June 18, 2013
Cause for appeal
The debt swap court battle slows down
December, the last month of the year is here. It should be a month when you can at least start to think about relaxing, if only a bit. Christmas and the New Year, after all, are not that far away. But, no. Flip rapidly through Argentine history books and you will see that December can be the cruelest of political months for this nation.
For instance, recall, if you will, December, 2001. Before the last month of the year 2001 was over then president Fernando de la Rúa, a Radical, had quit under pressure. There was more to come. Before 2001 was over and people had time to pop open a bottle of bubbly, Argentina announced it was defaulting on its foreign debt.
So what? That was over a decade ago. But now, here in this December, Argentina is still grappling with the consequences of that mammoth default. Legal battles are being waged by expensive lawyers in fancy suits salivating for a cut of that debt. President Cristina Fernández de Kirchner must also make payments before the end of the year because the debt was twice re-restructured since 2001 and those who agreed to the new terms must get their money.
Those who did not agree to the terms of the swaps of 2005 and 2010 also want what they think is theirs. Argentina has been sued by hedge funds who hold defaulted bonds.
Long court cases can easily be forgotten by the front pages of newspapers even when billions of dollars are at stake. The Argentine debt default court case seems to drag on for ever. But the anguish and anxiety about default came rushing back in a shot on November 21 when US Judge Thomas Griesa ruled in New York that Argentina must deposit 1.3 billion dollars to pay the hedge fund holdouts on December 15.
Griesa’s decision was quickly appealed by Argentina, but it left the CFK administration on the verge of a technical default. Before Griesa’s ruling, Argentina had said it would continue to pay the 93 percent of the bondholders who had accepted the two swaps. But Fernández de Kirchner had refused to pay the holdouts, especially the hedge funds who she has described as “vultures.”
Argentina appealed Griesa’s ruling all right. But how long could a US appeals court take in considering the challenge against Griesa’s ruling?
Court cases move slowly and Argentina had little time because Griesa had said the “vultures” had to be paid before the end of the year. Economy Minister Hernán Lorenzino had declared before Griesa ruled that the debt swap according to Argentine law could not be reopened and that there was no way that the hedge funds would get to collect a cent from Argentina.
Lorenzino changed his tune after Griesa’s ruling. Lorenzino said that the national government was now prepared to explore the idea of reopening the swap to pay the holdouts the same as what the creditors who accepted the swaps are getting (less than 30 cents on the dollar).
The case is not only about Argentina because nations like Greece and Spain are also on the verge of default. Griesa’s ruling came as such a shock that opposition leaders, including lawmakers of the Radical party, said they were in favour of reforming the law in Congress that bans reopening the swaps. Yet what good could come from altering an Argentine law to deal with a court ruling that was handed down by a judge in New York?
December 15 was nearing and Argentina was running out of excuses. Then, on Wednesday, faster than expected, an appeals court in the US accepted to freeze court proceedings while it looked at Argentina’s complaint. The appeals court’s decision effectively means that Argentina will not have to make any extra payments to the holdouts on December 15 and that the payments to the creditors who did agree to the swaps can still go ahead as planned before the end of the year.
On Wednesday, you could almost hear Lorenzino and the rest of them sigh “phew.” The appeals court said it will hear the case on February 27. February, by the standards of Argentina’s political volatility, is a long way away. So long away in fact that the holdouts late on Friday filed their own appeal against Argentina demanding a security deposit of at least 250 million dollars.
Hey, difficult November has only just turned. Who has time to worry about February now that December is here? November was not an easy month for Fernández de Kirchner. On November 8, thousands of anti-government demonstrators took to the streets across the nation to complain about inflation, corruption and a potential bid for re-election by CFK.
Then on November 20, the opposition branches of the CGT and CTA union groupings staged a general strike against wage income tax. The unions manned roadblocks all day on November 20 in and out of Buenos Aires City.
Yet even with her popularity dropping, Fernández de Kirchner has chosen to defy her critics. So defiant was the President that the Catholic Church on Thursday said it feared that Argentine society was now irreconcilably divided.
Federal Planning Minister Julio De Vido also chose to come out fighting. De Vido has declared that the ruling Victory Front has every “right” to float the idea of reforming the Constitution to allow Fernández de Kirchner to run for a third consecutive term in office. Talk of re-election, De Vido said, is not “sacrilege.”
This is not the kind of re-election talk the protesters of November 8 had expected. But what they are getting is a top government minister ranting about another mandate for CFK.
De Vido, a member of the Kirchnerite inner circle, was bold enough to make the re-election comment while Griesa’s ruling still stood.
Now, after Argentina got the stay it wanted by an appeals court, December will be a far less difficult month — which does not mean to say that there will be no volatility.
The anti-government unions could stage another demonstration before the end of the year to drive home the income tax demand.
The media group Clarín is still challenging the government’s announcement that on December 7, when an injunction filed by the group expires, the Media Law will be in full effect. Clarín argues that the law that forces it to divest is unconstitutional because it forces it to drop licences it owned before it was approved and is fighting the case in court.
The Supreme Court on Wednesday threw out an appeal filed by Clarín to extend the injunction beyond December 7. But the Supreme Court has also urged lower courts to “immediately” rule on the Media Law case, as demanded by Clarín.
Yet the problem for Clarín is that a ruling by the lower courts may not come before December 7.
The CFK administration and Clarín are on a collision course and, unless a judge rules fast, there is no stopping a crash of unpredictable institutional consequences. But that potential crash will not be followed by a disastrous technical default this month. The national government is trying to regain the initiative now that December 7 is nearing and it has won its appeal. The government has organized demonstrations for December 9 and December 10, the anniversary of Argentina’s return to democracy after the end of the military dictatorship in 1983.
The President is thus planning to throw a big party demonstration so that her supporters can have the last word with a large pro-government demonstration on December 9. But will trying to trump November 8 with a pro-government rally be enough to win the day? Or will the Catholic Church’s fears about confrontation materialize?
Even Buenos Aires Governor Daniel Scioli, who preaches moderation while still calling himself a Kirchnerite, seems to be in a confrontational mood. Scioli sent a letter to Buenos Aires City Mayor Mauricio Macri, the leader of the centre-right party PRO, on Thursday saying that the city administration must reduce the amount of garbage it dumps in the province. Scioli dispatched the letter on the same day Macri ruled out any possible political agreements with the governor because he is a “Kirchnerite.” Scioli and Macri are potential rivals in the presidential elections of 2015. Scioli could be picking an argument with Macri in a bid to show the ultra-Kirchnerites that they have a potential candidate in him if the Constitution is not reformed. Scioli has already declared that he will run for president if Fernández de Kirchner does not announce plans to reform the Constitution. The governor has so far not given in to pressure by some Peronists, including truck driver Hugo Moyano, who want him to declare war on Fernández de Kirchner ahead of next year’s midterm elections. Yet Scioli and the ultra-Kirchnerites are not exactly the same thing.
Pro-Scioli lawmakers refused to vote in favour of the Kirchnerite law that will force gated communities to donate land or money for housing projects in Buenos Aires province. The Kirchnerites, in a sign that they control the Buenos Aires province Legislature, approved the bill. But Scioli administration officials have vowed to “protect property rights” when the governor signs it into law.