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November 23, 2014
Friday, July 25, 2014

Opposition divided on default

From left to right, former Economy minister Roberto Lavagna, UNEN lawmaker Martín Lousteau and PRO lawmaker Federico Sturzenegger disagree on the path to take.
By Francisco Aldaya
for the Herald

PRO economists opt for settlement as Massa’s advisors show differences

As uncertainty prevails across the political spectrum regarding whether the country should opt for a new default or seemingly risk exposing itself to a flood of future litigation over the Rights Upon Future Offers (RUFO) if it were to settle with the holdouts, former Economy minister Roberto Lavagna Lavagna considered the default to be a “typhoon rather than a tsunami,” arguing the potential suits by other holdouts and restructured creditors seeking the same terms as those hypothetically offered to NML Capital and Aurelius Management would be far worse than a default.

Argentina must privilege the 92.4 percent of creditors who accepted the government’s 2005 and 2010 debt swaps, and avoid “mortgaging its future to fulfil a legal ruling that has shocked international observers with clear links to the financial system,” Lavagna argued in an opinion piece for Clarín yesterday.

President Cristina Fernández de Kirchner reiterated on Wednesday that she would “not sign off on anything that will jeopardize future generations,” seemingly leaving settlement as the only chance for both parties to be satisfied with the outcome of negotiations on July 31. The government will not declare a default on the payment of GDP coupons, and upholds it has fulfilled its role by depositing US$539 million in a Bank of New York Mellon account in Buenos Aires.

The RUFO clause prohibits offers better than those offered to now restructured bondholders in 2005 and 2010, which Lavagna said “Argentina must continue to fulfill as it has done scrupulously.”

To settle or not to settle

In the same vein, UNEN lawmaker Martín Lousteau told Radio del Plata that “if this (US) Judiciary is capable of blunders such as these, it means that any agreement you reach (with the holdouts) that is susceptible to questioning could trigger the RUFO” clause.

“The deadline is not the day of Armageddon, I don’t see it like that,” he said, warning however, that “when people talk about a ‘tactical’ or ‘technical’ default ... there are still people that immediately shoot themselves in the head like in 2001, although they are absolutely different scenarios.”

Lousteau vaguely called for the country to avoid a default, saying an “alternative would be for someone to buy the trial (the defaulted US$1.33 billion plus interest in question) and subject it to the (debt) swap.”

“We will be living six intense days as a country,” but there “are margins to buy time still,” he said, emphasizing that “falling off the cliff favours no one.”

Insurance against the RUFO

The country must find a scheme that shows willingness to fulfill Judge Thomas Griesa’s ruling after December 31, so that the RUFO clause expires, economist and close adviser to Renewal Front leader Sergio Massa Ricardo Delgado told the Herald.

“Many lawyers have said this would avoid violating the clause, but admittedly this is a labyrinth — more of a judicial than an economic question,” he said, adding the “government is very frightened over opening the pandora box of the RUFO clause.”

One of these lawyers is Eugenio Bruno, legal counsel to bondholders, who argues the government must seek out a non-binding document to pay holdouts after December 31, when RUFO expires.

In an interview with the Herald in November last year, asked if a default was unavoidable if the Supreme Court dismissed the Argentine appeal, Bruno said “the government can choose to pay, avoiding the default; or it can choose to default. Those are the options. But it must negotiate before it comes to that point.

This would certainly cover Argentina against equal payment demands from restructured bondholders, but wouldn’t plug the hole that would be opened by “me-too” holdouts, who have yet to file suits against the country only because Judge Griesa has temporarily stopped them from doing so.

Seemingly with the likely restriction of access to international credit lines in mind, PRO lawmaker and former Banco Ciudad head agreed, telling the Herald Argentina “must avoid default, and work with the judge in order to find some sort of insurance against the clause.”

The government has sought out such insurance, according to the president, but the Economy Ministry in several releases has stated that Judge Griesa refuses to address the issue.

Rejecting both alternatives

Leftist Front Buenos Aires City legislator Marcelo Ramal slammed Lavagna’s proposal to willingly enter default as a “mere pause to the debt system, in order to come back and pay it in even worse conditions.”

“It would be (Adolfo) Rodríguez Saá’s default in different clothing,” he told the Herald, specifying the adverse effects of such an outcome: “A speculative coup would be a likely scenario on July 30, paired with a wave of capital flight.”

The legislator said “the left rejects both defaulting and paying (the holdouts), and we propose an integral socio-economic reform to this mechanism whereby the country’s national savings are confiscated,” emphasizing that “Argentine debt has an usurious character, it has interests on interests, and has already been paid several times.”

@franma1990

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