December 20, 2014
No fate worse than debt?
Yet the contrast between Friday’s realism and the rhetoric of the original reaction on Monday was more apparent than real. The two speeches had more in common than being unusually brief by CFK standards (both just under half an hour) — at both ends of the week she was saying that debts must be paid. There were differences in tone — the responsible realism of Friday saying what she would do contrasted with the nervous denialism of Monday with its history lesson (instead of facing the future) and tagging her intransigent creditors with words like “extortion” and “organized crime.”
But the confusion sparking default panic in much of the week basically had two roots. One was the constant U-turns over whether a team of negotiators would be sent to New York. And the other was the new bond swap under Argentine jurisdiction announced on Tuesday by Economy Minister Axel Kicillof (who was at least spelling out a plan of action, unlike CFK the previous day). This idea was a complete non-starter, almost as bad as a direct default —there was zero chance of whipping together then mandatory 85 percent acceptance in a short time to place bonds at the mercy of a country with currency curbs and a ban on dividend repatriation. This would only breed a new generation of holdouts (and perhaps also new “vultures” preying on the bond variations). The minister tried to soften this blow by saying that he was sending a negotiating team to New York immediately (but which he failed to do). Was Kicillof serious or was this a variant of the classic Peronist trade unionist strategy of “hit first, negotiate later.”
Winners and losers are hard to find in this story. Hedge fund billionaire Paul Singer certainly looked the winner on Monday when the United States Supreme Court knocked back Argentina’s bid to transfer its litigation with holdouts from Thomas Griesa’s Manhattan court to the highest level. And the man must be a genius if he can make a 1,608 percent profit (according to CFK on Monday) out of collecting zilch from Argentina in over a decade. But he must now negotiate (entirely contrary to “vulture” nature, according to Kicillof) and even if the case is now firmly lodged in a court which has always favoured him, Argentina’s willingness to negotiate will make it more difficult for Singer to impose his interpretation of the law — if Griesa used the pari passu principle of equal standing for all creditors to force Argentina to include the holdouts, what kind of pari passu says that the latter must be paid in full ahead of the rest of the pack?
At the same time CFK was looking like a loser after years of shunning the “vultures” although by the end of the week it was clear that she preferred losing face to wiping out over half a year of progress towards returning to global capital markets (a not very Maoist long march including such milestones as heeding adverse International Centre for the Settlement of Investment Disputes rulings, the compensation of Spain’s Repsol for the YPF expropriation and last month’s agreement with Paris Club creditors) — for much of the week this year’s new course hung in the balance.
Even without Argentina confirming willingness to negotiate, there were various legal technicalities to make the deadline at the end of this month relative — a 30-day grace period, a US Supreme Court rehearing (maximum duration: 25 minutes) and even a return of the stay whose removal on Wednesday heightened tension. For the last couple of years this problem has been all about buying time — the lack of time kills all solutions, whether good or bad. Contrary to what Kicillof said, the hedge funds are ready to negotiate — they will also accept bonds at least in part (and might even prefer them since they owe their current whip hand to having bought up debt cheap as junk bonds and then insisting on their nominal value).
Yet while negotiation clearly favours everybody, it is not a magic solution, as often presented. Based on Griesa’s track record, taking the negotiating process to his court has something of a “heads-you-win, tails-I-lose” air about it for Argentina — limiting everything to his court is like playing an away match (to use a soccer metaphor in honour of the World Cup) while an out-of-court settlement would bring in all the other holdouts. And as Kicillof said on Tuesday, how do you pay 1.3 billion dollars to the litigants without paying 15 billion dollars to the other holdouts (especially if Griesa has made pari passu the guiding principle)?
How did it all come down to Griesa (a judge appointed by Richard Nixon in the Watergate year of 1972)? Sins of the past which will start to change as from next year with BODEN 2015 bonds under Argentine jurisdiction. And one result of Singer’s activism is that the holdout element is increasingly being factored into debt restructuring with clauses making the majority reaction binding on all.
But in some ways the CFK administration only has itself to blame since the 1.3 or even 15 billion dollars would be no real problem if Central Bank reserves had not been used as an ATM piggy bank in the last couple of years — think back to early 2006 when the late Néstor Kirchner paid off in full the International Monetary Fund (although then just about as demonized as the “vulture funds”) quite effortlessly with some 10 billion dollars. Given that the much smaller Peruvian economy has reserves of some 60 billion dollars, for example, (World Cup host Brazil has 369 billion), Argentina’s reserves should be at least 100 billion dollars after almost a decade of commodity boom, not 28 billion (with the trade surplus continuing to shrink).
If the year started with a rivalry for protagonism between Kicillof and Cabinet Chief Jorge Capitanich on more or less equal terms, the latter definitely took a back seat last week. His role was largely limited to contributing to the confusion over whether or not a negotiating team was destined to New York and transferring the decision to a Congress running behind events — but CFK looked very much in charge on Friday.
Meanwhile the opposition was not as profuse with critical comment as usual — partly reluctant to rock the boat, given the gravity of the situation, partly its own contradictions (see the editorial on the opposite page) and partly because they did not want to be seen as siding with the “vulture funds” (who does?).
Anyway we have just completed a scary week with the spectre of default (which hardly anybody wants after the 2001-2 experience) with no guarantee against more such weeks in the rest of the year but at least a respite in which to enjoy the World Cup — if matches like yesterday’s last-minute win over Iran can be deemed enjoyable.
The legal saga of Vice-President Amado Boudou, so huge in the previous week (and last Sunday’s column), faded away almost completely — at least for now. A Ciccone testifying that he had met Boudou at least twice would have been a bombshell in most media before the US Supreme Court decision was announced (since the veep is accused of influence-peddling in the money-printing company of that name) but was buried deep inside last week’s newspapers, if mentioned at all. The spotlight was also on Boudou’s main henchman José María Núñez Carmona, who was out of the country most of the week. Instead there was the absurd case of Boudou’s papers for a 1992 Honda not being in order — which looks like petty persecution when compared to other charges.
Apart from being entirely drowned by the debt crisis, the Boudou case had to compete with the impeachment of prosecutor José María Campagnoli for poaching the Lázaro Báez money-laundering investigation — especially when star journalist Jorge Lanata appeared as a witness. There was a big downtown march in Campagnoli’s favour on Wednesday.
Along with the Boudou case, the revival of the pulp mill dispute with Uruguay just before last weekend was also nipped in the bud with no chance of competing with the debt crisis. The dispute caught Uruguay at a bad moment just before its upset 3-1 World Cup loss to minnows Costa Rica (a Maracanazo in reverse?) and faded before it could disturb the goals of Luis Suárez changing Uruguay’s World Cup fortunes (at England’s expense). After provoking protest but no action when upping UPM pulp mill production from one to 1.2 million tons last October, Uruguay pushed its luck by increasing it from 1.2 to 1.365 million tons and will now be taken to the World Court for contaminating the Uruguay River. Economic gain is generally assumed to be Uruguay’s main motive but in an election year might there not also be some flag-waving by a Broad Front government with shrinking opinion poll leads?
Last weekend CFK was in Bolivia at the G-77 summit where she was far more concerned with rallying support against the hedge funds (who threaten the world order with “anarcho-capitalism,” she said.) than with the budding pulp mill dispute with Uruguay.
Despite this column’s slug, minimal labour news, mostly various strike rumblings (and a high 35 percent increase for food workers) — when a debt crisis threatens jobs and when a World Cup is underway, not too much can be expected from that front.
(Martín Gambarotta is away this month.)