ARGENTINE UPDATE – Sep 17, 2015


FACT-CHECKING ARGENTINA’S ELECTIONS (Open Democracy)
By Vicky Baker
14 September 2015

Facts, lies and statistics: these have become key themes on the campaign trail for October’s national election in Argentina.

Does Argentina have a lower rate of poverty than Germany? It seems unlikely, and there were many raised eyebrows when Argentinian President Cristina Fernández de Kirchner said, at a UN summit in Rome in June, that her homeland’s national figure had dropped below five percent. Aníbal Fernández, her head of cabinet, later took the claim a step further by confirming that Argentina was indeed bettering Norway, Denmark and Germany in the fight against poverty.

Facts, lies and statistics: these have become key themes on the campaign trail for October’s national election, with the opposition vowing to offer greater transparency than under the current government, led by Fernández since 2007.

Argentina has developed a critical stats problem. The combination of highly partisan press and some very unconvincing official data has created a huge output of untrustworthy information. The country has one of the highest rates of inflation in the world and yet its national statistics office, Indec, has been underestimating the figures for years. Currently the official inflation figure hovers around 15 percent, while independent analysts suggest it could be almost double that. Coming up with alternative figures has led to some independent economists being threatened with fines or jail sentences.

Perhaps the most outlandish example of Argentina’s book-cooking came in 2011 when Guillermo Moreno, then secretary of domestic trade, allegedly asked McDonald’s Argentina to reduce the price of the Big Mac, in what was viewed as an attempt to get a better position in the Economist’s annual Big Mac Index, which, the publication says, aims “to make exchange-rate theory a bit more digestible” by comparing burger prices around the world. The company complied, but customers noticed the burger disappear from shop-front menus. It was available, if requested, but the chain clearly hoped customers would be swayed by the other, more realistically priced offerings.

“Our leaders are not going to stop lying, or using figures in the most strategic way they can,” said Laura Zommer, director of Argentina’s independent fact-checking organisation Chequeado. “But the antidote to this is to increase the cost of the lie. You do this by making the public more alert and more questioning.”

Zommer was talking to Index on Censorship about the global rise of the fact-checking industry. Index’s latest magazine has profiled some key fact-checking organisations, from the UK to South Africa. There are now 64 active websites dedicated to analysing and potentially debunking political or journalistic statements, up from 44 a year ago. The second Global Fact-Checking Summit was held in London in July, with participants from 31 countries.

“It seems like we are capturing a global zeitgeist,” Will Moy, director of UK fact-checking organisation FullFact.org told Index. “I’m not sure if it’s [due to] a growing sense of distrust or because the internet makes it easier to fact-check and compare primary sources. Maybe it’s a search for authenticity? We’re definitely tapping into something.”

Founded in 2010, Chequeado (meaning ‘checked’) is a non-partisan, not-for-profit organisation, with an aim to “improve the quality of public debate”. It was South America’s first independent fact-checking organisation, although many more have sprung up since, from Uruguay’s uycheck.com to Mexico’s El Sabueso, run by AnimalPolítico.com.

Zommer said that the organisation has been well received by the public and the press. It has developed partnerships with three radio stations, and runs fact-checking columns in two newspapers (national broadsheet La Nación and English-language daily Buenos Aires Herald). When Fernández gave a speech to open Congress earlier this year, Chequeado ran a live fact-checking event on Twitter; its hashtag #ChequeadoCFK (based on the president’s initials) received 1.5 million impressions.

In the case of the the poverty statistics, while the anti-government press delighted in the absurdity, Chequeado delved deeper. It debunked the claim, while also showing that Argentina and Germany have different methods for determining the poverty line. In Argentina, it’s based on the income needed to purchase a basket of basic food items. In Germany, like many European countries, it’s calculated on relative terms: those earning significantly less than the median income are considered poor.

