Thursday, 29 May 2014


Argentine Gov't clinches debt repayment agreement with Paris Club

Via Buenos Aires Herald

Minister Axel Kicillof holds a press conference at the Economy Ministry.

Argentina reached an agreement with creditor nations on repaying overdue debts, in a landmark deal that should open up much-needed international financing for the country.
The Paris Club of creditors said the agreement will allow Argentina to clear over five years arrears that stood at $9.7 billion at the end of April. Negotiations over the deal - whose terms one analyst said looked favourable for Buenos Aires - had dragged into the early hours.
The dispute was the legacy of Argentina's 2001/2002 default on roughly $100 billion, which left it starved of foreign capital. The country's resistance to settling with its creditors until now had made it a pariah of international capital markets but a hero in the eyes of many Latin American leftists.
"Paris Club creditors welcomed progress made by the Argentine Republic towards the normalisation of its relations with creditors, the international financial community and institutions," the group said in a statement.
"Realisation of initial payment under a formal commitment of Argentina to fully clear its arrears is a necessary and important step for (this)...normalisation."
Argentina's refusal hitherto to bow to its creditors has also created a mountain of litigation and helped fuel inflation that has eroded living standards.
The main challenge now to it regaining full access to markets is a long-running battle with "holdout" sovereign bondholders who have declined to participate in its debt restructurings. The U.S. Supreme Court is expected to decide in coming weeks whether to take on the case. If it does not, Argentine officials have said the country may be forced into a technical default. Offering the country some breathing room, the Paris Club agreement calls for a first instalment of at least $1.15 billion due by May 2015, followed by another payment within a year.
The group said the deal cleared the way for export credit agencies of its members to resume doing business with Argentina, which should ease making foreign investment in the country. Foreign investment could prompt a revival in Latin America's No. 3 economy, which faces a decline in output this year, not least in helping develop its vast Vaca Muerta shale field.
Buenos Aires has been eager to secure a deal that does not put too much strain on its balance of payments. Argentine central bank reserves stood at $28.6 billion as of Monday evening.
Argentina and Paris Club members came close to striking a deal in 2008 but the government pulled out at the last moment, concerned about its falling foreign exchange reserves in the midst of the global financial crisis. Germany is Argentina's biggest Paris Club creditor with about 30 percent of the debt, followed by Japan with about 25 percent. Smaller holders include the Netherlands, Spain, Italy, the United States and Switzerland.
Argentina wrung a major concession from the Paris Club by avoiding any International Monetary Fund involvement in the deal, which the creditor group usually requires.
The country's history with the informal group of mostly Western nations goes back to the Paris Club's origins in 1956, when Argentina agreed to meet its public creditors in Paris.
Thursday, 5 September 2013 we wrote: 


IIlustration by Jon Krause



By Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank. His most recent book is The Price of Inequality: How Today’s Divided Society Endangers our Future.

A recent decision by a UNITED STATES appeals court threatens to upend global sovereign-debt markets. It may even lead to the US no longer being viewed as a good place to issue sovereign debt. At the very least, it renders non-viable all debt restructurings under the standard debt contracts. In the process, a basic principle of modern capitalism – that when debtors cannot pay back creditors, a fresh start is needed – has been overturned.
The trouble began a dozen years ago, when ARGENTINA had no choice but to devalue its currency and default on its debt. Under the existing regime, the country had been on a rapid downward spiral of the kind that has now become familiar in GREECE and elsewhere in EUROPE. Unemployment was soaring, and austerity, rather than restoring fiscal balance, simply exacerbated the economic downturn.


In subsequent years, until the global financial crisis erupted in 2008, ARGENTINA’S annual GDP growth was 8% or higher, one of the fastest rates in the world.
Even former creditors benefited from this rebound. In a highly innovative move, ARGENTINA exchanged old debt for new debt – at about 30 cents on the dollar or a little more – plus a GDP-indexed bond. The more ARGENTINA grew, the more it paid to its former creditors.

ARGENTINA’S interests and those of its creditors were thus aligned: both wanted growth. It was the equivalent of a “Chapter 11” restructuring of AMERICAN corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.
Debt restructurings often entail conflicts among different claimants. That is why, for domestic debt disputes, countries have bankruptcy laws and courts. But there is no such mechanism to adjudicate international debt disputes.

Once upon a time, such contracts were enforced by armed intervention, as MEXICO, VENEZUELA, EGYPT, and a host of other countries learned at great cost in the nineteenth and early twentieth centuries. After the ARGENTINE crisis, President George W. Bush’s administration vetoed proposals to create a mechanism for sovereign-debt restructuring. As a result, there is not even the pretense of attempting fair and efficient restructurings.

