probably makes it impossible to give new bonds legal sustainability without unpicking the whole haircut package, thus disarming the pari passu objection. Much too big a step for a government entirely unaccustomed to taking the long view — far easier to refuse dogmatically to negotiate with “vulture funds” than to rewind the 2001 default and do it properly (or at least effectively) this time. But meanwhile, the capital market reform sidelining the Bolsa stock exchange is yet another nail in the coffin of Argentine credibility alongside currency and import curbs, the pesofication of dollar-denominated provincial bonds, the ban on dividend repatriation, the annexation of Central Bank reserves, etc. No wonder bonds took a dive as the week started.
Just as well that it is Barack Obama who is seeking re-election next week and not President Cristina Fernández de Kirchner.