There is plenty of evidence to show their work is being listened to. Former chief of cabinet Jorge Capitanich responded directly to Chequeado in a press conference, divulging the sources he used after one of his statements on infant morality was declared false. And former vice-president Julio Cobos admitted to being wrong after incorrectly stating that 85 percent of prisoners hadn’t finished primary school. “Excellent work, Chequeado”, he tweeted.

But Chequeado is quick to stress that it is not just going after the government. Opposition politicians and journalist are also held to account. Journalist Jorge Lanata, one of Fernández’s biggest critics, is among those regularly scrutinised. Like everyone else, he is pulled up for falsities, and also for exaggerated or misleading statements.

Zommer said that their intention is to provide a platform that people feel confident to use, whatever their political persuasion. “Often, individuals have information that contradicts a minister, but they aren’t going to come out and say it publicly, because they are scared, or because they don’t want the confrontation. Part of our work is to generate a platform that is neutral. We want people to be able to come to us with information,” she said.

Argentina’s elections take place on 25 October, with a possible run-off between the top two candidates on 22 November. Fernández is constitutionally barred from a third consecutive term, but her party’s sole candidate, Daniel Scioli, remains the current frontrunner. Meanwhile, the opposition continues to try to capture the public’s attention with promises of increased transparency. “The first task we have is to resolve statistics. We can’t talk with the world if we’re lying to it,” said opposition candidate Sergio Massa at a recent debate. Chequeado has an eye on him too.
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THURSDAY CLIPS

1. US APPEALS COURT HANDS ARGENTINA A VICTORY IN BOND DISPUTE (The Washington Post)

2. ARGENTINA REMEMBERS THE FUTURE POPE FRANCIS AS A MAN OF THE PEOPLE (Los Angeles Times)

3. HOW ARGENTINA’S PRESIDENT PLANS TO WIELD POWER LONG AFTER HER EXIT (Bloomberg News)

4. ARGENTINA’S FORGOTTEN WARRANTS NOW A BUY AT BOFA AS ELECTION BET (Bloomberg News)

5. EXASPERATED U.S. APPEALS COURT TOSSES BIGGER ARGENTINA BOND CLASS (Reuters News)

6. FITCH AFFIRMS ARGENTINA’S FOREIGN CURRENCY IDR AT ‘RD’ (Reuters News)

7. THE ECONOMIST EXPLAINS; HOW COMPETING CLAIMS TO THE FALKLANDS/MALVINAS COMPARE (News Analysis from Economist.com)

8. ARGENTINA MILITARY REPORT SHOWS INTERNAL ABUSE DURING FALKLANDS WAR (The Jurist.org)

1. US APPEALS COURT HANDS ARGENTINA A VICTORY IN BOND DISPUTE (The Washington Post)
By Larry Neumeister
September 16, 2015

NEW YORK — A federal appeals court handed Argentina a victory Wednesday in its quest to relieve itself of the pressures of debt owed to American hedge funds and others, saying a judge went too far by letting some bondholders demand payment without proving how much they are entitled to be paid.

The 2nd U.S. Circuit Court of Appeals said a lower-court judge was oversimplifying the definition of the class of bond holders affected by his orders.

A ruling written by Circuit Judge Richard Wesley noted that defining a precise class to which Argentina owes damages for refusing to pay bondholders and calculating those damages have been “exasperating tasks.” But the decision issued by a three-judge panel said Judge Thomas P. Griesa was making it too easy for some plaintiffs by creating a class including bondholders who were not the original purchasers of the bonds.

“While objective criteria may be necessary to define an ascertainable class, it cannot be the case that any objective criterion will do,” Wesley wrote. “A class defined as ‘those wearing blue shirts,’ while objective, could hardly be called sufficiently definite and readily identifiable; it has no limitation on time or context, and the ever-changing composition of the membership would make determining the identity of those wearing blue shirts impossible.”

The dispute over Argentina’s debt emerged after the South American nation defaulted on $100 billion in debt in 2001. Most creditors accepted lower-valued bond swaps in 2005 and 2010. But U.S. hedge funds led by billionaire hedge fund investor Paul Singer’s NML Capital Ltd. refused and took Argentina to court in Manhattan and won. Griesa has repeatedly ruled that Argentina can’t pay other creditors until it pays the holdouts.

