Clarin: ““It has to go out and take debt on the markets and care for the reserves””
La Nacion: “U.S. concerned over fall in Argentine reserves”
La Nacion: “To reinvent the government, conserving the model”
“It has to go out and take debt on the markets and care for the reserves”
So said the president of the Association of Argentine Banks, Claudio Cesario.
Monday, December 02, 2013
By Gustavo Bazzan
-A sharp devaluation and a split currency rate were expected. The government chose mini-devaluations. Is there time to bet on this path while reserves are being lost?
- The exchange rate issue is not the main one. If the government focuses on closing pending issues like the lawsuits in the ICSID, the debt with the Paris Club and the debt in default, the rest will be accommodated, because the improvement of expectations will be very important.
-But is there time?
-The faster they close those fronts the better. It would be ideal if we get to March with signals that there is progress being made in a consistent manner in all those issues.
-How to you get those who have dollars to liquidate them at 6.15 when the blue is around 10 pesos?
-It’s true that the exchange rate gap is a barrier for the entry of dollars. But I don’t know what the right exchange rate is. I imagine that at some point in the middle of those two prices bringing dollars in could become attractive. While there is also the issue of the interest rate that is paid to those who have pesos. It must be analyzed, what rate that the government accepts to pay the saver. The rates have to rise for pressure to come off the parallel exchange rate.
- Do you believe the Central Bank will have autonomy to raise interest rates?
- I believe that (Juan Carlos) Fábrega understands the situation. His nomination has been a very good signal. I imagine that right now he’s listening and analyzing.
-Was it a mistake to pay debt with reserves?
-The circumstances now are different. Today I would accumulated and care for the reserves and would try to have a good anti-cyclical policy.
-Must there be a return to the markets to refinance maturities?
-You could probably get cheaper funds today by doing your homework. Today it’s logical to go out to the markets to refinance maturities.
-It is said that inflation is the main problem, but Minister Kicillof denied there is inflation. Do you take that as a contradictory signal?
-The government already started talking about inflation. They have the correct diagnosis. Or at least I believe they do. Implicitly, by speaking of competitiveness you’re talking about inflation.
-Do you see a classic adjustment coming? There are calls to cut subsidies, adjust service rates, lower spending…
- It’s a demand of all society to move ahead on those points. The service rates are the cheapest in the region. The issue of subsidies will have to be straightened out. It cannot all be done at the same time. But I image that progress should be able to be made in a reasonable manner with a segmentation in all that is being subsidized. And that is a big savings.
-Do you believe that labor contracts can be negotiated looking at the inflation the government expects in 2014 and not the one registered this year?
-It’s a complex negotiation and the labor leaders have carried it well until now. They always positioned themselves before past and future inflation. If this year at the negotiating table an agreement is reached on prices and salaries, the companies and the unions will have to grab it. The majority of union associations know, and their leaders say as much, that the priority is to preserve jobs.
-The government will seek to fix a cap of 20% on salaries in 2014. Will the unions accept it?
-It’s a logical increase in measure of being able to reach a broad compromise from all parties and if the government does what it has to do to lower inflation.
-Is it credible to insist on new price agreements, with the recent precedent of the failure of previous agreements and the freezes that Guillermo Moreno sought to impose?
-What we have to achieve is to lower inflationary inertia. I don’t know if it’s the right tool, I don’t see anything wrong with trying to put expectations in the coffers. The agreements help if the government, the companies and the unions honor their promises.
-The naming of Capitanich caused a good impression in the business sector for his political capital. Do the banks think he understands economic issues, to counterweight Kicillof?
- We don’t see him as a counterweight to Minister Kicillof. But it’s always good that a Cabinet Chief understand economic issues, to be better able to discern if two plus two is four and not three or five.
U.S. concerned over fall in Argentine reserves
Monday, December 02, 2013
by Martín Kanenguiser | LA NACION
The U.S. government remains concerned by the continuous fall in Central Bank reserves and believes that an agreement between Argentina and the Paris Club, over the debt still pending payment, could allow for the return of some lines of financing from abroad for the country.
