Boudou is splattered by an obscure foreign pact with a fund

Clarin

Boudou is splattered by an obscure foreign pact with a fund

 

Friday, October 18, 2013

 

By Marcelo Bonelli

Hernán Lorenzino opened a Pandora’s box with his operation to settle five ICSID judgments against the country.  The move exposes connections with the investigations of corruption that have hit Amado Boudou and a cloudy plot within the foreign negotiation that is affects the Casa Rosada.

 

The government agreed to these payments for fear of the evaporation of the reserves and the threat of a default by rulings in the courts of Manhattan.

 

Lorenzino initiated the international operation against an imperious necessity: to try to obtain credits from the World Bank to avoid greater loss of the reserves at the end of Cristina’s term in office.  But the negotiation, until now secret, is creating huge consequences for Argentina:  it contradicts the public and political narrative of Cristina Kirchner about the ICSID.  The President always said that the government would attend to the complaints, if they were from companies that would bring them before Argentine courts.  

 

Now it is acknowledging and accepting them without anything more than resolving them by a court located in the U.S. capital.  

 

–Lorenzino’s recognition of the legal jurisdiction of Washington allows for new complaints against the country by 30 others in the ICSID.  The debts in play add up to a whopping US$13.6 billion.

 

–The negotiation also reinforces the legal complaint by Repsol for another US$10 billion.

 

For all this, the officials again showed their incompetence and malpractice.  But there are more issues in play:  

 

–The agreement financially compromises the next government, because “Cristinism” agreed to payments with bonds that come due in 2015 and 2016.

 

–The packed was negotiated without supervision and authorization of Congress.  There wasn’t even extra-official information for pro-government legislators.

 

The conditions are so grave that the government prefers to bring forward the debate after the elections.

 

The Casa Rosada wants to avoid explaining a fact that Lorenzino and Amado Boudou plan to hide.

 

The secret agreement in the ICSID was not made with harmed companies that filed the lawsuits, but with the fund Gramercy Funds Management.

 

Gramercy operated as a vulture fund and bought, without reporting it, the debts with Argentina from a majority of the companies that were suing and now have agreed with the government.  The rest of the obligations are in the hands of the Blue Ridge fund, and both groups acquired those debts with a huge discount, in the order of 65%.  In other words: the pact that Lorenzino made will allow those international funds to obtain an extraordinary profit.  

 

For that, Gramercy has been the one that piloted the payment agreement with officials and allowed the World Bank to evaluate going back to granting credits to Argentina.

 

The obscure handling of the issue will be explained by Gramercy being involved in the investigation of influence trafficking that compromises Boudou in the 2010 swap.

 

That judicial investigation was reactivated in June.  

 

Gramercy rejected participating in the swap done by Nestor Kirchner.

 

It acted as a vulture fund in 2004 and speculated with future lawsuits.

 

When Argentina reopened the foreign negotiation, in 2010, the one in question was Arcadia, which had been the one that brought Gramercy to the Palacio de Hacienda. Arcadia is denounced in court for influence trafficking and also for having allegedly acted as a “screen” for Boudou to collect illegal commissions in the refinancing of foreign debt.  

 

The original denunciation was made by Deputy Fernando Pino Solanas and Deputy Claudio Lozano and, in June, was activated by prosecutor Jorge Di Lello.

 

Arcadia is led by attorney Marcelo Etchebarne, with solid Manhattan connections.  The financier also is very connected to the Vice President now in charge of the Casa Rosada.  Three years ago, it was precisely the “intermediation” of Arcadia that allowed the Gramercy fund to change Argentina’s intransigent attitude and allowed Boudou to achieve “critical mass” which avoided the failure of the 2010 swap.  

 

Gramercy participated with hundreds of millions of dollars and in that operation another acquaintance of Boudou intervened: banker Gustavo Ferraro, who worked at Barclays – financial agent of the Palacio de Hacienda– and is now an important operator on Gramercy’s staff.  Ferraro advised the then- Economy Minister.  The Vice President is interested in international financial agreements, because he believes that with that oxygen he can try to recycle his withered political career in Argentina.