Argentina has not complied with Griesa’s orders, and the funds have tried to seize Argentine assets around the world. Last month, Griesa ruled the plaintiffs can pursue Argentine assets in the U.S., except for military and diplomatic property.

The plaintiff in Wednesday’s decision held a relatively small number of bonds. The appeals court ordered an evidentiary hearing to decide damages.

Attorney Carmine Boccuzzi for Argentina said he was pleased with the ruling.

“The ruling makes clear that plaintiffs may not use the class mechanism to avoid having to prove the actual damages of purported class members,” he said.

Jason Zweig, the bondholder’s attorney, did not immediately return a message seeking comment.

In court papers, Zweig wrote dismissively of Argentina’s arguments, saying the appeal was designed “simply to further delay this already 9-year-old case, in order to prolong the day it must pay its outstanding debts.”

In court papers, Boccuzzi wrote that judgments in favor of members of the class were “inflated and inaccurate” because the bonds at stake are regularly traded in the secondary market.

2. ARGENTINA REMEMBERS THE FUTURE POPE FRANCIS AS A MAN OF THE PEOPLE (Los Angeles Times)
By Chris Kraul
September 17, 2015

He came walking.

That’s how parishioners of Our Lady of Caacupe remember the future Pope Francis. Rather than take the archdiocese limo, Archbishop Jorge Mario Bergoglio rode a bus and then walked half a mile to the church operating out of a converted warehouse.

“Once I met him at the bus stop and offered to carry his briefcase the rest of the way, but he wouldn’t hear of it,” said Monica Morales, a church volunteer and mother of six.

Those who would understand Francis’ papacy would do well to come to this poor parish in one of Buenos Aires’ most violent, drug-infested villas, as shantytowns here are called. By doubling the number of priests and committing church resources to outreach programs, including drug abuse rehabilitation here and in other poor parishes, he reenergized its mission to serve the marginalized and vulnerable.

“Before Bergoglio, there were two churches — one of the poor and the other one being the official church,” said Father Lorenzo De Vedia, an Our Lady of Caacupe priest whom parishioners address simply as Toto.

De Vedia recalled the future pope while sitting in his cramped parish hall office, built with concrete blocks behind a former truck loading bay, and tucked inside what was once an industrial building.

“He was a novelty in that he promoted a closeness between the hierarchy and the barrios,” De Vedia said. “He was with us in every sense.”

From Sept. 22-27, Francis will visit Washington, New York and Philadelphia, a trip that will serve as an introduction for many of the U.S. faithful as well as non-Catholics to the 78-year-old Buenos Aires native who in 2013 became the first Latin American to ascend to the papacy.

With an engaging smile, humble persona and natural political acumen, Francis raised the Argentine Roman Catholic Church’s profile as defender of the poor and disenfranchised during his 15 years leading the Archdiocese of Buenos Aires. In his two years as pope, he has amplified that mission.

“Francis isn’t inventing anything. How you see him as pope is how he was in thought and action as archbishop of Buenos Aires,” said Sergio Rubin, a reporter for the Buenos Aires newspaper Clarin and coauthor of a biography of Francis.

Marcelo Figueroa, a theologian who has been a friend of Francis for 15 years, contrasts his roles as pope and parish priest concisely: “The only difference is now he wears white.”

“Down to earth” is how Ursalina Rios remembers Francis during his pre-pope visits to Our Lady of Caacupe. The poor parish is bordered by a printing plant, an industrial bakery and blocks of high-walled warehousing protected by concertina wire. He came to the church every Dec. 8 to help celebrate its saint day and stayed to participate in the blocks-long procession.

“We felt he was committed to us,” said Rios, as she pitched in on the parish sale of secondhand clothing.

