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July 26, 2014
Sunday, June 29, 2014

Media decibel World Cup: Debt 3, Boudou 2

Veep’s indictment a huge ham within an economic sandwich

If Argentina has been frequently described in recent days as between a rock and a hard place, much the same applies to today’s column. It is basically trapped in a no man’s land between Vice-President Amadou Boudou’s indictment right at the end of last week and the debt payment deadline right at the beginning of this coming week. Boudou’s indictment is far too recent to offer much information whereas while there is plenty to be said about the debt crisis, most of it has already been written in the last two columns and trying to second-guess tomorrow’s outcome would be merely idle speculation.

So after a fortnight of the debt crisis eclipsing his legal saga, Boudou now returns to the forefront of the news with a vengeance. Beyond the obvious fact that the indictment of an Argentine vice-president for corruption is historic, we can only comment that it seems curious Federal Judge Ariel Lijo could not wait for his return from Cuba. Also curious is the prominence given to the acceptance of bribery among the charges against him — Boudou was generally assumed to be on the make rather than on the take in his alleged acquisition of Ciccone mint company.

Until Friday night the Boudou case had been going nowhere slowly. The veep’s cohort José María Núñez Carmona (also indicted on Friday night along with four others including Nicolás Ciccone) did finally appear in court on Tuesday but refused to answer Lijo’s questions, merely submitting a brief written statement. Another key witness Guido Forcieri failed to return from the United States and Lijo postponed his testimony (not showing the same patience in awaiting Boudou’s return).

Last weekend there was anticipation that the impeachment of prosecutor José María Campagnoli would be last week’s big news splash on the legal front rather than the Boudou case but a stressed juror put paid to that, keeping things on ice.

If the headline of last weekend’s “Politics & the Press” column equated Economy Minister Axel Kicillof with Messi, perhaps we can now say that Lijo is Lio. Or perhaps not.

Debt be not proud

Plenty written about the debt crisis but not too much actually happened in the last week of the build-up to tomorrow’s bond payment deadline (which might or might not be a D-day). On the first day Manhattan judge Thomas Griesa named lawyer Daniel Pollack as the “special master” or mediator for the negotiations “with 100 percent of the creditors” confirmed by President Cristina Fernández de Kirchner at the end of the previous week. But he refused to revive the stay on his ruling against Argentina in its litigation with holdout creditors (lifted on June 18) despite CFK’s willingness to negotiate and despite the deposit of 832 million dollars as warranty (still sitting in the Central Bank at the time this column was written). Theories differ as to the ultimate destination of that money — is it the basis of a back-door deal with hedge funds (which would create a political scandal here, not to mention litigation from other creditors) or is it earmarked only for the bond-holders accepting the 2005 and 2010 haircuts who are due to collect tomorrow, thus defying Griesa’s ruling to include the holdouts?

So far the litigation does not even include all the holdouts but basically boils down to billionaire Paul Singer with around one of the seven percent of bonds resisting the haircuts although Kenneth Dart and other “vultures” lurk.

The CFK administration enjoys considerable support against the “vulture funds” both at home and abroad although its attitude to the opposition is generally churlish and although it left its current diplomatic and international press campaign much too late (unlike the hedge funds who have been relentlessly lobbying all along and thus had been winning by default, so to speak).

At home the opposition generally applauded the decision to negotiate and indeed they had little enough choice here — not only does hardly anybody in Argentina want a default after the searing experience of 2001 but opposition governors and City Mayor Mauricio Macri are pretty much in the same boat in terms of their own credit needs (indeed last week Macri launched an 890-million-dollar bond for municipal public works). Dissident Peronist Roberto Lavagna (Kirchnerism’s first economy minister but now estranged) stood by the virtues of the 2005 haircut he had himself designed. The Church also backed the government against “speculators.”

There is also considerable global support but far more diplomatic activity is needed because most people abroad would find it hard to understand why one of the main beneficiaries of this century’s commodity boom with an indebtedness of only eight percent of Gross Domestic Product (at least according to Kicillof) can be on the brink of default. And indeed it is hard enough to understand here — perhaps too many pesos and not enough dollars would be a short and simple answer.

Of course, that eight percent figure is debatable — some estimates reach 17 percent without including the fact that the government owes most of its public debt to itself (especially the Central Bank and ANSeS social security administration, among other agencies). But in any case the debt bill is expected to more than double next year (with Repsol’s compensation for the YPF expropriation, the Paris Club settlement and all the other unpaid bills ignored until recently contributing) — the cash flow could be tight. If social spending has trebled in real terms since 2001, that could be threatened by debt payments — some tough choices lie ahead.

Yet some gloomy economic indicators underline that the government has no real choice but to bite this bullet. Argentina officially entered into recession last week according to the official international definition of two straight quarters of negative growth as confirmed by the official figures of INDEC statistics bureau — industrial activity slumped five percent in May. The return to global markets thus becomes essential in order to trade the crippling post-devaluation interest rates for the historically low rates enjoyed elsewhere in the world, including the rest of Latin America — with tapping the full potential of Vaca Muerta shale in a longer-term horizon.

Labour etc.

Some more collective wage bargaining agreements were concluded for the teamsters and other trade unions, generally clustering around 33 percent (about five percent higher than the agreements reached in summer and autumn). These increases did not necessarily make workers much happier because if their pay thus no longer lags behind inflation, they fall into an income tax trap since the floor has not been updated for the last nine months.

As from tomorrow payment of the midyear bonus will start becoming an issue. This is tricky for the public sector with this year’s steep rise of interest rates and also for a public sector battling growing deficits, especially provincial governments.

Of last week’s industrial action perhaps the biggest impact was made by the security van strike since this hit cash flow, which is the lifeblood of the economy. So many things are on hold in Argentina until after the World Cup but this might not necessarily apply to strikes — on the contrary, they could be an excellent excuse to stay home and watch television.

Both the political and economic fronts were almost entirely absorbed by the debt crisis last week. CFK did start the week by announcing the ProCreAuto scheme offering soft credit lines below 20 percent and discount prices to revive car sales which this year have suffered the triple whammy of high interest rates, slowdown in Brazil and the luxury car tax, thus causing production and sales to plunge 40-70 percent.

Amid all the gloom and uncertainty one positive development was Central Bank reserves edging up to 29 billion dollars but then we are still in the soy season.

The political world was distracted (and also largely muted) by the debt showdown. One interesting development was the intervention of Buenos Aires province Governor Daniel Scioli to break the legislative deadlock over the introduction of municipal police in the province after five consecutive failures to obtain the consensus necessary for its approval. This failure is correctly attributed to partisan gridlock but it should be noted that this was not only between the Victory and Renewal Front caucuses — there was also infighting in ruling party ranks between the provincial Security Minister Alejandro Granados and ultra-Kirchnerite Lieutenant Governor Gabriel Mariotto, along with the La Cámpora youth grouping and other progressive elements. These ideological differences led to local policing being watered down into a toothless force mocked by some as “boy scouts” (still not enough to secure consensus). At the same time many mayors across the political spectrum were upset by the provincial Security Ministry powers sought by Granados over these new and supposedly local police forces. Meanwhile Scioli’s intervention looks more like grandstanding with an eye to next year’s presidential elections than strictly necessary — and even if it were, imposition by gubernatorial resolution hardly helps the legitimacy of the new institution.

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