December 13, 2013
Debt be not proud
Almost the only area where the government has shown recent signs of taking action to solve its various economic problems, instead of passing them onto its eventual successors, is the foreign debt front — this adds interest to a New York appeals court’s wink in its direction at the end of last week. Showing a velocity extraordinary for a case stretching back to the default of late 2001 (a pace even more sluggish than the Clarín Group saga finally resolved here by the Supreme Court last week), the Second United States Circuit Court of Appeals in New York took just a fortnight to deny a motion to lift a stay it issued last August in favour of Argentina, pending US Supreme Court review of a ruling concerning holdout bondholders. Indeed even the latter might not be too averse to the court maintaining the freeze on their demand for full repayment (to the tune of u$s 1.33 billion) because both they and the Argentine government — hitherto totally irreconcilable — are increasingly looking toward an out-of-court settlement. This settlement would take the form of the “vulture funds” (in the parlance of the Cristina Fernández de Kirchner administration) receiving the same haircut share from the government as the 93 percent of creditors within the 2005-10 bond swap, who would then chip in the 970 million or so dollars to give the holdouts full repayment — out of enlightened self-interest in order to avert the technical default which would send bond prices crashing. The CFK administration for its part would avoid any loss of political face. This initiative allegedly did not arise from either of the irreconcilable antagonists, CFK or the “vulture funds,” but from bond swap creditors (reportedly the Gramercy and Fintech funds in particular).
Such a settlement to banish the threat of technical default would not be the only novelty — the recent initiative to respect CIADI international arbitration rulings could restore Argentina to global capital markets if followed up by redemption of Paris Club debt, especially if the long-promised nationwide inflation index finally emerged to replace the travesties of INDEC statistics bureau. But these moves also carry their risks — repaying Paris Club creditors alone would knock back Central Bank reserves by some u$s seven billion while the selective CIADI settlements so far could prove to be the tip of an iceberg.
But for now Friday’s New York ruling seems to be open encouragement to Argentina to continue its recent efforts to dig itself out of this hole.