Poor countries are typically at a huge disadvantage in bargaining with big multinational lenders, which are usually backed by powerful home-country governments. Often, debtor countries are squeezed so hard for payment that they are bankrupt again after a few years.


Economists applauded ARGENTINA’S attempt to avoid this outcome through a deep restructuring accompanied by the GDP-linked bonds. But a few “vulture” funds – most notoriously the hedge fund Elliott Management, headed by the billionaire Paul E. Singer – saw ARGENTINA’S travails as an opportunity to make huge profits at the expense of the ARGENTINE people. They bought the old bonds at a fraction of their face value, and then used litigation to try to force ARGENTINA to pay 100 cents on the dollar.

AMERICANS have seen how financial firms put their own interests ahead of those of the country – and the world. The vulture funds have raised greed to a new level.

Their litigation strategy took advantage of a standard contractual clause (called pari passu) intended to ensure that all claimants are treated equally. Incredibly, the US Court of Appeals for the Second Circuit in New York decided that this meant that if ARGENTINA paid in full what it owed those who had accepted debt restructuring, it had to pay in full what it owed to the vultures.


If this principle prevails, no one would ever accept debt restructuring. There would never be a fresh start – with all of the unpleasant consequences that this implies.
In debt crises, blame tends to fall on the debtors. They borrowed too much. The creditors are equally to blame – they lent too much and imprudently. Indeed, lenders are supposed to be experts on risk management and assessment, and in that sense, the onus should be on them. The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.


US Judge Thomas Griesa: Impartial or lackey of Financial Institutions?

After all, what developing country with its citizens’ long-term interests in mind will be prepared to issue bonds through the US financial system, when AMERICA’S courts – as so many other parts of its political system – seem to allow financial interests to trump the public interest?
Countries would be well advised not to include pari passu clauses in future debt contracts, at least without specifying more fully what is intended. Such contracts should also include collective-action clauses, which make it impossible for vulture funds to hold up debt restructuring. When a sufficient proportion of creditors agree to a restructuring plan (in the case of ARGENTINA, the holders of more than 90% of the country’s debt did), the others can be forced to go along.

The fact that the International Monetary Fund, the US Department of Justice, and anti-poverty NGOs all joined in opposing the vulture funds is revealing. But so, too, is the court’s decision, which evidently assigned little weight to their arguments.

For those in developing and emerging-market countries who harbor grievances against the advanced countries, there is now one more reason for discontent with a brand of globalization that has been managed to serve rich countries’ interests (especially their financial sectors’ interests).
In the aftermath of the global financial crisis, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System urged that we design an efficient and fair system for the restructuring of sovereign debt. The US court’s tendentious, economically dangerous ruling shows why we need such a system now.


The Argentine leader said Greece is going for its third debt restructuring with ‘shaves’ and yet has been unable to pay, “and to us who have agreed with 93% of bondholders and have been paying regularly since 2005, they want to beat us down”.

After arriving in RUSSIA for the two-day G20 summit, ARGENTINE President Cristina Fernández stressed she will be addressing the “vulture funds issue” during the summit despite the US rejected to mention it in the final statement.
The ARGENTINE president said ‘vulture funds take advantage of everyone”
“Vulture funds take advantage of everyone, not only ARGENTINA” she told reporters adding ARGENTINA will discuss “employment creation, production and investment “which are” the elements which will save the global economy amid a context of crisis”.
“I was reading that in GREECE the government has allowed the sale of food with expired dates and over a million government staff despite not having been paid for the last year, still go every day to work fearing the loss of jobs”, added the ARGENTINE president.


“These are the things we should talk about and deal with the ‘vulture funds’ which take advantage of countries close to defaulting or indebted as us” insisted Cristina Fernandez. “This has happened to the GREEKS and the SPANIARDS and the PORTUGUESE and in SPAIN vulture funds also purchased junk sovereign bonds at rock bottom prices and will be asking for full face payment”.
The Argentine leader said GREECE is going for its third debt restructuring with ‘shaves’ and yet has been unable to pay, “and to us who have agreed with 93% of bondholders and have been paying regularly since 2005, they want to beat us down”.

“The St Petersburg summit is very special since it takes place at a delicate and serious moment of world affairs, not only because of the economic crisis but also because of the complicated global institutional situation such is security in the MIDDLE EAST”
The ARGENTINE head of state is expected to hold bilateral meetings with RUSSIAN leader Vladimir Putin and CHINA’S Xi Jinping.

Secretary General to the presidency Oscar Parrilli also informed Cristina Fernández will be meeting INDIAN and JAPANESE leaders Manmohan Singh and Shinzo Abe respectively as well as SOUTH AFRICAN head of state Jacob Zuma in the margins of the multilateral reunion.
With her CHINESE counterpart, the ARGENTINE leader will be signing three agreements that aim at strengthening bilateral ties in strategic areas such as economy and food.