 

He thinks that the reserves are not sufficient and that the country has to go back to borrowing, which would mean the opening of a multimillion dollar business for banks.  The current ICSID operation will bring big gains for Gramercy and Blue Ridge.  

 

The issue opened up a furious battle inside the government, where they accuse Boudou of using Cristina’s illness to advance his personal projects.  It also is being brought into play in the Cabinet squabbles and possible changes of ministers after the elections.  

 

Boudou is floating Sergio Chodos to replace an unsustainable Hernan Lorenzino.  The Peronist governments are planning changes of a bigger volume and want to place a man who they find trustworthy: the head of ANSeS, Diego Bossio.  The move set off Guillermo Moreno, a collector of failures and, now, also political enemies.  

 

By acknowledging the failure of the fight against inflation, at IDEA, Daniel Scioli sped up what the governors want to see happen: that the Commerce Secretary step aside.

 

 

El Cronista

The government pays complaints in the ICSID for US$2.5 billion in exchange for investments in BAADE

The Cabinet Chief ordered the reallocation of necessary funds to pay the judgments from five companies that promised to buy bonds from Moreno  

 

Friday, October 18, 2013

 

Through resolution 830/2013 published today in the Official Bulletin, the chief of the Cabinet ordered the reallocation of necessary funds.  The firms will reinvest 10% of that money into the Baade.  

 

Cabinet Chief Juan Manuel Abal Medina ordered the reallocation of budget funds that are necessary to allow the payment of judgments with four (sic) companies that have sued the country and with which agreements have been reached in the arbitration court of ICSID.

 

The companies are: Blue Ridge Investments L.L.C, CC-WB Holdings LLC, Vivendi Universal S.A., Compañía de Aguas del Aconquija S.A., and Azurix Corp.

 

 

Ambito Financiero

VULTURES: Singer seeks a Griesa for Ireland

 

Friday, October 18, 2013

 

by: Carlos Burgueño

 

For Paul Singer, the history of his lawsuit with Argentina is still far from a decision, beyond having accumulated various rulings in his favor in the New York courts.  The owner of the vulture fund Elliott himself admitted this week that the “battle will be long, whatever the result in the Supreme Court.”  Despite this reality, Singer is in fact very far from collecting a single dollar, his fund NML continues seeking victims around the world.

 

The more recent objective in his judicial sights is from a classic vulture financial operation.  In September 2008, he hit out in the midst of a global economic and financial crisis into various markets, including the former white pearl of the European Union: Ireland.  There he bought stock in a bank on the verge of collapse, Irish Bank Resolution Corporation (IBRC), paying some US$5 million at bargain price for most of the entity, awaiting the confirmation of its rescue that was being prepared so that the country’s financial market would not fall.

 

Worse yet, the fund only deposited a million dollars for that operation, since before making the second payment the rescue came together.  Until there, it all seemed to be a grand occasion, betting on a bankruptcy that didn’t happen, carrying off big differences.

 

The issue is that the bank never was capitalized by Singer, an indispensable condition for the money to be sent by the Irish government with funds from the EU and the IMF themselves.  There were only deposits for the account holders, not for the shareholders.  Singer waited for the allotted time for the rescue to end (August 2013) to start to sue in American court.  Definitively, he, as the majority shareholder of the bank, also deserved the bailout.  Strictly speaking, he is demanding US$75 million, after having paid only one million.

 

The Irish government, which (obviously) doesn’t want to pay Elliott, announced last week that “it will vigorously fight” against Singer’s offensive and that it expects “a long judicial battle” in the Irish courts; a threat that little alarms the head of the vulture fund.

