The government will seduce the bondholders

La Nacion

The government will seduce the bondholders

Monday, June 18, 2012

By Martin Dinatale

Perhaps due to the avalanche of discomfort that is coming from the U.S. business world or, maybe, as a preventative tactic before an eventual chain-reaction from the world crisis, before leaving for the G-20 summit in Mexico, Cristina Kirchner gave an order to her ministers and diplomats yesterday in this city: “to completely rebuild” relations with the United States.

The strategy to rebuild relations with Washington covers various axes. The newest one is the intention of the President to re-establish a dialogue with the bondholders subject to the vulture funds and, eventually, show them there is an intention by the government to go back and negotiation a payment on that debt, which today comes to US$6.8 billion. It’s estimated that half of that debt would be in the hands of the vulture funds, of which Dart, Elliott and NML are the main ones.

 

The other plans for “clearing up the clouds” with Washington, as the president likes to say, has to do with moving ahead on agreements with the oil sector to add them as partners in YPF and the chance of getting a commitment from the White House to lift the barriers on imports of beef and lemons from Argentina.

"It’s clear that the bondholders won’t get anywhere with pressure and that they will have to listen. But it’s likely that now would be the time to reopen negotiations to eventually head towards an agreement,” two qualified government sources that were in the presidential party which defended the Malvinas cause in this city before the UN, to LA NACION.

In fact, before leaving for Mexico, Cristina Kirchner spent all afternoon on Saturday shut in to the 54th floor of the Hotel Mandarin in Manhattan, together with Economy Minister Hernan Lorenzino; Legal and Technical Secretary Carlos Zannini; Foreign Minister Hector Timerman and Argentina’s ambassador in the United States, Jorge Arguello, to move forward with the legal scheme that would allow for opening the door for a renegotiation with the bondholders.

To resume the dialogue with the American bondholders that today are subject to the investment vulture funds will not be an easy task because there are lawsuits pending and precedents of rejecting a proposal with a debt haircut. But it would seem that the President’s intention is to make an attempt and so she ordered as much her officials.

 

During the government of Nestor Kirchner a payment proposal was rejected that was made to the bondholders and, since then, everything has been tied up in the courts. But this is no longer the days of Nestorism, and the world changed with the 2008 crisis.

The vulture funds

Among other things, the President saw in raw terms during her brief stay in New York that the Task Force group that is made up of the vulture funds are much more powerful than she thought. They have a big influence not only in the American Congress but also among the business community. Also, today they represent a real barrier for Argentina when asking for credits. For their lawsuits, risk agencies still have the country in the default category. For internal policy, the judicial rulings for these funds have generated problems for Cristina Kirchner’s administration in paying salaries for diplomats abroad or the freezing of accounts.

In her message to the American businessmen that met at the Council of the Americas, the President gave some signs of wanting to rebuild this situation. Like when she said: “This year the debt on the Boden 2012 will be paid and next year will be more even on the debt issue.” Will that mean that the year in between could be the year for negotiations with the bondholders? Or did she simply try to calm the disquieted companies over the course of the Argentine economy?

 

The president acknowledged before her intimate circle that to unblock the debt with the bondholders would be key to overcoming the trade barriers with the United States, where, according to what the president herself acknowledged Argentine beef has not entered for more than 10 years. It would also be a door through which the American companies Exxon, Conocco and Chevron could enter the Argentine oil market, who already have had dialogue with the government to join, eventually, as partners of YPF in the Vaca Muerte deposit.