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.

 

Wednesday, June 13th 2012 - 06:11 UTC

Argentina pledges to pay bonds in US dollars and denies ‘pesification’ of contracts

Argentine President Cristina Fernandez pledged Tuesday to make an upcoming 2.2 billion dollars Boden 2012 bond payment in US dollars, rejecting recent speculation that the government would try to pay some or all of its foreign-currency-denominated debt in Argentine pesos.

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Justice Minister Julio Alak: “payments should be made in foreign currency as stipulated in the contract”

In early August, the government faces a 2.2 billion payment on the Boden 2012 dollar-denominated bond.
“We're going to pay in dollars as should be done” Cristina Fernandez said in a nationally televised speech. However she recently submitted a bill to Congress that would allow debtors to pay US-dollar-denominated contracts in pesos.
The bill is part of a government push to wean Argentines off their long-held preference to use dollars for major transactions.
The bill, as currently written, would allow debtors to “free themselves” from the dollar-payment requirement by paying “the equivalent amount” in pesos.
The government, which is scrambling to obtain dollars to make debt payments, has severely cracked down on the local foreign-exchange market, making it virtually impossible for Argentines to buy dollars.
But Argentina's benchmark bonds rallied Tuesday after Justice Minister Julio Alak denied reports the government might convert foreign-currency contracts into pesos. Bonds tumbled on Monday as investors feared the bill would essentially turn foreign currency liabilities into pesos.
“If a foreign-currency contract drafted by the parties involved provides for its payment in foreign currency, the payments should be made in foreign currency as stipulated in the contract” Minister Alak said in an interview with public television Canal 7. Alak also denied the government-sponsored bill would re-denominate existing foreign-currency contracts and savings.
Speculation has swirled for weeks that the government is considering the forced conversion of dollar contracts and debts into pesos.
The US dollar ended Tuesday trading at the official market at 4.465/4.505 today, unchanged compared with the previous closing price. Meanwhile, the price on the black market ranged at 5.90 and 5.92 Pesos, according to financial newspaper El Cronista.

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Argentina loses another case before the World Bank tribunal // It is accused of having expropriated Aguas Mendocinas without adequate compensation

La Nacion

Argentina loses another case before the World Bank tribunal



Wednesday, June 13, 2012



By Silvia Pisani



It is accused of having expropriated Aguas Mendocinas without adequate compensation



Argentina got an adverse ruling from the arbitration tribunal of the World Bank (ICSID) in the case opened over the nationalization of the water company of Mendoza, but the more disquieting fact is that the decision punishes the country for having “expropriated without adequate compensation in turn” for the investor company, Saur of France.



The decision, mentioning an “expropriation without counterpart”, sets a risky precedent in the face of the coming battle that the government will have to confront in this same tribunal from the claim being filed by the Spanish oil company, Repsol, over the nationalization of its 51% stake in YPF.



In the Saur case, which was the operator of Aguas Mendocinas, the tribunal headquartered in this city also set up a specific commission to determine the amount that Argentina will have to pay.



The initial claim was some US$200 million, but it’s possible that the amount will vary, according to sources familiar with the case.  “We are very satisfied with this decision which benefits our client,” said attorney Fernando Mantilla Serrano, who made up the team representing Saur, to LA NACION.



The dispute is based on the breaking of a contract and violation of the bilateral treaty on protecting investments between both countries.  In the case, the plaintiff said that, in the crisis of 2002, first they froze rates and then, with the passing of years, didn’t give agreed adjustments time. “It was a case of strangulation of the company.  First freeze the rates; then, don’t give them the adjustments they agreed to and, finally, reproach them for a lack of investment, intervene and nationalize,” the attorney said.



Complicated relations



The adverse ruling comes in the midst of a tense situation between Argentina and the ICSID after our country decided not to honor two rulings in favor of American companies for a joint amount of US$300 million, in a decision that was catalogued as an “unfair practice” by the American government.



In retaliation, the Obama administration canceled trade benefits for Argentine products and opposes the country seeking financing in multilateral organizations.



Argentina still has 17 cases open before the entity, and came to accumulate 42 after the 2001 crisis.  The ICSID is objected to by Venezuela and Ecuador, who consider it “too inclined” towards investors.



"Our government hasn’t thought of leaving the ICSID,” said Argentina’s ambassador to the U.S., Jorge Arguello.  But it was also Arguello who said on more than one occasion that there was “bad faith and bad information” on the behavior of Cristina Kirchner’s government in the tribunal.



