December 6, 2013
Third time lucky?
Sometimes defence can be the best form of attack — President Cristina Fernández de Kirchner’s rapid reaction to last Friday’s New York court ruling in favour of holdout creditors sidesteps both confrontation and capitulation, even if all the underlying foreign debt problems are at best redefined rather than solved. The jury is still out on whether Argentina has entered into technical default since last Friday but there is a huge distance between that possibility and gleefully plunging into all-out default as in late 2001 (despite a fad in some circles to compare the current situation to that year). Indeed CFK went out of her way to present Argentina as a “serial payer” (even if, for example, the Paris Club, the other side in international arbitration disputes and Repsol oil company might have problems with that definition) which needs a growth model to honour its debts. But compliance was no more in CFK’s mind than defiance (least of all during a crucial electoral campaign) — instead she proposed her own version of a “third way.”
This alternative took the form of re-opening the debt swap for a “third time lucky” in favour of the seven percent of creditors rejecting both the 2005 and 2010 haircuts (despite the 2005 “padlock” law) while offering Buenos Aires as a venue of jurisdiction for the other 93 percent accepting the haircuts should New York start insisting on full payment. Both proposals are rather more successful in moving the goal-posts than in avoiding the problems. This belated offer of 30 percent payment is unlikely to impress holdouts who have already waited a dozen years and must surely smell victory after a steady pattern of New York court rulings in their favour — indeed many will have taken CFK’s manoeuvres as an admission of defeat. Paying via Buenos Aires poses a dilemma in the light of the currency curbs of the past couple of years — few creditors would welcome collecting their dollars under that regime but exempting them would infuriate most ordinary citizens.
Campaign season would seem the worst time to inject this explosive issue but thus far responsibility seems to be prevailing over electioneering. For once CFK did not time this issue to serve populist grandstanding — it was a New York court which set the ball rolling — while, aside from the nationalist left, the general attitude in the opposition seems to be critical support (hardly even critical in the case of centre-right PRO). Yet we are in very early days of this latest phase of a 12-year saga — this may not even be Winston Churchill’s “end of the beginning.”