The decent proposals, cars, dollars, and Paris
Monday, February 17, 2014
by: Guillermo Laborda
The government began to work on modifying the internal tax on cars before the plunge being seen in the sector: in February sales are heading toward a 30% loss, which goes up to 80% on luxury vehicles. Also, the rise in prices on cars in January of 15% (from 4% in February and also in March) will mean that more models are beginning to be affected. In the law passed in 2013, the government reserves the power to modify the amount starting from when it is applied, the same as the aliquot, by which it will turn to that tool to try to compensate the shock that the sector had from this tax. There still were no meetings with representatives of the main production facilities, but the decision to introduce changes was already made.
As always it happened with the last official measures, after the conceiving of this tax there was a scarcity of dollars. Officials, with the list of imports for each sector of the economy turned to different weapons to reduce them. It happens that the same bullet that reduced imports would seriously wound production. For that the decision, against this friendly fire, to leave the path traveled, with activity going full force in March after summer vacations. But other paths will not be avoided, like the obligatory reduction in imports to the appliance re-assembly plants in Tierra del Fuego, which have to reduce their purchases abroad by 20% (and seek external financing for them as well).
The release of the new national inflation data on Friday set off new highs in Argentine stocks and bonds in New York. In February, private measures pointed to 2.7% inflation by which the new CPINu could be below 2%. Officials are more optimistic and see it below 1.5% (the problem there could go back to being lack of confidence in how the new national inflation rate is made).
At Friday’s prices, the Boden 2015 yielded 12.5% in dollars after a rise of 3% in parity. The Bonar 2017 promises a 14.5% return. It jumped 6% last week. In these two cases, the higher yield reflects that, for the market, while it’s clear that the government managed to comfortably overcome the drought in reserves for the summer, there are still doubts about how it will do so once the soy dollars run out in September. October 3, 2015, the date for the last Boden 2015 payment, is a long way away still. With the last measures adopted by the BCRA (ceiling on bank holdings of dollars and the oral pact for grain producers to sell of US$2 billion per month) extended from February to September, the view of investors. But there are decks of cards the government can still play to continue extending that view. Beyond the announcements to come on the payment to Repsol and the Paris Club, various proposals have been arriving into the offices of Axel Kicillof and Cabinet Chief Jorge Capitanich from foreign banks to buy bonds from ANSeS, a kind of politically correct financing or debt issuance. The banks see that something is changing: in the last six months, payment was made on the negative rulings from the ICSI, Guillermo Moreno is gone, the payment to Repsol for YPF was announced, interest rates rose to almost 30% to contain the dollar, the clamp was partially released and the battered consumer price index of the INDEC was buried.
More comprehensive is the plan presented by Goldman Sachs in the last visit by its executives, at the start of the month, with the bold proposal to close a deal with all the holders of Argentine paper in default since 2001, vultures and non-vultures. They are perhaps indecent proposals for what the official view of the so-called holdouts is today. But the deck of cards is within reach.
Vulture funds: the government seeks to have the U.S. Supreme Court review the form of payment
Its representatives will file the appeal today in Washington; seven months ago the high court already rejected a similar request; doubts over the support of the Obama government
Monday, February 17, 2014
by Silvia Pisani | LA NACION
WASHINGTON.- With a shortened maneuvering room and the wait to see if the support of the American government is coming or not, Argentina today begins the final round in the long litigation with the so-called vulture funds, in which the risk of a new default on the public debt is in play.
The definitive chapter arrives with the announced filing today of the petition to the U.S. Supreme Court to accept review of the case.
The process is not preceded by good signs. Seven months ago, last July, the court rejected a similar petition from the national government. On that occasion it asked it to take up the case that condemned it to pay, but had no luck.
On this new occasion it will ask for a review of something much more specific. That is, not the order to pay - which it will not step back on- but the formula for doing so.
The government argues that if the judges do not deactivate the mechanism thought up by Judge Thomas Griesa and upheld by the Court of Appeals, it will see itself obliged not to abide by it. Because to do so, it says, would mean entering into default.
"That is a ruling that this government is not ready to comply with,” argued, at the time, attorney Jonathan Blackman, one of Argentina’s defenders. The message – a desperate card to play – generated indignation in judicial and political circles in this country.
This time it will not be Blackman who carries the tune. The government hired the same attorney to join its team that ex-president George W. Bush chose as solicitor general. Only 48 years old, Paul Clement has experience in cases before the highest court.
"I believe that the chances that the Court will take the case are low. But not zero,” said attorney Eugenio Bruno yesterday, who has followed the case, to LA NACION.
Added as an adverse sign was the unanimity with which the ruling came last August from the Court of Appeals in New York which endorsed the formula of payment, on which they are now asking the highest court to review.