 

But it’s not the only activity of the Republican multimillionaire in recent times.  In his vulture sights there is also a closer objective: Brazilian businessman Eike Batista.  At some point, this man was synonymous with the growth of Brazil’s private economy at the end of the government of Fernando Henrique Cardoso and at the start of the one of Lula da Silva, through his EBX group, which moved into key areas like oil, construction, mining, public services and information technology.  For 2012, he occupied the seventh post among the richest businessmen in the world, according to Forbes magazine.  However, this year, from various failures hitting his oil bets, his personal wealth went from US$34.5 billion to US$6 billion; while his company announce a debt of US$3.6 billion and the impossibility of paying its debts in New York of US$45 million.  Guido Mantega himself, Dilma Rousseff’s Finance Minister, ruled out any chance of a bailout and left the tycoon to his fate.

 

Batista, 57 years old, ex-sailing champion, a playboy in his country and a precursor to the “new Brazilian capitalism that is not ashamed to show how much money it has,” found out from various operators in New York there is a hard reality: those bonds are almost entirely in the hands of one of Paul Singer’s investment funds; and it is demanding cash payment on the debt of US$45 million bought for some US$12 million days before default.

 

 

Infobae

Holdouts: bankers trust that the sentence will not be executed against Argentina

They say that it’s an issue of a “sovereign state” and the petition from the creditors will not succeed.  Some say that the Supreme Court will ask for the opinion of Barack Obama and thus the country could continue paying debt in the short term.  

 

Friday, October 18, 2013

 

by: Jorgelina do Rosario

 

(Special Report from Mar del Plata) Inflation is not the only economic issue dominating the hallways of the 49th IDEA Colloquium.  Argentina’s battle with the holdouts is present in the chats of businessmen, while a majority prefer to listen to the economists that are specialized in the matter.  

 

It’s that just this week, InfoBAE reported that the funds that are suing Argentina over the debt asked – through their attorneys – that the Court of Appeals of New York lift the stay to finally unfreeze (and execute) the sentence against the country.

 

If the Court puts the petition of the attorneys from NML and Aurelius in course, the Argentine government has two options: to pay the holdouts, or enter into default on the debt.  The judges ruled in favor of the funds by pari passu – equal treatment of all bondholders – while they still have an appeal pending before all the judges over the payment formula.

 

Uncertainly now falls again on if the Court of Appeals will accept the petition of the vulture funds or not.  Gustavo Cañonero, chief economist for Latin America at Deutsche Bank, said to InfoBAE that he doesn’t believe that the Court of Appeals will lift the stay, as it’s an issue of a “sovereign state.”  In this sense, it will wait until the U.S. Supreme Court takes the case.  

 

"This request was more for the gallery, to generate an effect.  But the most likely scenario is that it will reach the Supreme Court, and that same court asks for the opinion of President Barack Obama,” Cañonero believes.  The Argentine analyst estimated that the agreement by the country with the ICSID for US$500 million “is a signal” to the American government.

 

Cañonero also agreed with other debt experts, and said that the ruling of the Court of Appeals on the payment formula will be known starting in February 2014.  

 

On the same subject, other reports came out from Wall Street banks with the same prediction.  Barclays Capital, for example, said that “on the basis of the actions and statements of the Appeals Court, we believe that there is a low probability that the stay will be lifted.”  

 

The English entity says that the judges of that court already know “the intentions” of the government to seek alternatives on paying the debt.  They recalled that the basis of the argument from the holdouts in this petition is that Argentina will not abide by an unfavorable ruling.

 

"It is supposed that the judges have already taken into account the Argentina’s intentions when they left the previous stay in place in the ruling of August 23. There is a certain period to respond to this order. We believe it to be unlikely that the appeals court will change its mind,” they added.

 

From JPMorgan, Argentine economist Vladimir Werning stated in his report that the "risk of the judges lifting the stay is a particular concern but we assume that they will decide not to do it.”

 

And the bank says that there are "doubts that the Court will give it such importance to the public speeches of Argentine politicians that is attributed by the holdouts,” in reference to a mantra from the creditors which is at the center of the debate of Cristina Kirchner’s statements regarding a potential swap of bonds to local law.