In Washington there is still great skepticism regarding the latest economic policy measures, while they believe the government took note of the restrictions it faces on the external front.
This way, officials of the Obama government that are observing the regional situation from the departments of State and Treasury are oscillating between giving another hand to the country so it can reopen credit and waiting to see concrete signals before offering any help. Diplomatic sources indicated to LA NACION that the diagnostic of the Democratic administration is categorical: there is little time and various measures need to be applied simultaneously.
On the internal plane, one of the definitions that are being expected with greater attention is how the government of Cristina Kirchner will try to detain the fall of the Central Bank reserves, which is coming to US$15 billion since the implementation of the clamp at the end of 2011.
On the external plane, the possibility is being awaited with anxiety that the government will finally put forth a payment proposal to the countries of the Paris Club, for a debt that remains in default for US$9 billion, between principal and interest since 2002.
It’s that while Washington applauded the settlement between the government and American companies that won judgments before the ICSID (the arbitration tribunal to resolve disputes before the World Bank), still believes that Argentina has to take other steps to regain the U.S. vote in multilateral credit banks.
Concretely, it is being awaited that, after give years since President Cristina Kirchner decreed payment of the debt with the Paris Club in cash, with Central Bank reserves, the government will make a proposal. And while the tendency of the reserves themselves conspires against the possibility of an additional disbursement from the current payment schedule, the creditors clarify that, if the country would reach an agreement, it could obtain access to cheap financing lines for infrastructure and foreign trade.
Anyway, the United States is not the only, nor the most important, official creditor to Argentina; the last official calculations mention a bilateral debt of US$500 million, versus some US$2 billion that the country owes Germany and Japan.
Indeed Washington, like Argentina, recognizes that these two countries are among the hardest-line creditors on finding a viable solution for all involved parties.
If the government were to bring a concrete proposal – in reality, in the last efforts all the Economy Ministers and Finance secretaries were limited to conciliate the figures and only informally mentioned the different ideas for paying – the White House could reconsider its negative vote on the World Bank board and in the IADB each time it takes up approval of a credit for Argentina. Also, it would be in a condition to reopen the soft credits from the American Ex-Im-Bank.
In a parallel form, in Washington the position on sanctions against the country is being debated, those decided by the International Monetary Fund (IMF). In front of the meeting of the board of this entity on Monday the 9th, in which it will be debated whether the government made progress or not in a substantial manner on the design of the new inflation index that it promised to implement in 2014, the idea predominates to not punish the country, granting it a six month deadline until the concrete results are seen on a new measure of consumer prices.
The hour of the vultures
The methodological details that foreign officials have been able to access – now that the INDEC has exhibited the new CPI before representatives of various governments, but didn’t publicly present it in Argentina – were shaped in advance. But, due to the seven year history of manipulation of data, they don’t want to issue a final judgment until verifying if the new measuring is closer to the data on price increases that the provinces alone put out. They show about a 25% increase per year, while INDEC has been showing 10%.
Meanwhile, the American government believes that Argentina must be more astute than it has been in the past in its appeal before the U.S. Supreme Court for the high court to take its case against the holdouts.
In particular, it says that the law firm of Cleary, Gottlieb, Steen & Hamilton, which represents the country in U.S. courts, must be more emphatic in showing that siding with the plaintiffs constitutes a violation of the Foreign Sovereign Immunities Act (FSIA) and, at the same time, a danger for the legal security of New York as a global financial market.
Only when the Supreme Court takes the case, and eventually asks for the opinion of the Solicitor General of the Obama administration, the American government would issue a new brief in favor of the country, as already happened in the previous two rounds of this case in which, for now, a group of vulture funds and 13 Argentine investors have won.
To reinvent the government, conserving the model
Monday, December 02, 2013
by Carlos Pagni | LA NACION
Cristina Kirchner completed her “Operation Rainbow”. It appeared after the electoral storm. She delegated administration to Jorge Capitanich. She unified the management of the economy under Axel Kicillof.