Paul E. Singer
Cristina Fernandez will also receive at a special meeting the new chief of the World Trade Organization, Roberto Azevedo.
According to government sources, Cristina Fernández de Kirchner will be taking to the G20 table the official decision to reopen the debt swap (which already has half-approval and is supported by the opposition) –facing a 1.3 billion dollar legal dispute against US-based vulture funds-, calls to reform the international financial system, the fight against tax havens, and the creation of employment as a key element both to face and overcome the global crisis hitting the world since 2008.
RUSSIA occupies this year the rotating chair of G20 and is hosting the St Petersburg summit at the St Constantine Palace. Putin said that the summit agenda will concentrate on uniting efforts to prop global economic growth and promote employment by creating jobs.

On Thursday, 14 February 2013 we wrote:




It is not a coincident that US Rating Agencies only recently downgraded Argentina significantly, just in time when the verdict regarding Elliot Capital Hedge funds, versus Argentina is about to go in its final round. After all Hedge Funds are the best clients of Rating Agencies and in the case of Fitch rating, who downgrade Argentina, even shareholders.

The verdict and downgrading is part of a power struggle between the International Financial Institutions and Argentina. In 2001 Argentina defaulted, largely because of IMF doctrines, since then the country learned its lesson, paid back its entire dept to the IMF and thus was not subjected to IMF austerity doctrines, something the IMF is still furious about. Thus the IMF currently is entering its second round of in-flight, penalizing Argentina for not letting it conduct an audit in how Argentina obtains its economic data. If Argentina would nicely and unquestionably adhere to the rules of these institutions, the entire case would look somewhat different.

The entire showdown is revenge by international financial institutions simply because Argentina does not adhered to their doctrines which would enable them to control Argentina's Economy and its agriculture commodities. 


Interview conducted by "Der Standard", an Austrian Daily Newspaper with Economist Andres Musacchio

If the U.S. hedge fund wins the legal battle against Argentina, it would have consequences for Europe itself

STANDARDThe U.S. hedge fund Elliott Capital sued Argentina before a New York courtWhy is the case attracting so muchworldwide attention?

Musacchio: Because the verdict could have enormous repercussions on future sovereign debt crises. The hedge fund has bought Argentine bonds after 2001, after the country officially declared default. After its bankruptcy, Argentina has taken tedious agreements with its creditors to reduce the national debt. 97 per cent of investors agreed to the countries dept conversion, both in 2005 and 2010. But Elliott Capital refused. If the hedge fund in New York wins its case and Argentina has to pay back most of its debt to Elliott, it would be tantamount to the premium for uncooperative behavior.

STANDARDThe hedge fund has never agreed to the dept conversionLegally, the lawsuit seems questionable.

Musacchio: Elliott Capital is not a conventional lender, which borrowed Argentina money and now needs to reclaim its money. The hedge fund has bought the debt at a time when the securities were traded in the market with 15 percent of their actual value. Now they demand from Argentina to pay back 100 percent of the sum, including interest. This is speculation in its purest form, and I believe that even in this extreme case the financial industry will side with Argentina.


Musacchio: Because in case the hedge funds win, it would jeopardize all future debt reliefs. The purpose of dept relief is that the creditors of a financially constrained country waive some of their demands in order to not lose everything. If, it shows that it does not pay off to participate in a debt conversion, future creditors will refuse from the beginning to agree to negotiate for settlement. Particularly in Europe, one expects that Greece and soon Portugal, Ireland and perhaps Spain have also to conduct a dept conversion, which would have disastrous consequences.

STANDARDWhy does the Argentine government not simply drawback and pay the fund, after all it’s only about one billionEuros, surely Argentina could afford this amount?

MusacchioThe amount is not the issue. Last year Argentina paid back a debt of 25 billion euros, thus paying the billion isaffordable. But there is a moral questionFor President Cristina Kirchner, dept 
relief policies are the main components of hergoverning strategy.

STANDARD: How do you think the lawsuit will endArgentina was sentenced to pay the amount, but achieved a delay until March.

Musacchio: Nothing has been decided yet. The hedge fund has not won. Cristina Kirchner during the pending lawsuit several times stated that Argentina will not pay Elliott Capital, even if Argentina should lose the trial in New York. This statement infuriated the New York judge, which is why he set bail for Argentina to pay. Since Kirchner refused to pay the bail, it could easily happen that Argentina's payments to its other creditors - with whom there are no disputes – will be seized. That would technically mean bankruptcy for the country. Whether that happens remains to be seen in March when the next court decision is due.

