Ambito Financiero: “The government seals agreement in ICSID with five companies”

Lead Articles:

 

Ambito Financiero: “The government seals agreement in ICSID with five companies”

 

Ambito Financiero: “30-S: the secrets of a key hearing”

 

Pagina/12: “Argentina doesn’t have to pay the vultures” (“Cash” supplement section)

 

 

OTHER NEWS ITEMS:

·         Governor Ricardo Colombi of Corrientes province, the only Radical governor serving in Argentina, won a narrow re-election victory yesterday against a full-scale attack from the FpV to unseat him.  Colombi said that the “national lesson” of his victory is that “August 11 will be repeated in October”.

·         Jorge Lanata’s Sunday night program on Channel 13 last night reported an investigation showing that not a single peso of the fund set up by Guillermo Moreno after the floods in La Plata six months ago has been distributed to the victims.  In the days after the flood, Moreno put heavy pressure on company executives to donate for a relief fund account at Banco Nacion, and 35 million pesos were donated.  However, the fund remains untapped.  Government sources replied that the reason the funds have not been distributed was so that the effort “not be interpreted as political clientelism before the October elections” and they will be distributed by the Social Welfare Ministry of Alicia Kirchner starting in November.

·         La Nacion reports that more evidence, including security video footage, shows that Paula Ferraris, a La Camporista in the Foreign Ministry, helped lead efforts to cover up evidence of racism and discrimination by her boyfriend, Hugo Merlo, after he became the target of union complaints for his behavior.  A video posted by La Nacion shows staffers in Ferraris’ area shredding documents with Merlo last November, illegally destroying sensitive Ministry material without permission as well as removing evidence of a crime.  Ferraris has not yet resigned her post as Secretary of Coordination in the ministry, where she oversees the budget as well as approving promotions of diplomats.  She is a close ally of Cecilia Nahon.

 

 

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Ambito Financiero

The government seals agreement in ICSID with five companies

 

Monday, September 16, 2013

 

By Guillermo Laborda

 

The government is sealing a deal with the five companies that have final rulings originating in the 2001 crisis in their favor in the ICSID (acronym of the tribunal of the World Bank for the settlement of investor disputes) and the Uncitral, its twin, but under the orbit of the United Nations. According to what official sources reported to Ambito Financiero, the understanding involves a haircut on principal and interest, payment in bonds and a commitment to reinvest a percentage of the original sentence in the country.

 

The amount of the five cases is US$500 million approximately, to which the above-mentioned haircuts would be applied. The importance of this understanding that could be announced this month is, beyond ending complaints that have been delayed payment for several years (the U.S. government eliminated Argentina from a preferential tariff system over it), it would take place shortly before the decision on the vulture funds lawsuit against the country over the 2001 default.

 

There are several points in common between both legal courses. The presence of the Minister Hernán Lorenzino in United States would be associated with the closing of the negotiations of the cases in the ICSID and the Uncitral, but also with the presentation of the new national CPI, an overhaul of the current and criticized measuring of INDEC that is dragging the country towards a series of sanctions within the IMF.

 

The five companies that participated in the negotiations with the team of Hernán Lorenzino are: 1) Azurix, the concession holder for the bankrupt Enron which provided potable water and sewage service in the province of Buenos Aires, whose contract was cancelled in 2002; 2) Blue Ridge, who was in charge of CMS Gas Transmission Company, also with the explosion of its contract in 2002;  3) Vivendi, for Aguas del Aconquija in Tucuman; 4) National Grid, a British energy company that won a lawsuit for US$$ 54 million and was part of Transener, the transporter of electric power; 5) Continental Casualty Company, shareholder of CNA Occupational Hazard Insurance that held Argentine Treasury Letters in pesos convertible to the dollar. The first two cases are the most relevant in terms of the award amounts adding up to us$ 300 million in the original sentence. After that comes the haircuts. In recent years there were several contacts from plaintiff companies to try to reach an understanding with the country, but on this occasion it is the one which progressed the furthest. The scheme was similar to the debt swap of 2010: the creditors themselves took charge of making an offer to the government. From there, they started talks on haircuts and the payment mechanisms. According to information this newspaper had access to, there could be a haircut of 15% on the original principal of the claim, and 45% on the interest generated from the final judgment. The bonds that would be used to pay these liabilities are the Boden 2015 for principal and Bonar 10 for interest. Both have Argentine legislation, not only by Argentine desire, but also by the plea of the plaintiffs, to keep them out of the claws of Judge Thomas Griesa.

