January 22, 2018

The Week

Sunday, July 13, 2014

Fifty shades of Griesa II

Vice-President Amado Boudou arrives in Tucumán on Wednesday to preside over Independence Day celebrations. But Boudou did not head a key Senate session the next day in Buenos Aires.
By Martín Gambarotta
Herald Staff
No progress in New York as a deadline nears

It’s not always clear. But now it has become clearer. Since declaring the massive sovereign debt default late in 2001 Argentina has been in a perpetual state of negotiation involving piles of money.

In reality, the negotiations and the drastic debt restructuring were going on even before that world famous default of late 2001, which plunged the republic into an institutional crisis that eventually led to the late Néstor Kirchner clinching the presidency in 2003.

Negotiating is stressful stuff. Argentina, and more specifically Economy Minister Axel Kicillof, is now trying to hammer out an agreement with the bondholders who did not agree to the debt swaps launched by Kirchner in the past decade.

Negotiating is also complex stuff. The holdouts have accused Kicillof of not wanting to negotiate even when a New York judge, Thomas Griesa, has ruled in their favour and a coupon payment deadline is looming on July 30. Griesa is not allowing Argentina to pay about 532 million dollars, which had been scheduled to be collected by the bondholders who agreed to Kirchner’s swaps.

At the same time Kicillof is accusing the holdouts, who are called “vulture” funds by the Fernández de Kirchner administration, of not wanting a deal. There was a lot of anticipation on Monday because Kicillof headed an Argentine delegation that met in New York with Daniel Pollack, a mediator appointed by Griesa, who goes by the grand title of Special Master.

Argentina is still pressing for Griesa to issue a stay that would allow the CFK administration to pay those 532 million dollars to the bondholders while at the same time negotiating with the holdouts. Kicillof’s team wants Griesa to issue that legal stay to avoid a technical default come July 30.

Anxiety is written all over this story. But at the same time the markets are confident that an agreement with the vultures will eventually be hammered out. The Economy minister after all negotiated deals with the Spanish energy company Repsol to compensate it for the expropriation of YPF. An agreement was also recently reached with the Paris Club of creditor nations to cancel Argentina’s outstanding debt of nine billion dollars (counting interest). The holdouts now look eager to reach a similar agreement. But Kicillof’s team is in no hurry.

Argentine Economy Ministry officials, not including Kicillof, again met with Pollack on Friday in New York. Argentina’s Economy Ministry officials insisted that they need Griesa’s stay to make progress in the negotiation. The holdouts have declared that they are willing to grant the republic more time, but only if “concrete and serious steps” are taken for an agreement to be reached. Argentina says taking steps will take time. “Nothing,” Kicillof has said, “can be negotiated in three weeks.”

The holdouts were not saying nice things after their five-hour long meeting with Pollack in New York on Friday. The news agency Reuters quoted Jay Newman, a portfolio manage for the holdout creditor firm Elliott Management Corp, saying this: “Argentina is still refusing to negotiate with its creditors, either directly or indirectly, about any aspect of this dispute, and we have not heard that it has any plans to change course.”

No progress? Not necessarily so. Repsol executives were not exactly saying nice things about Argentina and eventually they reached a satisfactory agreement with Kicillof’s team. But Argentina’s Economy Ministry on Monday released a statement insisting that Griesa’s ruling, which was not shot down by the United States Supreme Court, was “impossible to fulfill.”

It all reads like a bitter divorce case at the moment with both sides refusing to budge at their separate meetings with the Special Master. Here is Reuters again quoting Pollack on Friday: “They each presented their positions to me, but not in the presence of the other side. No resolution has been reached. It is my hope that there will be future dialogue.”

Exactly why the markets are confident that a deal will be reached is not exactly clear. But the precedents of Repsol and the Paris Club are there.

Kicillof’s team should consider a deal with the vultures the ultimate hurdle to return to capital markets at a time Argentina is struggling to protect its Central Bank foreign currency reserves.

It really looks like Argentina has no option but to reach an agreement. But the vultures are not doing Pollack any favours.

Holdout representatives visited Buenos Aires during the week to meet with a select group of journalists (no invitation for the Herald) and they did not have nice things to say about Kicillof’s approach to the whole mess.

