September 20, 2014
We can work it out
Somebody has to be wrong — either those who speak of a debt crisis with Argentina moving inevitably towards a technical default by the end of the month or the markets who could hardly be more bullish as to the prospects for a solution. Even more eloquent than the upward surge in Argentina bond prices has been the downward plunge of country risk (down almost 20 percent so far this month) to below 600 points — i.e. the lowest levels since mid-2011 when President Cristina Fernández de Kirchner was riding a booming Argentina en route to a landslide re-election. Evidently the markets feel confident that the solution to the litigation with holdout creditors is as simple as the latest idea sounds —namely, giving them the equivalent of a postdated cheque for 2015 which would protect Argentina from the “rights upon future offers” clause (valid for the rest of this year) extending payment to the vast majority of creditors accepting the 2005 and 2010 haircuts. With the right attitude (and the CFK administration fully realizes the importance of avoiding default), the negotiations can be resolved very quickly and thus can (and probably will) be settled at almost the last minute — as things now stand, the market reactions seem far more significant than Economy Minister Axel Kicillof’s studied disinterest in the process.
Kicillof’s main strategy continues to be to press the case for a restoration of the stay on Manhattan judge Thomas Griesa’s ruling in favour of the hedge funds in order to create more time for negotiations. He has a point but he would have a stronger point if the CFK administration had not squandered so much time in the past decade — for example, embarking only recently on the international press advertising and political lobbying which the hedge funds have been applying so lavishly all these years. And continue to do — for example, pushing little old ladies to the fore to show that not all holdouts are “vultures”. But perhaps the government’s biggest sin of omission has been not to “outvulture the vultures” — i.e. not to buy back its own debt on secondary markets when it was at junk bond levels (standard corporate practice for troubled companies).
The way out of this crisis is far from automatic but there is definitely light at the end of the tunnel.