November 26, 2014
Writing in sand
Shifting scenarios for averting technical default
Little point in speculating today as to whether the July 30 deadline will finally end in a technical default when all can be revealed in the following day’s column. Everything points to the final outcome going right down to the wire — both the chronic brinkmanship of Kirchnerism which nevertheless always stops short of the abyss and the relative ease of the potential solutions (for example, paying off the holdouts with the equivalent of a cheque postdated to 2015 in order to circumvent the “rights upon future offers” clause expiring at the end of this year or finding a proxy for the advance payments) which could be thrown together at the last minute.
Almost a month of market optimism has crumbled in the last week. Something had to give, the market reasoned — whether an Argentine government desperate to avoid default at all costs or the hedge funds finally glimpsing a chance to collect after so many years or Manhattan district judge Thomas Griesa making a concession to crisis — but nothing has so far. Yet (dare we say it in an economic column?) the markets are not infallible — why should the pessimistic markets be any more accurate than the optimistic markets?
Where we have learned something since last Thursday is about the main alternative source of funding to Wall Street. Brazil’s BRICS summit (preceded by the stopover of Russian President Vladimir Putin and followed by the three-day visit of Chinese President Xi Jinping here last weekend) is now as firmly consigned to the past as Brazil’s World Cup — Putin for one would surely have a totally different set of issues on his radar these days.
Various piggy-banks were floated in the BRICS context without much concrete or immediate relief from any of them. Gazprom had been widely flagged as tailor-made for kickstarting Vaca Muerta shale but ended up taking a back seat to Rosatom in Putin’s entourage. Xi seemed to offer a broader panoply of options in proportion to the greater length of his visit. The “strategic alliance” from Hu Jintao’s visit a decade ago was upgraded into an “integral strategic partnership” with a battery of agreements starring a 4.7-billion-dollar investment into Patagonian hydro-electric dams, a two-billion-dollar contribution to the modernization of the Belgrano rail freight line and an 11-billion-dollar swap between the central banks of the two countries.
The latter whetted the most appetites — and not just because it was the largest sum. Even if not a convertible currency, the Chinese yuan looks so solid when compared to the peso that exchanging one for the other looks like a bumper bargain — worth a few billion for Central Bank reserves at the very least. Yet this money is not so much earmarked for Argentina’s fiscal relief or even covering the agreed investments as financing the sales of Chinese firms here in general with an eye to commercial advantage.
As for the new BRICS financial mechanisms — the development bank on the BNDES model and the contingency reserve fund (which runs the risk of having a lower capital stock than the final offer for Time Warner yet to be made) — they do not come on tap for a year or two and are restricted to BRICS members (although they may be extended to companies from those countries active here).
BRICS aid is thus more symbolic than real. One problem of BRICS summitry is that these big emerging market heavyweights are so enamoured of the big picture and the coming changes in the world order that they do not really need any specific economic agenda. Thus President Cristina Fernández de Kirchner and Putin did not depend on energy and nuclear co-operation to find common ground when they had Crimea/Malvinas parallelisms, for example — here CFK adroitly evaded her own double standards (accepting self-determination for Crimea but rejecting it for the Malvinas) by pinning the same charge on Western countries for being on the other side of that mirror by upholding Malvinas self-determination but defending the territorial integrity of Ukraine.
Nobody doubts the motives for this keen interest in BRICS funding and submission to the ongoing Manhattan saga on behalf of the holdout creditors shunned so haughtily and so long (preceded by traumatic and/or costly settlements with Repsol for the YPF, the Paris Club, international litigation plaintiffs, etc.) — the dollar shortage leading to the quest for currency injections from elsewhere. The only question is whether this strategy is purely defensive or whether it looks beyond present penuries towards capitalizing that great cash cow of the future — Vaca Muerta shale.
Yet from the purely numerical standpoint of the money supply figures, this dollar shortage is simply incomprehensible. Kirchnerite monetary policy has been one of the most brilliant mechanisms for greenback accumulation ever devised because pesos have been printed at a faster rate than they could lose value. When Néstor Kirchner was inaugurated in May, 2003, the money supply was quantified at just under 20 billion pesos or 6.84 billion dollars at the official exchange rate of the time. Last week the money supply was 294.5 billion pesos or 36.14 billion dollars at the current official exchange rate of 8.15 pesos. In a word, never was the Argentine money supply worth more dollars — and hardly ever were greenbacks scarcer.
“A paradox, a paradox, a most ingenious paradox,” The Pirates of Penzance might say.
As the first winter gas bills start to arrive (with a 539 percent increase in the case of this columnist’s household), the axe surely cannot long be delayed for electricity on the basis of the latest subsidy figures — almost 97 percent of the 2014 budget for subsidizing power bills has already been consumed after only 29 weeks while a booster injection of over seven billion pesos lasted just three weeks. The shape of things to come until Vaca Muerta starts being milked, whenever that is.
If a La Rioja court tossed out charges against Army Chief-of-Staff César Milani in between Argentina’s World Cup victories over Switzerland and Belgium, why was not a similar moment chosen to sweeten the pill for electricity hikes? Opportunity knocked but evidently government reflexes blew a fuse.