Asked what the U.S. should expect during the papal visit, people who know him say Francis probably will address important U.S. issues by urging compassion for immigrants and decrying sexual abuse by priests. He may reiterate warnings issued during his July trip to South America that senseless consumerism is a “subtle dictatorship.”

His comments during that trip prompted conservative observers to label Francis a socialist. But Figueroa, who moderated a TV series of interreligious discussions that included then-Archbishop Bergoglio, said such claims miss the mark.

“To understand Bergoglio, you don’t read [German sociologist] Max Weber, Karl Marx or [Argentina’s late populist president] Juan Peron, but the Gospels,” Figueroa said.

Keys to the pope’s philosophy also can be found in his training as a Jesuit, an order which emphasizes “a connection between faith and good works,” said Gustavo Vera, a Buenos Aires city councilman.

Before his election, Vera headed a Buenos Aires-based civil society organization called La Alameda that fought human trafficking and workplace slavery. Archbishop Bergoglio became a staunch Alameda defender after Vera and others received threats from prostitution and trafficking gangs.

Like his model St. Francis, Bergoglio was a man of the world before his ordination at age 32, having first held jobs as a lab technician and a discotheque bouncer. At age 36 he became head of the Argentine Jesuit order.

Bergoglio also learned not to kowtow to authority, a disposition that put the archbishop at odds with Argentine leaders, including President Cristina Fernandez de Kirchner. She, along with her late husband and former President Nestor Kirchner, is said to have clashed with the future pope over government policies toward the poor.

“He never tried to ingratiate himself with those in power, unlike many who came before him,” Vera said, adding, “He never personalized his criticisms, but the government interpreted it that way.”

During his U.S. visit, Francis will undoubtedly echo themes from his time as archbishop, or as Figueroa put it, “stress the importance of love, of inclusion, of tending to the lost lambs that the world doesn’t want.”

Inclusion means the dregs of society, be they prisoners he met recently at a notorious Bolivian prison or drug addicts at Our Lady of Caacupe, where Francis took special interest in directing them to rehab programs, De Vedia said.

Rios, the Our Lady of Caacupe parishioner, remembered how, in addition to visiting on the Dec. 8 feast day, Francis would show up three or four times a year to have lunch with about 20 poor parishioners.

Then later, he would be off, walking to catch his bus.

Kraul is a special correspondent. Special correspondent Andres D’Alessandro contributed to this report.

3. HOW ARGENTINA’S PRESIDENT PLANS TO WIELD POWER LONG AFTER HER EXIT (Bloomberg News)
By Charlie Devereux
September 16, 2015

*Her eye may be on 2019 as she fills top posts with allies
*Some presidents have held onto influence, others have failed

Next month, Argentina will elect a president who, for the first time in 12 years, is not a Kirchner: President Cristina Fernandez de Kirchner or her late husband Nestor. It is a prospect that delights many investors eager to move on from the Kirchners’ leftist populism. That legacy, however, may prove more enduring than they expect.

In the past year, Fernandez has appointed nine out of 10 directors on the central bank board, including the president. She created a new spy agency and appointed a member of her inner circle as its chief. She transferred oversight of phone-tapping activities to the prosecutor general’s office, where in 2012 she installed an ally.

The securities regulator, the tax agency, the communications regulator and state-run companies such as YPF SA, Aerolineas Argentinas and Enarsa also have directors’ boards packed with Kirchner loyalists. A new law she is seeking to pass will forbid the government from selling its shares in a state-run business unless it obtains a two-thirds majority in Congress. About 60 percent of judges and prosecutors have been appointed by the Kirchners.

“Conflict between Cristina and the future president, whoever it is, is inevitable,” Rosendo Fraga, director of Nueva Mayoria, a political consulting company, said by e-mail. High approval ratings and leadership of her party “give her a good starting point to maintain power. She wants to return in 2019.”

Fraga noted that other former presidents have tried to retain influence once their mandate ended and few succeeded. However, Fernandez will leave office with a higher approval rating — at least 38 percent in late August — than any of them. She also still heads the Peronist Justicialist Party, which has held sway over Argentina for the past half century.

