September 30, 2014
The Vultural Revolution
Roll the drums. Blow your trumpets. Send out the message to the venerable New York Judge Thomas Griesa, 84.
According to a survey by the respected pollster Poliarquía, 47 percent of Argentine public opinion backs President Cristina Fernández de Kirchner in the legal standoff with hedge funds seeking to collect 1.5 billion dollars in defaulted Argentine bonds, armed with Griesa’s ruling in their favour. The polls are news because, if only briefly, it alters Argentina’s political landscape, at a time when the president’s popularity was failing her and the economy was creaking, amid an inflation rate that clocked in at an alarming 15 percent in the first six months of this year. The political standing was not especially good for the president because the current economic situation is likely to trigger a series of labour conflicts before the end of this year. The indictment of Vice-President Amado Boudou for corruption was also making embarrassing headlines. But now the frontpages only care about the court case.
The deadline to make debt payments will be here on Wednesday. If Argentina does not reach an agreement by then with the hedge funds, which are commonly referred to in Argentina as “vultures,” then the Republic will also not be allowed to pay the bondholders who accepted debt swaps hammered out by the Kirchnerite administration in 2005 and 2010.
Argentina has already deposited 539 million dollars in the Bank of New York Mellon to pay the bondholders who accepted those swaps, but the money has not reached them because it has been put on hold by Griesa’s ruling.
There was a lot of anticipation about a hearing on Tuesday in New York called by Griesa to clarify aspects of his ruling to the banks, funds and bondholders who are caught in the case’s legal entanglement. Argentina has also insisted that it needs more time to negotiate with the holdout funds. It is demanding a stay by the judge on the ruling because it fears that, if it makes an offer to the vultures now, it will trigger the Rights Upon Future Offers (RUFO) clause, which allows the creditors who accepted the swaps to ask for similar terms if their conditions have been improved.
Griesa said on Tuesday that there is no need for a stay. He ordered the mediator he has appointed, Daniel Pollack, to carry on holding talks with government officials and the funds constantly right until Wednesday’s deadline, in a bid to reach an agreement.
The judge voiced concern about the consequences of a default. If it happens “real people” in Argentina will be hurt, “not vultures.” The word “default,” which has been thrown about a lot in this case, for Argentines brings dire nightmares rushing back. Argentina infamously defaulted on its massive debt, about 130 billion dollars, late in 2001. The decision was made by Adolfo Rodríguez Saá, the Peronist governor of San Luis province who was named president by Congress only to serve a week in office. The default plunged millions into poverty, shattered the value of the peso practically overnight, and prompted a major political and institutional crisis.
In a nutshell: memories of what a default is are still fresh on the minds of public opinion. That could explain the public opinion polls showing little sympathy in Argentina for the vultures.
So fresh is the catastrophic default, in fact, that all of a sudden Fernández de Kirchner, who will be out of office when her mandate ends next year, and her Economy Minister Axel Kicillof have found public support in the middle of the legal battle unfolding in New York.
You have to be really young not to remember just how bad things got in 2001. Argentina lifted its last football World Cup in 1986. You have to be over 30 to remember that. A default? That’s far more recent.
The capital funds recently came to Argentina and placed big advertisements in newspapers defending their stance and accusing the CFK administration of doing nothing to avoid another default. How wise a move was that by the vultures? Griesa complained on Tuesday about the CFK administration’s “inflammatory rhetoric” against the vultures as the case unfolded. The government has plastered posters on the walls of cities carrying the slogan “Fatherland or Vultures.” But the capital funds have also used their own brand of rhetoric in those advertisements. The funds probably thought they were lobbying. But if you now look at the public opinion polls in Argentina, the vultures here came across as bullies.
Their case might hold true in the court of New York. But it seems to make no sense to “the real people,” to quote Griesa, of Argentina. Legions of journalists who are fiercely critical of Fernández de Kirchner are now not holding back in characterizing the capital funds as “vultures,” and not saying nice things about them for buying the junk bonds and trying to make a huge profit at the expense of the Republic.
It is in this domestic context that Fernández de Kirchner and Kicillof are refusing to blink while playing chicken with the vultures. It might be hugely irresponsible of them in the long run, but in the short term the Kirchnerite administration has found the ideal bad guy to argue with in the “vultures.” Somebody who is nicknamed “vulture,” after all, can only be in the same league of badness up there with the likes of Lord Voldemort and Darth Vader.
The context also shows that many economists, who are also critical of the CFK administration, are also not behind the idea of heeding Griesa’s ruling. Those economists include Roberto Lavagna, who served as a Kirchnerite economy minister and is now backing the rebel opposition Peronist lawmaker Sergio Massa. That’s the way things are.
Argentina’s Economy Ministry issued a statement saying that Griesa’s hearing on Tuesday had solved none of the issues tabled by the parts. Pollack meanwhile called for another round of mediation that eventually took place in New York on Thursday. Yet there was little hope of a breakthrough because Argentina’s delegation was not headed by Kicillof.
Pollack said after Thursday’s talks that Argentina’s delegation, headed by Finance Secretary Pablo López, had refused to meet “face-to-face” with the funds. A meeting between López and Pollack on Friday lasted only 70 minutes. The Argentine delegation flew back home to receive instructions from the government. Pollack said the funds were more than willing to meet directly with the CFK administration officials. But Argentina is not having it. One of the holdout investors, NML Capital, said on Thursday that by refusing directly with its creditors, Argentina had effectively “decided to enter default next week.” The vultures have also not made a move to ask Griesa for a stay, which would put the negotiations under the protection of a legal “umbrella.”
Kicillof on Friday, speaking in Buenos Aires, defiantly said that nothing will change come Wednesday. The funds are nothing more than blackmailers, he added. Kicillof showed no fear of what a default might bring, even when Argentina will be in contempt of court. But Argentina’s Economy Ministry has also formally said that its contacts with Pollack (not the holdout funds) continue. The RUFO clause, feared by Argentina, expires at the end of 2014. CFK administration officials insist that they need more time to sort out an agreement and have implied that the RUFO clause leaves little room for manoeuvre.
The president, with the public opinion polls now showing support for her stance, was openly defiant on Wednesday when she made a public appearance at a motorcycle factory. Fernández de Kirchner said that she will not “sign” an agreement to pay the vultures “under pressure.” Her main concern, she said, is how her presidency will go down in history.
The comments came amid reports that the president and her economy minister are worried that, if they agree to pay the holdout funds, they will be eventually sued in Argentina by their political rivals (a fate suffered by former Economy minister Domingo Cavallo when he engineered a giant debt swap before the turn of the century).
Fernández de Kirchner insisted that Argentina is not defaulting because the money has already been deposited in the Bank of New York for the creditors who agreed to the swaps. “They will,” she said, “have to find another name for this.”
The pro-Kirchnerites are now calling it a “Griefault.” The experts are getting philosophical. Even the New York Times wondered in an article how a judge can rule against a sovereign state. Others argue that Argentina can’t default because in formal terms it is still trying to pull out of the gigantic mess of 2001, when it called the biggest sovereign default in history.
The showdown in New York is still unlikely to have an effect on the presidential elections of next year. But it has altered the political landscape in Fernández de Kirchner, at least for now.
The president and Interior and Transport Minister Florencio Randazzo also collected positive headlines by delivering new trains to the notoriously shoddy Sarmiento line. The reforms to the Sarmiento line come only after 51 people were killed when a train rammed into the buffers at Once Station in 2012. Randazzo, now a Kirchnerite presidential hopeful, was put in charge of the transport reforms after that crash. Will the commuters see a difference while riding on the new trains?