Friday, 25 July 2014

ARGENTINE DEFAULT, TO BE OR NOT TO BE


OPINIONS  

ARGENTINE JUDICIARY SYSTEM IS PLAGUED WITH JUDGES LIKE GRIESA

The option to use Buenos Aires as a legal site of payment is a no-go. The ARGENTINE judiciary system is plagued with judges like Griesa ready to give legal shelter to vultures, a possible intervention of the ARGENTINIAN Supreme Court in its present composition would not differ much to the US supreme court.

RETHORIC SOLIDARITY OF THE INTERNATIONAL COMMUNITY

The very notion of sovereign state is at stake in this case and this will not be settled by rethoric solidarity of the international community or by letting ARGENTINA to freefall in hands of speculative and opaque finance predators.

OUTLAW STATE BY THE GLOBAL FINANCE PROPAGANDA

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.

EVERYTHING IS ABOUT AVOIDING THE RUFO CLAUSE. 

The only way out to skip default is that a 3rd. party (Maybe CHINA or RUSSIA?) deposits in an escrow account the amount owed under the Griesa's ruling (hence avoiding the negative pledge) and start negotiating a new bond issuance which will be executed after December 31, 2014. This will end up paying to all the holdouts 100% bonds face value (similar to the Repsol's deal) and left the 2005 and 2010 bondholders with their pitiful deal. ARGENTINA should have never entered into a deal with the combination of holdouts and a RUFO clause with an expiring date.

At this point you cannot ignore the fact that the strategy of "some investors" is to collapse, with the concourse of the almighty NY courts, the entire debt restructuring process opened by ARGENTINA in 2003 with 93% of the bondholders.

ARGENTINA cannot “involuntarily” comply with the decision court, because ARGENTINA is a sovereign. Any payment is voluntary, and would trigger the RUFO clause.

The only “involuntary” way to pay the vultures would be to leave the amount under USA jurisdiction, available to be embargoed by the court. But that would open the door to lawsuits based on fraudulent voluntary payment.

Let’s suppose that suing ARGENTINA for trying to hide a voluntary payment has a puny 10% chance of success. The gain would be 50 billions, and the cost would be near to nothing. The expected value for suing is more or less 5 billions. Who will not run the risks? It can be leveraged.
Comply with the court before 2015 is too risky for ARGENTINA.

The RUFO clause, if triggered, would increase the debt in at least 50 billion, and automatically force ARGENTINA to pay around 120 billion in cash (or on the same terms got by the vultures).

Default would be unavoidable, and far worse that July’s incoming default.
Renegotiation of 120 billion in debt would be necessary, but who will accept another restructuring if the vultures got paid 100%, and impeded payment, and destroyed the restructuring?
Everybody would want to be the new vulture, and the vultures would buy the debt again to repeat a successful business model.

Therefore, paying to the vultures before 2015 makes no sense, and makes all worse. It will not be done. Cannot be. Griesa ruling makes non-sense.


THIS LITIGATION IS NOT ABOUT 1.5BN BUT FOR A MUCH LARGER POTENTIAL PROFITS that could emerge from the collapse of the ARGENTINE economy in their present form.

A SO CALLED "TECHNICAL DEFAULT" IS INEVITABLE AS ARGENTINA IS BEING FORCED TO AVOID NY AS LEGAL SITE TO PAY ITS COMMITMENTS, THIS WILL TRIGGER DEFAULT INSURANCES INDEED, HOWEVER ARGENTINA WILL IMPLEMENT ALL THE POSSIBLE MEANS OF A SOVEREIGN STATE TO HONOR ITS COMMITMENTS WITH 93% OF BONDHOLDERS EVEN USING THE MOON AS LEGAL SITE OF PAYMENT. 

Background Information: 

DEFYING INTERNATIONAL FINANCIAL INSTITUTIONS

ARGENTINA: THE GEOPOLITICS OF INTERNATIONAL MONETARY AND FINANCIAL SYSTEMS

CARLOS MENEM, THE CULPRIT ? 

Former ARGENTINE President Carlos Menem ruined the ARGENTINE economy borrowing too much for unnecessary projects. The economy changed with low revenues. The country did not have sufficient funds to pay the debt. CFK inherited such debt as Obama inherited a DEBT of TRILLONS of dollars. 

Many agree that Carlos Menem policies, were far from successful,to say the least. But he also inherited a rather complex economic problem from the junta.This does not excuse him, no more than Christina can be excused for the same reason. The ARGENTINIAN establishment (this include Peron,the trade Unions,left and the right) have mismanaged their country for 50 years (or more).This is not only a "debt" problem,but more a very human desire to escape macro economic rationality.This made things worse for them in the long run.




2 comments:

  1. Hi Roy,

    From my point of view, the vulture funds vs Argentina issue roots on political reasons rathen 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 indebtment).

    Two key events proove so:

    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 find a 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'd have given Argentina the 5 additionnal months necessary to reach the RUFO clause expiration and then easily proceed to pay the vulture funds. I cannot believe that the SCOTUS didn't assess the consequences of not consulting the US government before.

    As of the article, some precisions and corrections:

    - 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.

    - The following paragraph is priceless:

    "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."

    Well... that's all about: 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 overindebted, situation that will force the incumbent Argentine government to accept the conditionalities of new borrowing: . These conditionalities include the failed recipies that Argentina experienced in the past and that Europe is suffering: Reduce wages, reduce pensions, devalue the peso, open markets to let goods from developed countries take over the domestic market, privatize juicy entreprises (YPF, railroads, municipal water supply, etc)

    - The following paragraph is very unfair with Peron:

    "The ARGENTINIAN establishment (this include Peron,the trade Unions,left and the right) have mismanaged their country for 50 years (or more).This is not only a "debt" problem,but more a very human desire to escape macro economic rationality.This made things worse for them in the long run."

    Peron kept Argentina unindebted until his outs in 1955. It was the government that toppled him who made Argentina join the IMF and start a path of overindebtment that dind't end until our days. I understand that many people don't like Peron, but it was those anti-Peronist who were the most responsible ot the current situation, not Peron.

    Thanks

    Andres

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