On that occasion, the Argentine defense gambled on a ruling, while not favorable, at least divided. They imagined that Judge Rosemary Pooler - nominated by Bill Clinton--would be on their side. She was not. Unanimously, the verdict spoke of a "recalcitrant" debtor and defended down to the letter the principle that contracts "must be paid.”
One of the questions is if, at this crucial point, the government will be able to count on the support of the administration of Barack Obama. The Argentine Embassy in this city revved up the efforts in this regard. "No one knows for sure. I would say that it will intervene if the Supreme Court makes a specific request for its opinion. I doubt that it will do so on its own initiative,” risked an official aware of the bilateral talks, to LA NACION.
No decisions are expected after the procedure today. A hearing date must be set, although some of the discussion could be move up for one already set for April 21.
"This appointment is to argue on a side case, referring to the search for assets for a possible attachment. But Argentina will attempt to bring the discussion into the underlying ground,"said Bruno.
While all this is vented on the judicial side, the government is encouraging, in a secret manner, a possible negotiation with the vulture funds.
The idea is to pay them "more" than what they paid to the other bondholders. But, as by law that cannot be done, the option is that both the negotiation and the biggest contribution of capital run for the account of those that did accept the exchange. They will have to give up something of their own to give to the so-called holdouts, that, in their legal claim, are demanding payment of 100% of the debt.
The formula, which has an uncertain future and is revealing of the concern over what the courts could do, is known as the "Gramercy solution", by the name of the investment fund which is one of its promoters.
But while that is being explored what is concrete is that today there is the appeal to the highest court to ask it to review the case that came out of the claims from the funds NML Capital –a unit of Elliott Management, of financier Paul Singer- and Aurelius Capital Management together with a dozen private savers. Among them is several Argentines.
All this on a holiday. Today here they celebrate President’s Day, which coincides with the birth of George Washington.
The political origins of the justices
WASHINGTON (From our correspondent).- There are those who speculate that the arrival of the lawyer Paul Clement to Argentina’s defense team could mean greater alignment with the conservative and Republican profile that is given to the majority of the members of the Court. The Court manages itself by legal criteria. But having been appointed to public service by President George W. Bush is something that Clement shares, as a start, with four of its nine members, among them Chief Justice John Roberts.
Also appointed, thanks to Bush, were Clarence Thomas, Ruth Bader Ginsburg and Samuel Alito (sic). Another two - Antonin Scalia and Anthony Kennedy - were nominated under a Republican government, with Ronald Reagan. Only three Democrats were proposed: Stephen Breyer, with Bill Clinton, and Elena Kagan and Sonia Sotomayor, with Barack Obama.
Vulture funds: last chance before the U.S. court
Seeks that the entity take the case. It has a new lawyer
Monday, February 17, 2014
With the assistance of one of the best lawyers in New York, former Solicitor General Paul Clement, Argentina will appeal today before the U.S. Supreme Court on the ruling that forces it to pay debt to bondholders who were outside the swaps held after the crisis of 2001-2002.
It is the same case in which the Court of Appeals in New York upheld the ruling of Judge Thomas Griesa and Argentina will now try to reverse in a last chance to appeal, even though today is a holiday in the United States.
Strictly speaking, the underlying ruling is not under discussion, but the form of payment.
It is US$1.3 billion that might put the country back into default. Clement, former solicitor general during the presidency of George W. Bush, will now assist the firm of Cleary Gottlieb.
The lawyer has a significant record of cases that led to the Supreme Court in his country and he decided to open a firm. Unlike in Argentina, the U.S. Supreme Court intervenes in very few disputes, which are around one hundred per year.
Mystery not only surrounds what the American court will do, but also to the attitude of the United States government, i.e. if the presidency of Democrat Barack Obama supports the Argentine position or if, on the contrary, it will do nothing in the country’s favor.
The formula that Argentina would propose is the so-called Gramercy solution, named for one of investment funds which is intervening in the case and which would be willing to accept it. This is that the money that Judge Griesa said it must be paid to the bondholders that did not accept the debt swaps over the last decade be settled by the bondholders that did accept the agreement. In other words: that the funds who did enter into previous agreements buy the debt from those who are suing in this trial.
The case that the government wants the U.S. Court to take involves 7% of the total debt.
The highest U.S. Court has a deadline for deciding that would expire on April 21, according to sources closely following the case. If the Court refuses to intervene in the matter, Judge Griesa’s ruling stands firm, upheld by the Court of Appeals of New York, and so Argentina would have to pay the US$1.3 billion that could leave it on the brink of a new default.
The lawyer who will assist Argentina was appointed Solicitor General in 2005 by George W. Bush.