However, it did not stop the bleeding of the reserves. Since the designation of Capitanich and Kicillof, the Central Bank has lost around 150 million dollars per day. Inflation is determining the exchange rate gap. And the gap is causing the fall of the reserves. Kirchnerism has regained the initiative. But it isn’t inspiring confidence. Because the President remodeled her management, but is not revising her state-centric model.
The reserves crisis is the main official obsession. But Kicillof seems more intent on reversing its effects than correcting its causes. Last week he resumed the negotiation of a loan of 4.5 billion dollars with the Development Bank of China. The funds would be allocated, above all, to the construction of the Néstor Kirchner and Jorge Cepernic dams.
Both were awarded in a controversial tender to Electroingenieria, the company of Gerardo Luis Ferreyra, a close friend of Carlos Zannini.
The Chinese never say no. But the Bank itself denied the US$2.4 billion that were going to be sent in 2011 to Belgrano Cargas, which Florencio Randazzo nationalized. Randazzo announced last week that is going to be renegotiated.
For Kicillof, the adventures of Ferreyra and Randazzo are anecdotes. He needs those disbursements to recover reserves. With the same goal, Julio De Vido will travel back to Russia today, if China’s dollars don’t appear.
What endorsements do the Chinese demand? The Reuters news agency just documented (http://lta.reuters.com/article/companyNews/idLTAL2N0J50L420131126?sp=true) how, to finance the government of Rafael Correa, China demanded a guarantee of 83% of Ecuadoran crude. Through private traders, Petrochina resells that oil to Chevron’s refineries, which is condemned in Ecuador. Needy for other financing, Correa had to cede his oil sector to China, which covers 61% of its fiscal needs. When, in 2010, the president of the IADB, Luis Alberto Moreno, met José Mujica, he asked him about the presence of the Chinese in Latin America. Mujica answered: “The Chinese? They’re really screwed. In 15 years, we’re going to be missing the gringos.”
Argentina’s borrowing from China and Russia is substituting that which until 2008 Venezuela was offering. The nature of the link is the same: they are state to state relations. That means they are not contaminated by the credit market. Despite the fact that this market lends to Bolivia at a 4.87% interest rate and to Greece at 8.89%.
Kicillof is not contemplating for others the restrictions established for himself. Mauricio Macri and Daniel Scioli are being induced from the national government to contribute to the funding of the Central Bank by issuing bonds in dollars. The Minister will not be shocked if Governors infect themselves with borrowing from investment banks. Macri and Scioli are right-wing. They are already poisoned.
Would he characterize Miguel Galuccio the same way? Kicillof is hoping that he too, with normalized relations with Repsol, will take debt in dollars. If it resorts to J.P. Morgan, the bank that advises YPF, it will do it. It's funny: as Vice President of the "recovered" oil company, Kicillof permits behavior from himself that he avoids as Minister.
It is not the only license that is taken. The mysterious agreement with Chevron contradicts the condemnation of multinationals in his Mosconi Report. Now he must also delete the photos from the environmental damage that Repsol had to pay or. The price that was recognized for that company for the 51% of YPF is not contemplated: it is the equivalent to the market quote on the day of the seizure. The greed for dollars freed Kicillof of some of his scruples. YPF must become equal to the big grain producers, a provider of dollars for the Central Bank. Galuccio is smiling.
The agreement with Repsol is crucial, then, for the relaunch of the government. Repsol hired Deutsche Bank to structure a 10 year bond. Antonio Brufau, Chairman of Repsol, intends for it to be exchangeable for state assets. Vaca Muerta? There is also the problem of judicial jurisdiction: Argentina is abandoning New York over the conflict with the holdouts.
Hidden behind the agreement is a corporate maneuver: Isidro Fainé, President of La Caixa - top shareholder of Repsol - had to overcome the resistance of Brufau to agree with Cristina Kirchner. Fainé was trying to do so before Kirchner leaves power: "the next Government will take its time to pay, under the pretext of the need to study the case," he advised. Fainé allied himself to another shareholder: Pemex. Its President, Emilio Lozoya, is estranged from Brufau and is a friend of Miguel Galuccio.
