Millions guaranteed, the hidden piece of the pact with Repsol
Friday, November 29, 2013
By Marcelo Bonelli
The agreement with Repsol points toward freeing up the legal barriers weighing on YPF to initiate a policy of external borrowing by the company and, therefore, try to elude the economic adjustment that the leadership of Cristina Kirchner is being obliged to make.
The reopening of the negotiation with the Spanish company would be the first in a series of demands that the government received to obtain loans from abroad and thereby strengthen the falling reserves of the Central Bank.
But the start of the agreement allows immediately for two things: that YPF go out to seek funds on the international market to strengthen the inflow of dollars and, at the same time, that Argentina can move ahead on a settlement with the Paris Club that also allows the seeking of financing abroad.
For that, the government accepted paying an expensive price: the secret clause fixes the payment to US$5 billion in cash and that amount would be bigger if it was covered by ten-year bonds: it would come to no less than US$8 billion.
The agreement was promoted in essential form by the government of the United States and it was the president of Mexico, Enrique Peña Nieto, who transmitted the urgencies for Argentina to not delay any longer.
México –by indication of Washington – acted as mediator, displacing Brazil. After, a series of technical staff and officials got involved, but it is secretly admitted at the Casa Rosada that it was Juan Manuel Abal Medina (Sr.) who was the emissary that carried the disturbing message to the Olivos compound.
A Carlos Slim man, he brought the precise political translation to Buenos Aires of what the United States wants.
For this and other conduct, Washington transmitted to Buenos Aires that Cristina must move forward on five central issues to return to accessing international credit.
The demands were concrete: close the conflict with YPF; make INDEC transparent; normalize the debt with the Paris Club; accept the audit of the IMF and, lastly, resolve the dispute with the vulture funds.
Identical demands were made, at a Cannes summit, by Barack Obama to Cristina Kirchner two years ago, in the only meeting in which both met alone. He didn’t meet with her again and he snubbed her at the G-20 in St. Petersburg.
Jorge Capitanich took the program of the White House as his own and committed to complying with the U.S.
The Cabinet Chief put down as a requirement for taking office that there be no interference in facing those demands.
The U.S. Energy Secretary himself publicly spoke out to pressure in favor of the agreement with Repsol when the secret negotiation seemed to be falling apart, in mid-November. Ernes Moniz said in Madrid: “We support Repsol because we don’t endorse the nationalization of YPF.” Moniz also had transmitted to the Casa Rosada that Exxon would not be coming in to Vaca Muerta so long as there was no agreement between Argentina and Repsol, not even with the one-sided conditions of Chevron.
The hard pressure from Washington and the objective weakness of the Argentine economy made the “Cristinistas” make big concessions to the Spanish company.
The greater political wear and tear was on Axel Kicilllof, who took a Copernican turn. In April 2012, he diagnosed that Repsol owed money to Argentina and that YPF would not pay a single dollar to Madrid. Now, Kicillof accepted paying an indemnity equal to US$5 billion in cash. This would be the fact that the government doesn’t want to acknowledge. Just as he began to walk, the minister suffered an evident blow: he was the visible face of the agreement that implies a 180 degree turn in his convictions and the President blocked his split currency exchange rate.
The Cabinet Chief himself boasts of his colleague’s fate: he told those close to him that the announcements with political costs will be Kicillof’s job.
The US$5 billion figure will be what is agreed to be paid, and in cash.
A confidential report from JP Morgan speaks of 6 billion.
The information is hidden, allegedly from an inadmissible “confidentiality”, because it means a difficult amount to explain for Argentine negotiators: in case the country pays in bonds, the agreement would be under international legislation and the amount adjusts upward, until the paper reaches a value on the market equivalent to US$5 billion in cash.
Repsol obtained another concession: it put in an investment bank as arbitrator and chose Deutsche Bank, the historic agent of the Spanish oil company.
The amount agreed to is 13% greater than the market value that the 51% of the shares had on the day of the expropriation.
On April 13, 2012, its cost was US$4.403 billion.
Even still, Repsol had to punish its balance sheets over the exaggerated judicial complaint of Antonio Brufau. For that there is a lot of noise against the Catalan.
Argentine officials will have to explain why they agreed to a payment with Repsol without there being an evaluation of the value of the expropriation by the Accounts Tribunal. Also, with this agreement, two complicated factors are covered up: the sale of YPF’s gold share in 1998 that benefited Repsol and was negotiated by King Juan Carlos, as well as the entry of the Argentine group in 2008, sponsored by Nestor Kirchner. Justice is still investigating the existence of a company in Melbourne, Australia, tied to that purchase and why a percentage of the capital share of that firm is not identified.
The company is called “PTY Ltd”.
The government has urgency in covering up those obscure questions, but also must confront the failure of its current oil policy. The publicized plan from Miguel Galuccio was a disappointment and for that the government is moving now towards another strategy: a liberal policy for the multinational oil companies.
Unit is created for debt with Lorenzino in front, who will work for free
The ex-Economy minister will lead this unit to negotiate with the “vulture” funds and will have to “assist and advise” Kicillof in the restructuring of the public debt. He will be accompanied by the ex-Finance secretary
Friday, November 29, 2013
The government created the Unit of Debt Restructuring which will be led by ex-Economy minister Hernan Lorenzino and will be coordinated by former Finance secretary Adrián Cosentino.
Through Decree 1935/2013, published today in the Official Bulletin, it was indicated that the Unit will be in charge of “assisting and advising the Minister of Economy and Public Finances (Axel Kicillof) in determining the objectives and policies linked to the restructuring of the public debt.”
