November 24, 2014
The winners and losers if a deal is reached
A proposal by the Argentine private banks association (Adeba) opened a door for an agreement yesterday, which was being negotiated at press time. The government faces a financial default unless it seals a deal today when the 30-day grace period to pay holdouts ends. Here are the issues at stake:
How did the Argentine private banks association (Adeba) come up with yesterday’s plan?
Jorge Brito, head of ADEBA and Banco Macro, met with all members of ADEBA, which includes some private national banks and the Buenos Aires Banco Ciudad, and proposed transferring up to US$250 million as an escrow deposit or as a way of purchasing bonds owned by holdouts, mainly by Paul Singer’s NML. If ADEBA doesn’t buy all the bonds (US$1.650 billion), the agreement would see NML asking for a stay until September when the next debt payment would have to be made.
What was the intervention of the Central Bank?
Officially, none. It’s probable that it will make access to dollars more flexible for banks so they can pay the bonds of holdouts.
What do holdouts gain from this proposal?
They get a large amount of money, superior to what they invested initially, and become partners of ADEBA to continue the claim. They stop being the “bad guys” in the case and remain with a favourable ruling to collect the rest of the money. If Argentina defaults, it would lead to uncertainties regarding when they would get paid.
What do local banks gain?
Their assets won’t be depreciated and neither will be their investments in bonds. In some cases, the depreciation that their assets would suffer because of a default would be larger than the funds they would give the holdouts.
What does the Buenos Aires’ Banco Ciudad gain?
It puts Buenos Aires City Mayor Mauricio Macri on the spot as one of the people that helped to solve the conflict with the holdouts.
How did Argentina get here?
In 1998, Argentina fell into recession and faced crushing payments on its international debt. As it tried to avoid default in 2001, it arranged a “debt swap,” asking investors to trade in bonds payable soon for longer-term ones. The swap, however, failed to resolve Argentina’s troubles.
What had been Argentina’s position on the ruling?
Argentina asked Griesa to temporarily suspend his order, saying it could not comply because it has legal obligations to creditors who accepted the debt swaps. It says a delay would give it time to solve the problem of the holdouts. Since Griesa refused to suspend his ruling, Argentina continued negotiations led by court-appointed mediator Daniel Pollack.
How much does Argentina owe?
US District Court Judge Thomas Griesa in Manhattan ruled in 2012 that the creditors who rejected Argentina’s earlier debt-swap offers deserved to be paid in full, a figure he put at US$1.33 billion. With interest, that amount has risen to about US$1.5 billion. The creditors say they are due US$1.6 billion. The US Supreme Court last month refused to overturn Griesa’s ruling. The court also allowed the plaintiffs to ask any court in the country to investigate Argentina’s assets and subject them to liens to ensure payment of the debt.
Herald with AP