In the Saur case, despite involving Obras Sanitarias de Mendoza, the case was filed more than seven years ago against the Argentine state.  In that time, the provincial government said it was sure it could show the “enormous irregularities” registered since the service had been privatized in 1998.

Myths & Realities” at the Embassy of Argentina

das war ich....das waren (und sind auch noch) meine 75€ ....die die Haushaltslage Argentiniens gefährden.....

3. Verbürgung der Gegenseitigkeit

Die Gegenseitigkeit im Verhältnis Deutschlands zu Argentinien ist grundsätzlich
als verbürgt anzusehen.99 Die Gegenansicht stützte sich auf Art. 517
Nr. 3 C PC C N in der Fassung von 1967.111(1 Diese Bestimmung ist jedoch 1981
geändert worden, so dass seit diesem Zeitpunkt die Gegenseitigkeit grundsätzlich
gewährleistet ist.11" Da fiir die Anerkennung ausländischer Entscheidungen
zudem regelmäßig die Zuständigkeit der Bundesgerichte und damit die
Geltung des C PC C N vorgesehen ist, kann die Verbürgung der Gegenseitigkeit
auch nicht unter Hinweis auf die teilweise strengeren Anerkennungsvoraussetzungen
der R echte einzelner argentinischer Provinzen in Frage gestellt werden.
Im Zusammenhang mit der Rechtsverfolgung von Ansprüchen aus argentinischen
Anleihen gegen den argentinischen Staat hat das OLG Frankfurt in einem
Arrestverfahren am 29. 4. 2008102 entschieden, dass in Verfahren gegen den
argentinischen Staat die Gegenseitigkeit im Sinne des § 917 Abs. 2 ZPO nicht
mehr verbürgt ist. Das Gericht beruft sich zur Begründung seiner die allgemeine
bisherige Bewertung ändernden Ansicht auf die Entscheidung des Verwaltungsgerichts
Buenos Aires Nr. 5 vom 31. 5. 2007, das die Anerkennung und Vollstreckung
eines deutschen Kostenfestsetzungsbeschlusses über € 75,00 deshalb
abgelehnt hatte, weil dies der argentinischen Rechtsordnung widerspreche und
zudem die Haushaltstage Argentiniens gefährde. Das OLG Frankfurt wertet die
argentinische Entscheidung nicht als „Ausreißer“, sondern als Beleg für die
derzeitige argentinische Praxis und sieht darin folglich eine nicht hinnehmbare
Privilegierung des Fiskus, die zur Folge hat, dass in Verfahren gegen den argentinischen
Staat die Gegenseitigkeit nicht mehr gegeben ist.

aus:

Prof. Pitz
   
GEIMER/SCHÜTZE
INTERNATIONALER
RECHTSVERKEHR
IN ZIVIL- UND HANDELSSACHEN
LÄNDERBERICHT ARGENTINIEN
DIESER SONDERDRUCK
IST IM BUCHHANDEL NICHT ERHÄL TUCH
VERLAG C.H. BECK
-----------------
translate.google.com

Third Guarantee of reciprocity
The reciprocity in the relationship between Germany and Argentina is generally
The opposing view as anzusehen.99 guarantees based on Article 517
No. 3 in C CN in the PC version of 1967.111 (1 This provision, however, 1981
been changed so that the reciprocity principle, since that time
ensures ist.11 "since for the recognition of foreign judgments
Moreover, the jurisdiction of federal courts on a regular basis and thus the
Validity of the C CN PC, can offer the guarantee of reciprocity
not having regard to the sometimes stricter requirements for recognition
the Argentine provinces of individual real R are called into question.
In connection with litigation of claims arising from Argentine
Argentine government bonds against the Higher Regional Court of Frankfurt has a
Attachment proceedings on 29 4th 2008102 decided that in cases against the
Argentine state reciprocity as defined in § 917 para 2 ZPO not
is more guaranteed. The court cites in support of his general
Review existing changing view on the decision of the Administrative Court
Buenos Aires, No. 5 of 31 5th 2007, the recognition and enforcement
a German order concerning costs above € 75.00 so
was rejected because it contradicts the Argentine legal system and
also threatens the household days in Argentina. The Frankfurt Higher Regional Court evaluates the
Argentina's decision is not as "outliers", but as evidence of the
Argentina's current practice, seeing it not therefore a tolerable
Privileging of the Treasury, which has the effect that in cases against the Argentine
State Mutual is no longer present.

Argentina Proposes Bill to Allow Dollar Contract Payments in Pesos // It's unclear if the bill will apply retroactively or if it could affect government debt.