 

The Argentine government will have imposed an obligation that part of the original claim that it is paying out be channeled into investments in Argentina. It will be 10% that is required to remain invested in the BAADE, the bond that makes up the menu of the crumbling amnesty,  the vehicle for doing so. The legal path of this agreement would begin with a resolution from the Economy Ministry, a presidential decree with the approval also of the SIGEN (General Syndicate of the Nation and the Auditor General). For the government it is a politically correct agreement. It is about closing the chapters of the 2001 crisis, the "legacy", paying with bonds, applying "haircuts" and adding investment commitments. It sends signals to the U.S. Government that is not a "recalcitrant" debtor. The creditor companies manage to close a chapter that they never imagined happening, at least not before 2015. In reality, of the original plaintiffs companies it is Azurix with Bank of America (which carries the Blue Ridge claim); the other three cases of Vivendi, National Grid and Continental Casualties are under the wing of the Gramercy fund, with Jim Taylor, its manager for emerging markets as the main actor. It's the fund that entered the swaps and has been supporting the country in the courts of New York.

 

 

Ambito Financiero

30-S: the secrets of a key hearing

 

Monday, September 16, 2013

 

by: Eugenio Bruno

 

The Argentine appeal to the Supreme Court, called a "writ of certiorari", as well as the response from the litigating fund NML, and the subsequent reply of the government, were already distributed among the nine justices of the Court. Also added were the briefs submitted by the various amici (France, Exchange Bondholders Group, Caja de Valores), among others in a process that ended last week.

 

The Supreme Court, as we know, set September 30 as the date that will try the case of Argentina for the purposes of determining whether to accept it or rejects it. This case refers to the appeal against the decision of the Court of Appeals from October 26 of last year in which it ruled that Argentina had violated the clause of pari passu for having approved the “lock law” and for paying the restructured debt without paying the debt in default. The subsequent decision from Judge Griesa on paying 100% of the claim in a single payment and ordering the attachment of money transferred via Bank of New York upheld at the end of August by the same Court of Appeals has not been appealed to the Supreme Court and is expected to happen as soon as possible (the government decided, on the other hand, to go the way of the "en banc"). But the importance of the current appeal to the Supreme Court is based on that, upon the moment it doesn’t succeed, the Court of Appeals ruling on the payment of 100% and the attachment on the Bank of New York would become effective (unless a very difficult additional stay was obtained).

 

The meeting of 30-S is called a "hearing conference" and in the face of this each one of the nine justices is reviewing the Argentina case, but also the other coming cases that they will decide whether to accept or reject in that judicial meeting. In this regard, statistics indicate that among the approximately 8,000 cases annually that are appealed, the Supreme Court accepts no more than 1.25% of these.

 

For the purposes of the “hearing conference", each judge shall prepare a brief memorandum or a note on the appealed decisions in order to discuss them. Usually, before each "hearing conference” the Supreme Court prepares a list of cases ("discuss list") to be discussed at this meeting. The cases that are included in this list are considered by judges as being worth at least an analysis. The Argentine case has been included on the list and for that it is expected at a minimum the judges will dedicate important consideration to it.

 

Other cases are not even included in the previous lists. The cases that do not appear on the "discussion list" on the day before each hearing conference are directly rejected. The hearing conferences take place on Fridays and accepted cases are published the following Monday, with certain exceptions in the case that decisions are postponed for reasons that are specific to each case.

 

But since 30-S is the first meeting of the U.S. judicial year and the submitted requests have accumulated during the summer in the Northern Hemisphere, this discussion is longer and doesn’t end in a single day, but in several. For that it is expected that the decision will be announced on October 7. Also in the case of such a meeting, usually the cases come to around 2,000 and the percentage of acceptance goes down from the aforementioned 1.5% to 0.80%. That means that only about 15-20 cases will be accepted. It is important, therefore, that the Argentine case has appeared in the "discuss list".