Perhaps the bossy holdouts know that a technical default would be a symbolic disaster for the CFK administration, which has taken pride in trying to meet its debt obligations after the defaulted debt was renegotiated by Kirchner in 2005 and 2010. But the Kirchnerite government also relishes the chance to use inflammatory rhetoric to criticize the vultures.

It’s all riveting stuff in symbolic terms. The ultra-Kirchnerites versus the ultra-capitalists — what a story. But the clock is ticking on that coupon payment deadline and the “pre-conditions” to negotiate demanded by Kicillof’s team have not been dropped.

The vultures have won in court. But the CFK administration has garnered support in international forums, including the Organization of American States (minus the US and Canada). It could even be argued that the aggressive holdouts, not the Obama administration, are pushing Argentina to search for new potential allies. Like who? Like Russia.

President Cristina Fernández de Kirchner, after practically spending all week on sick leave with throat problems, yesterday met in Buenos Aires with Russian President Vladimir Putin.

Routine agreements were signed, but the scene was charged with symbolism once again yesterday because Fernández de Kirchner looked incredibly eager to send out friendly signals to the Russians.

Chinese President Xi Jinping is also scheduled to visit Argentina next Saturday. For better or for worse, Argentina is under the impression that it can lean on Russia and China while its legal battle with the vultures unfolds in a New York court.

The Senate on Thursday swiftly — and unanimously — approved a bill designed to grant immunity to the assets of foreign central banks in Argentina. Ruling party lawmakers linked the approval of the bill, which now moves to the Lower House, to the upcoming visit of the Chinese delegation.

The bill would clear the way for potential currency swaps with China’s Central Bank. The news from that Senate session is that the bill was backed by all the opposition lawmakers present in the debate for reasons of “state policy.”

That Senate vote is a sign that the holdout vultures could be uniting Argentina’s politicians instead of dividing them.

Yes. But there is more to that Senate debate. The Senate could only session when Vice-President Amado Boudou, the head of the Upper House, agreed not to preside over the debate. The key session on Thursday was headed by Senator Gerardo Zamora (the pro-government Radical from Santiago del Estero province).

Boudou’s absence was demanded by the Radical Civic Union (UCR) senators to grant quorum. Boudou has been indicted on corruption charges involving his alleged influence peddling with the money-printing company Ciccone (since then nationalized). The opposition senators only agreed to back the bill if the session was not presided over by Boudou. The Radicals found Boudou’s presence unacceptable.

The president has been under extreme pressure to stop backing Boudou, who according to polls is not a popular politician. But Fernández de Kirchner has so far looked prepared to pay the political cost of keeping the vice-president in his place while the embarrassing legal case in which he is embroiled (and the negative headlines that go with it) continues. The vice-president has appealed his indictment by Judge Ariel Lijo. An appeals court will rule on his complaint.

CFK still supports the veep. But the ruling party on Thursday made a major concession by agreeing to keep Boudou away from the Senate session.

The decision was confirmed by Senator Miguel Angel Pichetto, the head of the Victory Front caucus, in an interview with the daily La Nación yesterday. Ruling party officials rarely grant interviews to opposition newspapers. Pichetto’s statements could be taken as a subtle sign, showing that there is a limit to the support Boudou can enjoy in the Victory Front coalition, which includes the Peronist party (of which Pichetto is a member).

The Senate session came a day after Boudou headed Independence Day celebrations in Tucumán on Wednesday, a national holiday, with the president still nursing her throat as ordered by her doctors.

There was a lot of speculation about Boudou not leading the ceremony on Wednesday. But the vice-president did head the celebrations in Tucumán with Cabinet ministers in attendance after all.

The body language surrounding Boudou in Tucumán was awkward. The vice-president tried to share a friendly word with Interior and Transport Minister Florencio Randazzo after he delivered a brief speech. But Randazzo froze for a minute and all he offered in return was a nervous grin.

Randazzo performs relatively well in polls because he is perceived as an executive who is trying to overhaul Argentina’s decrepit transport system, especially the trains running to and from Greater Buenos Aires. He has political ambitions beyond 2015.

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