 

The question of international debt was also installed in one of the first chats at the business event in Mar del Plata, which attracted more than 950 participants. Beatrice Weder di Mauro, economist at Johannes-Gutenberg -University of Mainz, described the situation in Europe in recent years, and said that a "sovereign debt limit" should be established and a restructuring of 90% of the public debt. "We must make restructurings possible, orderly and legitimate."

 

 

El Cronista

The currency exchange crossroads  

 

Friday, October 18, 2013

 

by Lorenzo Grivaut Gravina, chief economist at Ecolatina

 

The Executive in November will have an excellent opportunity to introduce changes to economic policy, perhaps also of those interpreting them- in the face of two years left in office. Modifications can always be made but the post-election days tend to be the best time.

 

In our opinion, there are three major problems in the Argentina economy: low investment - especially in some key sectors such as energy and infrastructure -high inflation, which generated a significant drag in exchange rate and power rates, and shortage of hard currency, a product largely of the two previous issues. But only the lack of dollars can generate serious complications in the short term.

 

The decisions by the government on this front will be key to not stumbling once more over the same stone. It is worth remembering that most of the crises in our country have the external sector as a protagonist in their origin or outcome.

 

The exchange rate crossroads shows several possible paths: further intensified restrictions on the demand for dollars, a formal split exchange rate, external borrowing, or a devaluation.

 

We do not believe the Executive is planning to apply a heavy correction on the official exchange rate, and devaluing in installments is not viable. Since the depreciation of the peso – which has accelerated above 2% since July - the Central Bank had to sell many dollars on the formal market because of the stagnation of the supply of dollars. Exports did not grow in the third quarter, in part because economic agents added that the rise in the official dollar will exceed inflation, which generates incentives to postpone sales of tradable goods. And less exports or storage of the harvest is deepening the shortages in hard currency.

 

Ruling out a devaluation - gradual or by shock - we see a turn toward the markets to be very difficult, one which allows the obtaining of external financing at reasonable rates in the short term, because of increasing difficulties. These include: possible default if Griesa’s ruling is applied; the questioning of public statistics in the country; the non-compliances in the ICSID; and the lack of settlement with the Paris Club on unpaid debt.

 

Alternatives

 

Thus, the likely alternatives are reduced only to two: further restrictions on the demand for dollars or a formal split exchange rate.

 

The strategy to slow down the flight of hard currency in different ways does not seem to be enough. Despite the currency clam and lower debt maturities, the reserves will end 2013 with a drop of US$10 billion and a greater than 60% exchange rate gap. If the Executive stays the course and fails to get dollars out of the galley - in 2014 the SDRs from the IMF could come in, new financing from the Bank of France or credits from the World Bank - the external constraints will fully affect the Argentine economy.

 

This means returning to a scenario of stagflation with deterioration of social variables and elevated foreign exchange risk. Moreover, if the external tail wind is reversed or there are problems with the agricultural harvest, the stock of reserves will be reduced to alarming levels.

 

Finally, the formal exchange rate split - keeping a low commercial exchange rate and a separate rate for financial operations/tourism – doesn’t solve the problems of competitiveness nor closes the exchange rate gap, but if well implemented it could give the necessary oxygen – meaning dollars – to the Central Bank.

 

What is relevant when looking to the future is for the Executive to try at least to reverse the main focal points of the bleeding of hard currency generated by its economic policy: tourism, energy and the inflow of dollars from financing.

 

This is not easy, but the government must rethink its strategy to minimize tensions.

 

Energy imports cannot be halted, but they can bring predictability to investors so that they will sink dollars into the sector to moderate the expansion of the deficit. The loss of hard currency from tourism--exacerbated by rumors of post elections measures that could balance the trade surplus - could be reduced with a legal rate split. With a higher exchange rate more foreigners would come in - liquidating their currencies in the formal market - and it would slow the emissive spending. And, so that dollars from financing enter, we need to recreate incentives.

 

What is desirable is to implement a consistent economic policy with clear rules, allowing confidence of agents to be recovered. If that is impossible, hopefully, at least, the Executive will not exit the currency exchange crossroads by taking a short cut to a new crisis.