 

In this instance they do not accept meetings or arguments before the Supreme Court, but either before or during the consideration of the Argentine case it may request the opinion of the government of Barack Obama, as well as on very exceptional occasions open a new round of briefs, written questions and hearings before deciding whether to accept or rejects a case, such as that of the Argentina.

 

Requests are accepted when at least four judges are in favor of accepting a case, which means Argentina needs in this instance to be supported by a minimum of that number of judges on a court controlled by a clear Republican majority that one might expect to be against Argentina. In case the appeal is obtained, then it will indeed require the majority of the Court (five votes) to achieve a reversal of the appeals court ruling.

 

In the face of 30-S, it is positive that the Argentine case has been included on the "discussion list" as mentioned. It is also recommended that the government look at leaving behind its en banc appeal and appeal directly to the Supreme Court seeking that said court not take action on 30-S, but when the new appeal procedure is completed. Perhaps the case of pari passu, independent of  the payment of 100% and the attachments, will not be accepted by the Court, unless there is pressure from the Obama administration. But I believe that the chances are greater if the processes add up or not, concerning the two last points under discussion in virtue that there are Federal issues in debate (attachments under the so-called law of sovereign immunity of foreign states), as well as of relations between the United States and Argentina in a context of risk that the decision of the U.S. courts will have an important influence upon an eventual default of a country with the which United States maintains ties. Obviously, everything indicates that those links are damaged and, therefore, the situation is more complicated.

 

(*) Partner, Garrido Attorneys

 

 

Pagina/12

Argentina doesn’t have to pay the vultures  (“Cash” supplement section)

 

by Natalia Aruguete

 

Mark Weisbrot, director of the Center for Economic Research and Public Policy of the United States, visited Buenos Aires by invitation of the CNV, the Cemop and the Cefid-AR. Weisbrot continues to criticize the policy of international financial organizations and strategies of the central  countries to overcome the economic crisis, at the sae time supporting the governments of Latin America that have encouraged unorthodox economic policies. In a dialogue with CASH, the U.S. economist marked his emphatic position against the vulture funds demanding full payment of Argentine debt, analysed the economy of Venezuela and the causes of price increases.

 

What implications do you think you will the upholding of the decision of Judge Thomas Griesa by the appeals court of New York have? Can you imagine what decision will taken by the U.S. Supreme Court about this ruling?

 

–I don’t know what the Supreme Court will decide… it’s difficult to predict  But I think it is not as important as many think in the media.  

 

Why?

 

–Because Argentina can go on “handling the issue”: maintain its payment on debt to creditors that entered the swap and not pay the vultures.  

 

Even if the Supreme Court decides not to take the case?  

 

–I think so, because there are mechanisms by which it can continue paying the other creditors.  

 

How do you see the decision of the Argentine govenrment to send a bill to Congress to open the debt swap for the third time?  

 

–It’s a good decision.  Even if the “holdout” bondholders don’t take advantage of that reopening to replace their bonds, the Argentine government will gain more time to take necessary measures with the goal of continuing to pay the 92.4$ of the bondholders that accepted the debt restructuring.

 

What precedents could be set by an unfavorable ruling for Argentina in relation to other indebted countries?

 

–That is important.  For that reason, the International Monetary Fund, the French government and the majority of those at the U.S. Department of the Treasury want Argentina to win.  If the Supreme Court comes to have a ruling in favor of the vulture funds, it would be a problem for the world financial system.  It could become more difficult to restructure other debts.  That is the main problem.

 

What kind of reach does the lobby power of the vulture funds have over the courts and the powers of the American state?

 

–There are many lobbies, they “buy” congressmen, but until now the vultures and their lobbyists have not have much success.  Only on the margins.  In the case of the last request that the House of Representatives made asking for Treasury’s intervention they only got the support of 10 or 12 congressmen, after putting in millions of dollars. ,

 

Venezuela

 

You said a little while ago that Venezuela is folloing the correct path on economic matters.  Why?