While a new government can change some of her appointments, many positions have fixed terms.
Having served two consecutive terms, Fernandez is forbidden by the constitution from competing in the October 25 vote, but she could stand again in 2019. Having key players spread through the country’s institutions may help her do so.

Fernandez also has increased public-sector employment. The number of Argentines working for the state went up by 58 percent to 3.5 million in 2015 from 2003 when Nestor Kirchner took power, according to the Foundation for Latin American Economic Investigations.


In the October election, Fernandez is backing Daniel Scioli, the governor of Buenos Aires province, after he agreed to name Carlos Zannini, one of her closest confidantes, his running mate. He also deferred to her on candidates for the National Assembly, which probably will include key allies of hers. Scioli leads Buenos Aires Mayor Mauricio Macri by about 9 percentage points.

Stagnant growth, annual inflation of about 25 percent and dwindling foreign reserves will force the winner to consider changes to her economic policies. Both Macri’s and Scioli’s teams have said they would negotiate with investor holdouts from the 2001 default to end a legal detente that has kept Argentina out of capital markets for more than a decade. They have also both said they would reduce subsidies on energy bills to cut a fiscal gap estimated at 7.3 percent of gross domestic product.

The difference between the two candidates appears to be in how quickly they would apply those changes, with Scioli preferring a more staggered approach to mitigate negative effects on inflation and growth. Carlos Pagni, a columnist at La Nacion newspaper, said Macri could interpret a victory as a mandate for rapid change. But if Scioli wins, Fernandez will have more control over his policies. And that could prove problematic.

“If Scioli, by trying to avoid confrontation with Cristina, takes his time to establish his leadership, I’m not sure if the market will wait for him,” Pagni said.

In 1973, Juan Domingo Peron negotiated his way back to power with his ally Hector Campora serving as a presidential placeholder. Fernandez may be hoping her party’s youth movement, named after Campora, can play a similar role for her when she leaves office in December.

Peron’s return, however, wasn’t what many of his supporters had hoped. He lurched to the right, forging an alliance with fascist death squads that culminated in a brutal dictatorship, said Federico Finchelstein, chairman of the history department at the New School for Social Research in New York.

Other attempts have failed outright. Some 15 years ago, Carlos Menem tried to use Eduardo Duhalde as a placeholder for his return to power. But Duhalde groomed Nestor Kirchner, a little-known governor of Santa Cruz province in southern Argentina.

Kirchner shrugged off Duhalde and reinforced the reach of the presidential office. Fernandez has continued that approach, maintaining, for example, an emergency economic law that allows her to bypass congressional approval when making adjustments to the budget.

As a result, the cards are now so stacked in favor of the person in the presidential Pink House that unless a new president decides to curtail his own powers, many analysts doubt that Fernandez will be a puppet master.

“It’s really an irony that the Kirchner administration, that has been so disrespectful of institutions, is now naming people to positions and expecting that the next president will respect that,” Finchelstein said. “If history prevails, then there is no reason to believe that he won’t do what the Kirchners did, and Cristina will see her power curtailed.”

Scioli has fended off repeated inquiries about his independence, saying only he will “be his own man.”
Some see Fernandez’s influence lasting. Mario Toer, a professor of Latin American politics at the University of Buenos Aires, says her backing of Scioli should be viewed as an alliance rather than a succession. The next president will have to negotiate with her, Toer said, especially in Congress, where her movement will have considerable influence.

“Scioli knows he lacks a force he can mobilize because that will remain part of Kirchnerism,” Toer said. “The emergence of a new line of policy will have to count on Cristina’s seal of approval.”

4. ARGENTINA’S FORGOTTEN WARRANTS NOW A BUY AT BOFA AS ELECTION BET (Bloomberg News)
By Katia Porzecanski
September 16, 2015

*GDP warrants have missed Argentina’s overseas bond rally
*`Warrants offer an attractive risk-reward,’ BofA says

Bond investors have been snapping up Argentine bonds on optimism the nation’s next president will end a dispute with creditors. But there’s one debt security they’ve shunned: the country’s GDP warrants.