Thus, “to participate in negotiations inherent to the credit aspects of finance policy and external borrowing by the Argentine Republic from foreign, multilateral, public or private entities and financial organizations.”
Also, “to participate in relations with the international financial community and the coordination of representations abroad.”
In its eighth article, the rule – which has the signatures of President Cristina Fernández, Cabinet Chief Jorge Capitanich and Minister Kicillof – highlights that Lorenzino, the ex-head of the Palacio de Hacienda, "will carry out his functions with an ‘ad honorem’ character.”
In its considerations, it highlights that “the National Government, in the framework of its financial policies, is executing a process of renegotiation and restructuring of external debt” and that “said policy has been seen to be effective for lowering the costs of public borrowing, in the framework of the autonomy that characterizes the national economic policy.”
"With the ends of having an integral approach to such negotiation, in virtue of the proximity and the international problems linked to debt service, it is therefore convenient to form, in the orbit of the Economy Ministry, the Unit of Debt Restructuring, which will have among its assignments to assist and advise” the Palacio de Hacienda, it added.
It detailed that the Unit will participate “in the negotiations inherent to the credit aspects of the financial policy and external borrowing of the Argentine Republic from foreign, multilateral, public or private entities and financial organizations and in relations with the international financial community and the coordination of representations abroad.”
"It is intended to comprehensively address the necessary actions to continue with the renegotiation and restructuring tied to the payment of debt service with international financial organizations and of official bilateral external debt as well as with the holders of bonds that did not participate in the debt swaps of the years 2005 and 2010,” it said.
The creation of the Executive Unit of Restructuring was announced by the government on the 19th of this month during the changes in Cabinet decided by President Cristina Kirchner.
Lorenzino, also, will be ambassador before the European Union in case the Congress approves his nomination next Tuesday.
In his pass through the Palacio de Hacienda, the minister concentrated on international debt issues: the negotiations with the World Bank, the IMF and the Paris Club.
Highlighting the unprecedented payment of debts
Friday, November 29, 2013
The President of Banco Ciudad, Federico Sturzenegger, yesterday pondered the process of debt reduction being brought forward by different Kirchnerist governments, which he characterized as “unprecedented” in the history of the country.
Sturzenegger affirmed that “the debt reduction that the Kirchners did was completely unprecedented in Argentine history,” and argued that the country reached the milestone that none other could, by reducing its external debt. In his judgment, “they honored the dream of the international financial organizations which is that no country have debt.”
In a talk with reporters that attended the end-of-year cocktail party given by the bank, the economist, who starting on December 10 will assume his seat in the House of Deputies for the PRO, estimated that the margin for taking external financing that the country can count on, after the debt reduction process, “is very high.”
In that sense, he recalled that the ratios between debt with the private sector and Argentina’s GDP is just above 10%, with which he said that it could carry that ratio “to half” without trouble for the economy.
Adiós to the myth of debt reduction
Friday, November 29, 2013
by Fernando Laborda | LA NACION
Some years ago, when Alfio Basile technically led Boca, one of the criticisms he received alluded to his not stopping his players, to which DT responded: “I stopped the team well. The problem is that when the whistle sounds the players start to move.” The anecdote was told a few weeks ago behind a FIEL meeting by economic analyst Enrique Szewach to exemplify the problems of the Argentine economy.
It’s true: the players in the economy, like football players, are in permanent motion. And, like in football, there is no perfect blackboard play because no team plays alone.
The lethal mixture derived from the rise in public spending, the increase in tax pressure, the forced takeover of the Central Bank to finance the fiscal deficit with emission and reserves, and the currency clamp, provoked elevated inflation, a halt in investment, a stalling of different sectors of the economy for price lags, an enormous exchange rate gap, billions in lost reserves and a growing downward trend in real salaries.
In this context, the national government would seem to be trying for a rectification starting with the Repsol agreement. Concretely, it had been warned that its international isolation couldn’t be forever if it needed urgent capital investments. Did Cristina Kirchner comprehend the need to exit the international “El Veraz”?
The signals in the ICSID, where cases against Argentina were closed, and the negotiations with the IMF over the new price index with the goal of this organizations giving the OK for an agreement over Argentina’s debt with the Paris Club, are heading in that direction.
The main cost for the government is the dismembering of its narrative. It has begun to tear down the famous myth of debt reduction. Not only because everyone knows that what Argentina didn’t pay the IMF today has been turned into a monstrous debt from the national State with the Central Bank and ANSeS, with unpredictable consequences. Also, because finally it will have to pay Repsol for the 51% of its share of YPF with bonds in dollars at an interest rate no less than 8% annual, when our neighboring countries have recently borrowed at 2 to 4 percent.
In parallel, to force a drop in the dollar at the “contado con liqui” rate – used to legally pull hard currency out – and pressure the “blue” dollar down, ANSeS has begun to sell dollarized public bonds that it holds. To do so, it lowered the value of those bonds and country risk rose, increasing the cost of borrowing. And there is another danger: that ANSeS is unloading bonds with 15% to 18% annual yields in dollars to finance the Treasury at insignificant interest rates, de-capitalizing the system and the future for pensioners.
The new head of the BCRA, Juan Carlos Fábrega, will be ready to increase the rate of devaluation of the peso on the official market. The problem is that any holder of dollars that see that this trend is not going to let go of that currency to take up a fixed-rate deposit in pesos at rates currently below inflation. For that, there are those who are speculating on an interest rate increase. But this, at the same time, would make credit more scarce and would affect consumption, something the President doesn’t want. A labrynth without an exit, and a problem: the players, effectively, keep moving.