La Nacion Negotiating with the ‘vultures’ is advised

 

La Nacion

Negotiating with the ‘vultures’ is advised

 

Saturday, May 18, 2013

 

By Silvia Pisani

 

WASHINGTON.- A panel of experts insisted yesterday on the possibility that Argentina negotiate with the so-called “vulture funds” on an out of court settlement, despite the fact that Congress has set by law the “impossibility” of offering a way to improve the offer of the two previous debt swaps.

 

"It’s been done many times.  If Argentina and its creditors arrive at an agreement by that path, it could be that the court obliges it to put it into practice,” argued Charles Blitzer, of the consultancy that bears his name, on a panel put together by the conservative Center for Strategic and International Studies (CSIS).  The panel agreed that the chance that the country could far into a new suspension of payments “is real.”

 

Together, the panel called for an avoiding of expectations “with political or ideological character” in the face of the ruling that is expected from the U.S. Court of Appeals, because “what it’s about is having the law be honored and, from that perspective, Argentina should be sanctioned.”  Blitzer emphasized that “giving a pass” to the possibility of forcing Argentina to make a payment is “risky” over the copycat effect.

 

"What could the U.S. government come to do in that case?” the former advisor to Republican legislators, and current Latin America chief for CSIS, Carl Meacham, wanted to know.

 

According to Blitzer, there are three options: continue as it has until now towards favoring Argentina and push a new document (amicus curiae) for the Supreme Court to take the case; leave the situation in the hands of the court, or “not intervene and remain silent.”

 

The lower court judge Thomas Griesa ordered Argentina to pay US$1.3 billion to the bondholders that didn’t enter the debt swap.  Argentina predicted that such a resolution is “impossible to honor” and appealed it.  It is now awaiting the Court of Appeals to resolve it.  If the ruling is adverse, Argentina could go to the Supreme Court, but yesterday it was said that the chances for that court to take the case “are small.”   If there are no other ways out, the country could enter into default.

 

 

Clarin

Vulture funds: even without an adverse ruling, Argentina is already suffering costs

So say Wall Street experts.  And they argue that the long litigation has damaged its image.

 

Saturday, May 18, 2013

 

by Armando Pérez

 

As the ruling approaches from the Court of Appeals in New York on the litigation that Argentina faces with the vulture funds, expectations are rising from observers that fear that the result of this case could set a bad precedent and that, at the same time, it affects the bases of the world financial system.

 

A group of experts and analysts expressed these and other concerns in a forum held by CSIS, one of the Washington think tanks, in which the majority of those present identified the government of Cristina Kirchner as the main problem in this issue.

 

Making an assessment of the case, Charles Blitzer, director of Blitzer Consulting, referred to a problem of conduct by both parties.  He criticized the bondholders for their inflexibility in the negotiations, but strongly lashed the Argentine government for its lack of will to reach an agreement.

 

“Argentina has not had a serious negotiation with the creditors,” complained the economist, who pointed out that the practice in this kind of case is that countries try to reach a solution in the shortest amount of time possible to care for their reputation.  This guarantees them a return to the debt market and allows the private sector to have access to credits.  “Argentina is one of the few exceptions to this rule,” he admitted.

 

Elena Duggar, of Moody’s, agreed.  The expert explained that, of the 34 cases of litigation in the modern era, which lasted on average 7 months before being resolved, the Argentine case is the only one that has been persistent.

 

For Blitzer, the big loser in the fight has been the Argentine economy which, as a result, has fallen outside the international mechanisms of credit like the World Bank, the IMF and the IADB, in the same way the private sector is suffering the havoc from the high costs of capital.

 

“The Argentine government should put a proposal on the table that is consistent with the expectations of the creditors, but also shows its ability to avoid problems and manage its own economy,” Blitzer suggested, when he asked about a possible solution to this conflict.

 

Both parties, government and bondholders, are now waiting for the ruling from the New York court, which could uphold a previous resolution that obliged Argentina to pay, or overturn it.

