November 23, 2014
Biting the bullet
Difficult as it was for a government committed to growth without debt to confirm negotiations with holdout creditors consistently dubbed “vultures,” now comes the hard part. If President Cristina Fernández de Kirchner can make one speech (as she did last Friday on Flag Day to confirm the negotiations), she can always make another, the skeptics might argue — words mean little until there is the solid reality of an agreement which restores Argentina to global capital markets and reasonable interest rates. Yet while the main challenge will be translating the agreement into reality, there are even difficulties at the rhetorical level. It is to be hoped that in a bid to overcome previous friction, government jargon does not start transforming the vultures into angels with wings in a U-turn. While CFK is praised in many quarters for assuming her responsibilities, the billionaire creditor Paul Singer only smells weakness and starts preying on YPF assets via Chevron. If, for example, the 106 British MPs backing Argentina’s appeal to the United States Supreme Court had no compunction using the term “vulture funds,” why change? Serious negotiations can only proceed on the basis of calling things by their name.
A list of all the difficulties ahead would exceed the space in this editorial but perhaps one root problem is that now Manhattan judge Thomas Griesa has been upheld as the venue of jurisdiction by the US Supreme Court, how will agreement with holdouts be reached while respecting the principle of pari passu or the equal standing of all creditors so central to Griesa’s ruling (CFK’s Flag Day speech also embraced the inclusion of 100 percent of creditors)? In hindsight the government’s previous insistence on being just as intransigent as the holdouts might not seem so irrational because the US$1.3 billion owed the hedge funds in litigation with Griesa might not only mushroom into tenfold that sum owed to all holdouts but also end up unpicking the 2005 and 2010 bond swaps.
Yet even with this and other difficulties, there is no choice to this agreement in order to bring down the recessive interest rates into which Argentina was forced in order to avert a currency crisis following the January maxi-devaluation — the pursuit of growth without debt has finally run into a wall and it is now all about being able to borrow at rates similar to the other mostly growing Latin American countries (or even stricken Spain). After a long weekend to celebrate the return to reason, it is time to start work.