Argentina Proposes Bill to Allow Dollar Contract Payments in Pesos

By Taos Turner
The Wall Street Journal
Monday, June 11, 2012
http://online.wsj.com/article/BT-CO-20120611-714077.html
BUENOS AIRES -- Argentine President Cristina Kirchner has submitted a bill to Congress that would allow debtors to pay U.S. dollar-denominated contracts in pesos.
The bill comes amid a broad government push to wean Argentines off their long-held preference to use dollars for major transactions. It's unclear if the bill will apply retroactively or if it could affect government debt.

In early August the government faces a $2.2 billion payment on the Boden 2012 dollar-denominated bond.

A spokesman for Mrs. Kirchner didn't immediately respond to requests for comment.

The bill, as currently written, would allow debtors to "free themselves" from paying from the dollar payment requirement by paying "the equivalent amount" in pesos.

The federal tax agency AFIP, which vets foreign-currency purchases, is thought to have approved very few requests to buy dollars in May. That fueled perceptions that a dollar-hungry government might resort to more draconian measures to make sure it has enough dollars on hand to pay creditors later this year.
 Dollar scarcity has fueled a vibrant black market where Argentines can obtain the currency at a hefty premium over the official exchange rate.

The black-market rate now hovers around ARS5.90, according to local media. In contrast, the peso closed at ARS4.49 on the local wholesale foreign-exchange market Monday.

In an attempt to assuage public concern, Deputy Economy Minister Axel Kicillof recently said the government has no plans to ban the use of dollars in the domestic economy or convert dollar-denominated loans and contracts into pesos.
In recent weeks, Mrs. Kirchner and her ministers have declared a "cultural war" against Argentines' love affair with the dollar. In a recent speech, the president said she would voluntarily swap her dollar savings into pesos, as "it's more profitable."
According to local news reports, Mrs. Kirchner declared just over $3 million in dollar-denominated savings in her latest tax declaration. But talk of a forced or coerced "pesofication" of the economy isn't going away and it hurt some bonds Monday, according to Adrian Mayoral, a trader at his family brokerage.
"There is a lot of speculation about supposed plans to 'pesofy' the economy," Mr. Mayoral said. "I can't say if any of this is more than speculation, but it's affecting the market."
The Bonar 2015 dollar-denominated bond fell about 3.4% to ARS458.5 in part on speculation that the government might try to get out of making dollar payments on its debt.

Fears of "pesoization" plague Argentina, as economy deteriorates

Fears of "pesoization" plague Argentina, as economy deteriorates

Posted: 11 Jun 2012 10:46 AM PDT

Faced with deteriorating economic conditions and signs of global isolation, Argentina's government has been pushing to suppress the nation's "dollar culture". The bulk of home sales in big cities are conducted in dollars. So are many commercial property transactions and event cement purchases, with the dollar still representing a legal tender in Argentina. The government wants to change all that. The so-called "pesoization" bills to require that all commercial transactions be executed in pesos have been circulated in Congress. To garner support for the "movement" to abandon the US dollar, President Kirchner announced that she will convert some of her personal dollar savings into a peso-denominated CD. She is also asking other senior government officials to do the same.

But Argentina's people and businesses are not buying it.

WSJ: - As of June 1, about $4.44 billion in foreign-currency deposits had left the banking system since President Cristina Kirchner imposed exchange controls on Oct. 31 to limit capital flight that was draining international reserves.

In May alone, jittery depositors withdrew about $1.41 billion.

Severe restrictions on dollar purchases by businesses and individuals have clearly spooked some Argentines who remember the forced conversion of their dollar savings into pesos during a deep economic crisis in 2002.

Indeed, Argentines view the dollar as a store of wealth and a transaction medium because of their country's long history of high inflation and profligate government spending that frequently ended in violent currency devaluations.
...
Exchange controls have sent a chill through the real estate market and fed a black market where dollar-hungry Argentines pay ARS5.90 per greenback.

That means people are willing to pay over 31% premium to the official exchange rate to purchase dollars. With capital leaving, the nation's economic conditions continue to deteriorate. Industrial production is falling and construction activity in particular has declined at a rate not seen since 2009.

Argentina's industrial production (YOY)

Argentina's construction activity (YOY)

Alberto Ramos from GS put it quite well:

GS: - The recent increase in the demand for USD developed as the macro underpinnings of the ARS have been weakening due to the current heterodox interventionist policy mix and deteriorating macro picture: entrenched high inflation (in excess of 20% since 2010), visible economic deceleration, eroding fiscal, trade and current account balances, and growing financial and FX repression measures to severely restrict access to USD.