 

If the result is unfavorable, Argentina is thinking of going to the U.S. Supreme Court, but, as it has said it will not pay, it also runs the risk of falling into technical default.

 

Blitzer, who didn’t want to venture a guess on the possible result, stuck to warning that the U.S. legal system could turn this issue into a bigger case.  “If Argentina wins, surely other countries will try similar strategies.”

 

Nor is it clear that the Supreme Court would accept reviewing the case.  If it takes it, the government is thinking of counting on the support there of President Barack Obama.

 

Last month, during the spring meeting of the International Monetary Fund, Economy Minister Hernan Lorenzino met with State Department representative Robert Hormats to ask for the support of the White House, a source told Clarin.

 

 

La Nacion

The Central Bank reserves, in the risk zone  (Editorial)

The mistaken policies of the national government and the lack of confidence that they have generated have dangerously drained the country’s funds in dollars

 

Saturday, May 18, 2013

 

The so-called “model” seems to have entered into intensive care.  Beyond the official discourse that try to show a happy economic and social situation, which is not what is really perceived in the street, serious statistics expose a worrying evolution.  Productive activities are heading towards a stalling out of the economy, where only certain sectors are growing with durable goods that are protected from inflation, like cars, while others that respond to salaries shrink, like food and supermarkets.

 

Construction is showing a drop motivated by the currency clamp which will be difficult to resolve with the amnesty.  Industrial and regional exports are affected by the restrained official dollar rate.  Energy and fuel production are not coming out of the morass they were brought into by the ruinous official policy, translating into a huge increase in gas and liquid fuel imports.  The fiscal deficit well measured, after the payment of interest, reaches 4% of GDP, and is mostly financed by the Central Bank, which is to say through printing money.  Monetary expansion is reaching close to 40% per year and real inflation is 24%.  

 

The trade surplus is shrinking without being compensated by tourism and services.  Argentine travelers demand official dollars for their tickets and spending or withdrawals from debit cards and foreigners coming to the country sell their cash on the parallel market, without feeding the reserves of the Central Bank, cut back at the same time by the payment of credits from companies.

 

Also the national government uses those reserves to pay its foreign debt.  All these movements create a deficit that turns into a continuous loss.  Since the start of the current year, the reserves have gone from US$43.035 billion to less than US$39 billion currently.  The monthly average loss is US$935 million, which theoretically means that today there are enough reserves for 42 months.  However, that conclusion is not correct and the real horizon is clearly shorter.  On the other hand, there are doubts about the way that those reserves are hoarded taking into account the threat today for our country from the so-called “vulture” funds.

 

It is also known that within the reserves are the coffers of dollar deposits that the banks must keep at the Central Bank.  There is a permanent drainage of these funds over the lack of confidence in an eventual bank freeze or a pesification.

 

In the accounting of the reserves there are also loans from the Bank of Settlements in Basel for around US$3.6 billion, which has its counterpart in the corresponding balance.  And, in the enforceable balance, there are warrants issued by the Central Bank (Lebac and Nobac) which, on the 7^th of the current month, are reaching the equivalent of US$23.455 billion.  The backing of these balances, in addition to the reserves, is the stock of bonds received from the national government every time they use them to pay public debt.  But these are non-negotiable warrants that, upon maturity, will be rolled over.  They cannot back anything.

 

Definitively, the enforceable obligations deduced, the Central Bank would make available a little more than US$12 billion from net assets.  With this it would have to respond not only to the monthly hard currency deficit of US$935 million, but also to the monetary base that is reaching the equivalent of US$56.94 billion.

 

This exaggerated insolvency explains the currency clamp for the holders of pesos to be limited to the extreme from buying dollars from the reserves for trips or to distribute dividends.  We are already in the zone of high risk, with the inability to face a greater rate of drainage of reserves by an increase in the gap and by the inevitable collapse of confidence.  And this process will not en while the government continues acting upon the effects of the crisis and not its causes.