Sunday, 27 July 2014

ARGENTINA AND TUG OF WAR WITH THE VULTURE FUNDS


SUCCESSFUL DEPT RESTRUCTURING OF 2005 AND 2010, A NIGHTMARE FOR THE INTERNATIONAL BANKING COMMUNITY - THE REAL REASON FOR THE TUG OF WAR BETWEEN ARGENTINA VS VULTURE FUNDS

The vulture funds vs ARGENTINA issue roots in political reasons rather than on financial or technical, with the clear aim at tearing down the successful debt restructuring of 2005 and 2010, a process that became a serious danger for a big part of the International banking community (a country that restructures its debt without falling into further debt). 


Comment Posted by Andres:

THE VULTURE FUNDS VS ARGENTINA issue roots on political reasons rather than on a financial or technical one, with the clear aim at tearing down the successful debt restructuring of 2005 and 2010, a process that became a serious danger for a big part of the International banking community (a country that restructures its debt without falling into further debt). 
Two key events prove this:

1) NLM Capital and other holdouts ("vultures") rejected the proposal presented by Gramercy funds (the largest holder of Argentine structured bonds) last February that could have found common ground on the holdouts and the Argentine government. Also, apparently Gramercy and Fintech proposed to intermediate between holdouts and Argentina in order to solve this issue without triggering the RUFO clause. 

http://www.pagina12.com.ar/diario/economia/2-238721-2014-01-29.html

2) The US Supreme Court could have consulted the US government before overturning the Argentine appeal. That would have given Argentina the 5 additional months necessary to reach the RUFO clause expiration and then easily proceed to pay the vulture funds. It seems irrational that the SCOTUS didn't assess the consequences of not consulting the US government before.

Buenos Aires as the site of payment is ruled out not because of corruption but because many US institutional funds (retirement, 401k, etc.) are required by US law to only buy bonds under US legislation.

"ARGENTINA may be depicted as a bad payer a serial defaulter or an outlaw state by the global finance propaganda, however if ARGENTINA would pledge to accept the sentence of NY courts and therefore forced to default and repay, lenders would be ready to sign the check and lend again as it has been always the case thus swamping once again the country in debts with the guarantee of the ARGENTINEAN state."

It doesn't matter if Argentina is a good or bad borrower to those who were "cheated" before; it only matters if the country will continue being over-indebted, a situation that will force the incumbent Argentine government to accept the conditions of new borrowing: . These conditions include the failed recipes that Argentina experienced in the past and that Europe is suffering: Reduce wages, reduce pensions, devaluation of the peso, open markets to let goods from developed countries take over the domestic market, privatize juicy enterprises (YPF, railroads, municipal water supply, etc)
Contributed by Andres, a Reader Comment

‘Argentina won’t default on Wednesday’

By Fermin Koop
Via Buenos Aires Herlad

As an agreement hasn’t been reached so far between the federal government and holdouts, questions remain open over what could happen on Wednesday when the 30-day grace period for Argentina to pay ends.
In an interview with the Herald, Sebasti├ín Soler, a lawyer specialized on financial law and a former adviser with the Central Bank presidency, says that if a deal isn’t reached the country wouldn’t default because it has already paid. At the same time, he explains the RUFO clause wouldn’t be triggered and question’s Griesa’s performance in the case.

Background Information: 

http://geopoliticsrst.blogspot.com/2014/07/argentine-default-to-be-or-not-to-be.html#comment-form
Do you have positive expectations regarding the case?
I don’t know what’s going to happen but I hope an agreement can be reached on fair terms that contemplate all creditors. If we are going to solve this case, we also have to solve all the pending problems of the Argentine debt.
Can the RUFO clause be triggered if the government pays the holdouts?
As a lawyer, I think it’s technically accurate to say that a payment either in bonds or in cash wouldn’t trigger the RUFO since the government would be fulfilling a court’s order. Nevertheless, considering the unusual ruling of Griesa, we cannot dismiss that another judge would rule something unusual regarding RUFO. If triggered, creditors could ask for a better payment than the one they receive now.
What would be a reasonable solution for Argentina?
A reasonable solution would be avoiding the RUFO clause to be triggered, but to achieve that Griesa would have to issue a new stay. Without it, it’s hard to move forward. At the same time, the payment mechanism through which the government would pay holdouts should set a precedent for other bondholders benefited by Griesa’s ruling. The government also has to keep on paying bondholders that entered the 2005 and 2001 debt swap.
Judge Griesa has been criticized lately for his performance during the case. As a lawyer, how do you rate his work?

Griesa has been clumsy when managing the case. Rulings that solve conflicts as relevant as this one have to be precise and Griesa’s one wasn’t considering the numerous complaints of third parties that have questioned it and even said they don’t understand it. He was biased and we are now seeing the problems of that. He wants the parties to solve the problem, to avoid having to make a decision.
If an agreement isn’t reached next Wednesday, will the country default?
A default isn’t an abstract concept and it’s defined on the contract Argentina signed with its creditors. It means not paying either on the established time or in the 30-day grace period. But that definition has to be combined with what paying means, which is depositing the funds. Argentina paid so it would be technically incorrect to say the country will default on Wednesday. That doesn’t mean that if an agreement isn’t reached, holdouts wouldn’t demand for someone to compensate them. But that someone should be the Bank of New York and not Argentina.

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