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December 20, 2014
Monday, July 7, 2014

The horns of a dilemma

The crucial negotiations with hedge fund creditors beginning today under the auspices of the Manhattan court-appointed “special master” or mediator present dilemmas beyond the specific complexities of the case. There is a rare consensus across the political and social spectrum in Argentina over the need to avert technical default — in this context hardly anybody doubts that a mechanism must be found to pay off the ‘vutlure’ creditors whose right to collect has been recklessly upheld by the Manhattan judge Thomas Griesa. There thus seems every reason for smooth and rapid negotiations, especially with a tight 30-day grace period, but there are also strong political arguments for doing the precise opposite. Not only is there a strong temptation to confront the vulture funds as a diversionary strategy from the recently confirmed recession and persistent inflation stunting the economy — such a stance would not merely be petty political calculation but fully justified in all moral and objective terms in the face of the threat posed to all forms of productive economy throughout the world by the global plague of the vulture funds. Strictly speaking, the government cannot be accused of demonizing the vulture funds if they are already demonic.

Returning to the United States on Thursday for yet another charm offensive (this time with the Organization of American States), Economy Minister Axel Kicillof gave priority to speeches over making an early start to negotiations. His in-depth critique of the vulture funds is fully justified, as are his fears of the debt mushrooming if “rights upon future offers” clauses entitle the creditors accepting previous haircuts to benefit equally. And yet Argentina urgently needs to find a way out of the New York litigation which so shackles the country — especially now that the economy has run into a wall this year while Central Bank reserves are little over half their levels of 40 months ago. Nor do national and political needs clash in the case of President Cristina Fernández de Kirchner, despite the eternal conflict between statesmanship and politics — although opponents unleashed speculations, her real business is to leave a positive legacy vindicating the Kirchnerite claim to have saved the country from all the disasters following the 2001 default, not to lead the country into a fresh default and risk a new catastrophe.

Standing up to the vulture funds is a moral imperative while reaching a negotiated settlement with them is the country’s urgent need — how do you combine the two?

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