November 26, 2014
The good, the bad and the Paris Club
Argentina is one step closer to putting the default of 2001 behind it
You know how it is. Some weeks can be good. Some weeks can be bad. Most weeks combine the good with the bad. It’s no different for the administration of President Cristina Fernández de Kirchner as it tries to negotiate its way through to the end of its mandate next year. Time, because the president is not allowed by the Constitution to seek a third consecutive term in 2015, is running out for the administration. Yet strangely that could mean that time is on the president’s side because the negative news will have less of an effect as the end of her mandate nears.
A judge on Friday summoned Vice-President Amado Boudou for questioning on July 15 as a suspect in a case of influence-peddling involving the mint company Ciccone, which has since been seized by the state.That’s bad news for the government because Boudou will be the first democratically-elected vice-president in the history of Argentina to face a judge while still in office. The symbolic implications are endless and ultimately Boudou could face even more serious corruption allegations. Boudou, like any VP, is often called on to be acting president while Fernández de Kirchner is away on official business. Fernández de Kirchner is scheduled to be out of the country on July 15 to attend the BRICS summit in Brazil.
The BRICS summit invitation was the product of a visit to Moscow by Argentina’s Foreign Minister Héctor Timerman. There was a lot of formality attached to the invitation, but it prompted speculation that one day Argentina could formally join the five-nation BRICS bloc that includes Brazil, Russia, India, China and South Africa.
The negative headlines about Boudou were splashed all over the newspapers. The prospect of Boudou appearing in court as acting head of state will only add to the injury, and highlight that the CFK administration has a corruption problem.
Yet the BRICS summit that will be attended by Argentina is part of the week’s good news, if you ask the government. The invitation could turn out to be anecdotal. Maybe the local press was reading too much into what Russia’s foreign minister said on meeting Timerman in Moscow. But the news on the BRICS front was combined with much bigger developments for the local economy: the debt repayment agreement with the Paris Club of creditor nations was announced in the wee hours of Thursday. The accord came after marathon talks in Paris attended by Economy Minister Axel Kicillof.
The talks with the Paris Club (over a defaulted debt of 9.7 billion dollars counting interest) were formally opened in January. Argentina has already restructured most of the debt it defaulted on in 2001. But the Paris Club debt is still outstanding. Kicillof, a 42-year-old scholar from the University of Buenos Aires who likes to describe himself as an “unconventional economist,” had been ridiculed by his critics after he returned from Paris in January with little news to report.
All that has now changed. The Paris Club announced an agreement for Argentina to repay its debt over five years, clearing the way for the resumption of international financing.
Most heavyweight opposition leaders were left with no option but to welcome the agreement, which does not include the usual involvement of the International Monetary Fund (IMF). Argentina has refused to swallow the IMF’s belt-tightening recipes since it cancelled its debt with the fund in 2006. Accepting the IMF’s involvement in the case of Paris Club agreement would have been a major concession for the Fernández de Kirchner administration, which would have been difficult to explain to voters on the domestic front.
The Paris Club deal comes after Argentina’s recent settlement with the Spanish company Repsol over the nationalization in 2011 of the Argentine energy company YPF. But even now the massive sovereign debt default of 2001 is technically not over.
Argentina and the bondholders who did not take part in a debt restructuring are still battling out in the US Supreme Court. A US Supreme Court ruling in favour of the holdouts, which are described as “vulture funds” by the CFK administration, would leave Argentina is a state of technical default once again.
Yet there is growing speculation that Argentina could be considering an out of court settlement with the “vultures.”
The Paris Club agreement, which has to be reconfirmed by 16 of its 19 member nations, includes a 650 million dollar payment in July. Another 500 million dollars will be paid in July. But financial analysts are saying that, even when the bill to foot looks hefty, the payments are manageable and will not significantly dent the Central Bank’s foreign currency reserves.
Did somebody say Central Bank? On the same day Kicillof’s jet-lagged team was in Paris negotiating, Central Bank Governor Juan Carlos Fábrega was addressing a business luncheon back in Buenos Aires. Speculation was rife that Kicillof and Fábrega, who have been in office since late last year, have been bickering in private over the best way to deal with inflation and sluggish economic growth. The Central Bank reserves were dwindling rapidly in January when the peso was devalued 20 percent overnight. National government officials had practically made no direct comments about that sudden devaluation after it happened.
Fábrega on Wednesday, practically for the first time, confirmed that January’s devaluation had been a conscious decision made by both the Central Bank and the executive (including the Economy Minister).
There was every chance that Fábrega, who has also increased interest rates to deal with inflation, would gradually upstage Kicillof — at least in the narrative favoured by the opposition press. But then the agreement with the Paris Club was announced. The news of the deal wrong-footed the critics. The president in 2008 failed to deliver on an announcement that the Paris Club debt would be cancelled with Central Bank reserves. The world was hit by a financial crisis soon after that announcement and there was no such payment. This time the payment is for real.
Pending now is that US Supreme Court decision on the holdout case. But Argentina is one step closer to putting the default of 2001 behind it. It’s now also more likely that both Kicillof and Fábrega will stay in office until the end of Fernández de Kirchner’s mandate next year.
Fábrega was recently forced to deny rumours of a major argument with the Economy Ministry over policies. Fábrega said on Wednesday that interest rates will be lowered if the monthly inflation rate stays under two percent.
Rife rumours about arguments and resignations will now die down for a while giving the CFK administration precious time to maneuver. It does not mean that the economy will stop creaking.
The government had little time to celebrate its symbolic victory over the critics, which include many renowned economists.
Come Friday the news was mostly about Boudou. Kicillof implied in an interview on Friday that it is no mere coincidence that the judge had decided to summon the vice-president one day after the agreement with the Paris Club was formally announced.
The vice-president himself said on Friday that he now relished the chance of appearing in court to “prove his innocence.” Boudou’s summons came after days of rife speculation that the Ciccone case judge, Ariel Lijo, would be forced to drop the investigation by a higher court.
The vice-president, who was handpicked as a running-mate by Fernández de Kirchner for the presidential elections of 2011, seems to be defending himself and fighting for his political life. The Kirchnerite camp argues that there is an orchestrated media campaign against Boudou, among other things because he orchestrated the nationalization of the private pension funds in 2008.
Everybody was talking about Boudou. Except for the president. Fernández de Kirchner delivered a speech yesterday in Santa Cruz province.
The president criticized a protest by militant trade union leaders at an autoparts plant in Buenos Aires province. She also appeared to voice frustration at the handling of that labour conflict by Buenos Aires province Governor Daniel Scioli, a moderate Kirchnerite who will seek the presidential nomination of the ruling Victory Front coalition. Authorities, after CFK’s speech yesterday, called for a compulsory conciliation in the auto parts conflict. The occupation of the autoparts plant by militant workers was also criticized by the president. The situation at a specific plant is part of a bigger crisis hitting the auto industry with demand from Brazil dropping. Hear the economy creaking again?
The vice-president meanwhile has until July to ponder his next legal move. The case could go all the way up to the Supreme Court. Before that a soccer World Cup has to be played in Brazil. But the Ciccone case will return after that.