 

–Venezuela has done very well economically from 2003 until earlier this year. We should not include the first four years of Chavez in this analysis, between 1999 and 2003. It would be unfair to include them, because during that period the Chavez government had no control over oil. That is why it is best to start in 2003 or even 2004. From that year to 2012 it had a growth per capita of 2.5 per year. That is good for any economy in the world, and is a very good performance, in historical terms, for Venezuela.

 

Why?

 

-Because before Chavez per capita GDP did not grow for 20 years. It is also a good level compared to the rest of Latin America or other countries, in terms of development. In addition, you can see that there were only two recessions. The first, caused by the halt of the oil sector organized by the opposition, in 2002. The second, experienced by the majority of countries, was caused by the global recession and took place between 2009 and the first half of 2010. In the middle of 2010, the (Venezuelan) economy began to recover and grew very well for more than two years. At the same time, inflation began to fall while economic growth was more and more rapid, reaching 5.7 percent in 2012.

 

Why, after that decline, did inflation start back up?

 

-In October, after the elections in Venezuela, the government stopped providing hard currency, that caused the problem. That produces many problems, especially because there were cuts in supply. The shortages in the product supply chain created many setbacks. This also tends to generate inflation, at the same time producing a very large gap between the parallel exchange rate and the official rate. The devaluation also was a mistake because it wasn't necessary. That was not a product of scarcity of dollars. The government of Venezuela has a lot of reserves, much of it is in gold, but it doesn't matter because it can be sold, and it also has other assets. By which I can’t explain why it devalued or why, suddenly, they cut off the supply of dollars within the market.

 

Do you think that that was a mistake?

 

-Yes, of course. That was a mistake by the government.

 

Inflation

 

Is it possible to establish a common denominator in the region as the cause of inflation? Orthodoxy usually points to the monetary issue as the root cause.

 

-No! That is a myth. It is the falsehood that people could believe. Even the left in Venezuela believes that inflation is coming from Central Bank monetary emission, which is ridiculous. The inflation which is there since fall of last year is due to the scarcity of hard currency.

 

And in other countries in Latin America? What are the reasons for inflation?

 

-It is that in other countries there is not much inflation, only in Argentina and Venezuela. In Argentina, the cause is much more complex, there are multiple causes.

 

For example?

 

-The exchange rate depreciation contributes to inflation. There are also problems of competition, monopolies also contribute to increasing inflation. But it is not a spiral that is widening. I think that the government can contain it and stop it. There are other causes that are external.

 

Which ones?

 

-The inflation of the price of the imported products and the contribution of the food crisis. There is inflation also in other countries. Brazil has inflation of 6.5 percent. For the Brazilian central bank that level is too high. The media are against the government and seek to create an "inflation of danger", which can modify taxes beyond it, then have a lot of people believe that inflation is very serious when, in fact, the current level is normal. At the same time, the Argentine government does not want to sacrifice job creation, reduction of poverty, nor the growth of the economy with the objective of reducing inflation drastically and quickly.  They don't want to return to the recipes of the past, the ones the governments of Latin America turned to when they had inflation, as well as the United States.

 

Are you referring to the increase of the interest rate?

 

-Of course. All of our recessions in the United States, from World War II to 2000, were caused by the Fed (US central bank), which was intentionally increasing interest rates to lower inflation and causing recession. And this is not conspiracy theory, but something that all economists know: the  recessions after the year 1946 until 2000 were caused. The last one, in December 2007, was caused by the burst of the housing bubble and the 2001 recession was the result of the stock market bubble bursting. It is what the government (of Argentina) doesn’t want to do, and I think it is the right thing.

 

Why?

                               

-Because you can lower inflation gradually. It is better, especially for a developing or middle income country, not to cause new recessions only to decrease inflation.

 

What do you think of the income policy that the Argentine government is implementing? Do you think that it contributes to a decline in inflation or alternative mechanisms are required?

 

-I think that this income policy can work. It is difficult, but I think that it can work. Without a doubt, it is better than the neo-liberal alternative, involving reducing the economy and laying off millions of people. That's what they do: lower salaries because they have created so much unemployment that this lowers inflation. This is not an exaggeration, it is the explicit policy of the central banks around the world; this is how they struggle against inflation. I think that it is worthwhile to seek an alternative.