November 23, 2014
Still writing in sand
If Argentina’s World Cup squad could score its winning goals against both Iran and Switzerland just moments before the final whistle, why not a last-minute solution to the default crisis? But high finance has never had the beautiful simplicity of soccer.
Last Thursday’s column was entitled “Writing in sand” in the confident expectation that all would be revealed with the arrival of D-day (the deficit deadline) yesterday yet the violent lurches between optimism and pessimism continue.
Yesterday dawned brightly with the emergence of an exit strategy late Tuesday but the sun also seemed to be setting on any hopes of averting technical default with Economy Minister Axel Kicillof’s press conference yesterday evening and his total dismissal of any change in the deadlock with the “vulture funds” (as he consistently called them) other than his agreeing to talk to them for the first time — grounds for optimism earlier in the day along with the assumption that he would only have come to New York to announce success. Back to black, as the late Amy Winehouse would have said.
Or was Kicillof simply overacting — was his tirade against Manhattan judge Thomas Griesa and the vulture funds the other side of the coin to the Argentine bank initiative to shoulder an escrow account on behalf of the hedge fund creditors instead of crushing that possibility with no Plan B to the stay denied by Griesa? In other words, was Kicillof simply covering himself against the famous RUFO “rights upon future offers” clause entitling all other creditors to similar claims by keeping the state firmly out of any out-of-court settlement (still the focus of rumours last night)? Or should his words yesterday be taken at face value?
The only concrete news yesterday was that “Special Master” Daniel Pollack ended the last two days of meetings between Argentina and its litigant creditors without results despite their considerably greater length —a “selective default” was the official term for the outcome. Which could set a new world record for the shortest default in history. Or not.
Tuesday evening’s bank offer seemed to come out of the blue but in broad lines it followed the “Gramercy solution” presented some 10 months ago as the way out of the deadlock between the Cristina Fernández de Kirchner administration and holdout creditors. The essence of the idea then was that the vast majority of creditors accepting the 2005 and 2010 bond swaps should stop being the ham in the sandwich between CFK and holdout intransigence by simply paying off the hedge funds themselves in their own self-interest in order to keep collecting. But this time the proxy making the face-saving payment (not to mention RUFO) on behalf of the CFK administration into an escrow account comes from Argentine banking circles, not international finance — although perhaps the self-interest motive may be similar. Will the tail now wag the dog?
The apparent breakthrough came as a surprise because default seemed the perfect stage for a drama queen CFK intent on painting herself into a corner. The suspicion then arose that push was never going to come to shove with this solution (fairly obvious in hindsight) simply held back until CFK had delivered her fire-eating speech in Venezuela. Or were the Argentine banks simply waiting until the last minute for somebody else to step forward to the plate?
Not that Griesa refrains from painting himself into a few corners. Increasingly out of his depth and seemingly unable to enforce his pro-holdout ruling without entering into new contradictions (how is full payment any more a pari passu equal standing than freezing them out?), he fell into fresh confusion on Monday when he freed some of the blocked funds paid by Argentina last month to redeem bonds compensating Repsol for the 2012 YPF expropriation. But many of these bonds (Discount) overlapped with those for haircut creditors. Tuesday’s request for a renewed stay from European bondholders only increased the pressure on Griesa but his silence yesterday was deafening.
Enough of writing in sand — we will now switch to fertile soil. Rural Society President Luis Miguel Etchevehere’s inauguration speech at the traditional Palermo farm show last weekend was the occasion for two apparently contrasting visions of agriculture’s present and future which nevertheless converge in anachronism.
Etchevehere painted a bleak picture of a “ravaged decade” seizing US$76 billion in grain export duties with little to show — the meat and wheat traditionally defining Argentine farming is a shadow of its former output, dairy production is on the brink and there are 30,000 less farms than a decade ago. But government ministers quickly retorted by insisting on a “won decade” at least as much for agriculture as anything else — sown acreage has increased almost 30 percent since 2003 while the national harvest has risen close to 50 percent to reach nine digits with its exports soaring from 15 to US$42 billion.
Both sets of statistics are basically correct but proceed from the same false premise — that government policies should take the credit or blame, depending on which side is talking. While export duties do not help (otherwise Argentina would not be so glaringly alone in the world with this policy), the soy boom is overwhelmingly the main cause of other crops and cattle-ranching taking a back seat, as well as for less farms in a far less labour-intensive mode of agriculture via the highly capitalized soy pools. The last decade’s commodity boom and the stratospheric growth of Asian demand for soy fully explain both conflicting sets of statistics with government policy secondary. These days globalization is less benign with bumper harvests in both the Americas bringing down grain prices (maize even more than soy) — this only compounds the cost-price squeeze facing farmers with the inflation and heavier tax burden of recent years.
Agricultural debate badly needs updating from the twin anachronisms of Etchevehere’s nostalgia for the old product mix and the insistence of many Kirchnerites on seeing traditional and semi-feudal cattle-ranching families like his as the “oligarchy” running the totally transformed agriculture of the 21st century.