STANDARD: Can EU countries learn something from Argentina's debt relief policy?

Musacchio: I believe that these countries will not advance if they don’t obtain a debt relief. Just as was the case in Argentina in 2001, the debts of the countries in question are too high. The real lesson from the Argentine crisis is however that the debt relief restructuring alone will not solve the problem. The debt conversion was only a first step to correct the balances of the current accounts.

STANDARDWhat's the second step?

MusacchioAfter the restructuring the Argentine peso depreciated massivelythe government launched a program for the re-industrialization of the country and tried to revive the internal marketAll these measures have stabilized the economy and ensured that growth returnedThe difference to Europe is that Argentina for a while was able to isolate itself from the rest of the world and thus managed to overcome the crisis. For the southern European countries this will be difficultSpain and Portugal aremuch too dependent on exports to Germany than, for example, Argentina and its trade relations with the U.S. Furthermorerelations between banks in Europe are much tighter. I think that an important step for the stabilization of the euro zone will be that Germany finally abandons its policy of wage competitionThe purchasing power of Germany has to increasethe countryshould not only export to the troubled southern European countriesbut also increase its imports

By András Szigetvári via DER STANDARD, (Austrian Daily Newspaper, Translated from German to English by Geopolitical Analysis and Monitoring )

Andres Musacchio, is an economist at the Institute for Economic and Social History at the University of Buenos AiresHe was a guest at the Austrian Research Foundation for International Development (ÖFSE), where he gave a speech regarding the Argentine crisis.

Argentinian Central Bank Targets Growth, Not Lower Inflation


Fitch downgrades Argentina in the wake of Elliot Capital Hedge Funds lawsuit against Argentina

Fitch Ratings agency announced it has downgraded Argentina's long-term foreign currency Issuer Default Rating from “B” to “CC,” with a negative outlook, as it sees a “probable default” if the country misses its payment to holdout investors.

The agency stated in a communiqué that “the increased probability that Argentina will not service its restructured debt securities issued under New York law on a timely basis reflects US District Judge Griesa's decision on Nov. 21 to remove the stay order on the ruling that Argentina must pay 1.33 billion dollars to holdout investors concurrent with or prior to its payments due to holders of the 2005 and 2010 restructured debt.”

Fitch assured that a missed payment could lead to a “cross default on all exchanged debt securities issued under international law.”

“A missed coupon payment of any other external securities would also trigger a cross default on all exchanged bonds issued under international law,” it continued.

Fearing Argentina will disobey his order, Griesa wants 1.33 billion deposited in a US escrow account by Dec. 15 to ensure payment if all appeals trying to overturn or block his decisions fail.

The “holdout” investors are suing to recover the full value of bonds that Argentina stopped paying in 2002, setting up a battle with the country's government which brands them as “vulture funds” and has refused to pay them.

Fitch put a negative outlook on the credit which is two steps away from outright default.

Argentina has vowed not to pay the holdout investors, led by Elliott Management's NML Capital Ltd and Aurelius Capital Management, prompting Griesa to order the payment be made before the 2nd Circuit rules on his decision.

Fitch highlighted Argentina's 2005 “Lock Law” which prohibits “re-opening the exchange or from conducting any type of settlement with holdouts without prior authorization from Congress” as a likely reason that payment will not be made.

If no payment is made a technical default would ensue, with uncertainty remaining over treatment of credit default swap contracts, which have surged in prices as investors scramble for protection from a default or restructuring.

“The uncertainty related to the impact of the US Court ruling is likely to further damage confidence and intensify political and social tensions in the country and undermine growth prospects,” Fitch said in its statement.

“While the authorities have been able to stabilize international reserves by progressively tightening capital controls, this has come at the expense of increased economic distortions. The sustainability of this strategy is also vulnerable to international commodity prices, especially soy,” Fitch said.

1 comment:

  1. Hi Ray,

    This is certainly a major achievement for Argentina (mainly ignored or downplayed by main media in Argentina).

    I want to highlight a confusing argument from the BA herald:

    "The dispute was the legacy of Argentina's 2001/2002 default on roughly $100 billion, which left it starved of foreign capital. The country's resistance to settling with its creditors until now had made it a pariah of international capital markets but a hero in the eyes of many Latin American leftists."

    The dispute with the Club of Paris involves only $6B ($10B with interests), not $100B. The whole defaulted debt (to both private and public institutions) was around $110B and it was gradually settled throughout the current government (2005, 2008, 2010), so I cannot perceive the "resistance to settling". By the way, the Kirchner always wanted to settle the debt to the Club of Paris, but several other events not mentioned by the article hindered an earlier agreement (the 2007-2008 was one of them).