The YPF-Repsol understanding allows for other international plays. Repsol is reaching out to the Mexican oil market, which is being deregulated, and this allows Pemex to approach Vaca Muerta. Tomorrow the Deputy Foreign Minister of Mexico, Vanessa Rubio Marquez, is coming to Buenos Aires.
Kicillof isn’t able to stop the bleeding from the Central Bank. But the exchange rate distortions are increasingly indecent. Last Wednesday, in the House of Deputies, Alfonso Prat-Gay offered three examples. One: if an Argentine bought a Maserati in Miami with his credit card and, without even taking it from the dealership, turned it around and sold it: he’d make 150,000 dollars. Two: a multinational American company took advantage of the exchange-rate subsidy and acquired an aircraft for its chairman in Buenos Aires. Three: several multinationals will have been providing from their Buenos Aires headquarters airline tickets used in the rest of the world. The national and popular model tends to be generous to the rich.
To correct these absurdities, Capitanich and Kicillof boarded the time machine and returned to September 2011. They found Julio De Vido and Guillermo Moreno promising the business sector a Program of Nominal Convergence (PCN), which Mrs. Kirchner dismissed once she swept the elections. She ordered only a timid cut in subsidies, which now will be more drastic. Indeed: revenues will go to the Treasury, not to companies that provide services.
The PCN was explained by Capitanich and Kicillof to industrial and union leaders: by the end of 2014 service rates and monetary emission must increase by 15%. Also wages. Despite his boss, Capitanich, having spoken before the labor leaders for 45 minutes, Kicillof followed for another 30. He said that no salary contract could exceed 15%. The banker Sergio Palazzo, who started the round in January, explained that it was impossible to agree to less than 22%. He added that banks had the money for that increase. The Minister did not get into reasons: "Your members need to restructure.”
Kicillof seemed like Domingo Cavallo, the standard bearer of productivity, in the furor of the 90s. Capitanich and Kicillof promised a mathematical miracle: to lower the official inflation from 15% to 10%. The Economy Minister is for repatriating a former official from the INDEC to direct the Institute.
The experiment of Capitanich and Kicillof is sustained in a central belief of Kirchnerism: there is no dynamic in public life which is not susceptible to being disciplined by the will of the one in charge. That political reductionism prevents the President from admitting the relative autonomy of the market. The market responds to it by consuming the reserves.
The voluntarism of Capitanich plays out with his hyperactivity. This weekend he was photographed with the new head of Sedronar, Juan Carlos "JuanKa" Molina. The "Benítez cure” of Mrs. Kirchner, who sent tweets against the isolation by Cardinal Bergoglio in May of last year and in April put out her photo with Pope Francis. Flexible, JuanKa.
There are those who call Capitanich "Adolfo". His margin for action arouses envy in the rest of the government: the President relates to him like a Queen with her Prime Minister. "Talk about everything with Coqui", she ordered the ministers. And she receives "Coqui" in the evenings for a brief report. The attention of Cristina Kirchner focuses almost entirely on her family.
Meanwhile, Capitanich proposed to spell out the public agenda with two media availabilities daily, one in the morning and one in the afternoon. And he instructed the ministers to present the activities of the next two years in ten days. There will be 200 announcements that he intends to make.
Capitanich has not encountered a limit yet. The President bring Sergio Urribarri in as Interior Minister to obscure him? Randazzo would remain at the head of a Transport Ministry, spitting it in half. There is gossip that Urribarri is refusing.
To warn of the effects of the rise of Capitanich, one should look at La Plata. The unloved Daniel Scioli travelled to the home of Sergio Massa, in Tigre, to ask for the necessary votes to approve the budget. Massa put down conditions: avoid a tax hike and send funds to the municipalities. But he supported it. Massa staved off a nightmare for Scioli: having to turn month to month to Capitanich, his rival in the FpV, to pay salaries. Miraculous President: she got, with the reinvention of her government, an unexpected rapprochement.