With the economy unlikely to grow enough to trigger payments on the securities anytime soon, the dollar-denominated warrants have dropped 3.3 percent in the past three months. The country’s euro warrants have fared even worse, tumbling 7.1 percent. Meanwhile, Argentina’s overseas bonds have gained 3.7 percent on average, the most in Latin America.

But keeping the warrants at arms’ length may no longer be in investors’ best interest, say Bank of America Corp. and Hapoalim Securities. They’re now recommending buying the securities as a bet that President Cristina Fernandez de Kirchner’s successor will unwind policies that have fueled inflation and kept Argentina out of international bond markets for over a decade.

“The warrants offer an attractive risk-reward and are a nice way to gain exposure to the political transition if you missed the rally,” Jane Brauer, a strategist at Bank of America, said by phone from New York.


Brauer says the slump in the warrants is in part due to the outlook for Argentina’s peso, which is down almost 10 percent this year. Coupon payments would be smaller if the exchange rate weakens further. Bank of America estimates that at 8.4 cents per dollar warrant and 8.1 per euro warrant, investors will recoup the cost of the warrants by 2019, assuming no payments are made until 2018.

“They have been unnecessarily punished because FX uncertainty has driven excess risk premium, they have a non-traditional buyer base, and they are not in the benchmark index where dedicated emerging market investors are,” Brauer said.

She estimates the fair value of the dollar warrants is about 9.7 cents on the warrant and 10.7 for the euro securities. Bank of America expects the first payment will probably occur in 2018, which could total 4.4 cents per warrant, for growth in 2017 that will rebound to 3 percent. Holders will receive another payment of 4.9 cents in 2019.

Investors in the warrants receive a payment if growth in the previous year exceeds a preset threshold and the inflation-adjusted value of the country’s gross domestic product is above the base-case scenario laid out in the prospectus. Starting this year and until the warrants mature in 2035, the threshold will be 3 percent.

Economists surveyed by Bloomberg expect Argentine growth to fall short of the threshold until 2017, when the economy will expand 3 percent, according to the median estimate.

Economy Minister Axel Kicillof said Sept. 15 that the expansion in Argentina has picked up since the second quarter and is estimated to end the year at 2.3 percent. That would be more than five times the median growth forecast of economists surveyed by Bloomberg.

Bond investors are betting the new president will end Argentina’s battle with hedge funds led by billionaire Paul Singer’s Elliott Management Corp., a move that would pull the nation out of default and restore Argentina’s access to international markets. U.S. District Judge Thomas Griesa has blocked the country from honoring its foreign debt until the government reaches a settlement with creditors from its 2001 default.

Fernandez, who calls the investors “vultures,” has refused to comply with the ruling.

Front-runner Daniel Scioli and leading opposition candidate Mauricio Macri have both indicated they’d hold talks to end the debt dispute.

Ending the creditor battle would help “unlock foreign savings” and boost economic growth by as much as 4 percentage points, Buenos Aires-based investment bank Puente Hnos SA said in a July 23 report.

Puente strategists led by Alejo Costa said that at current price levels, every percentage-point increase in potential GDP growth would increase warrant valuations by 30 percent.

For investors “looking to gain access to Argentine assets on expectations for a quick solution of the holdout case, these GDP warrants are worth considering,” Victor Fu, a New York-based strategist at Hapoalim Securities, said by e-mail. If the economy “can grow 2.3 percent for 2015, as Kicillof said, it should raise the GDP base for the future cash flows of the warrants.”

5. EXASPERATED U.S. APPEALS COURT TOSSES BIGGER ARGENTINA BOND CLASS (Reuters News)
By Jonathan Stempel
September 16, 2015

A U.S. appeals court on Wednesday rebuked the federal judge overseeing litigation stemming from Argentina’s sovereign debt default nearly 14 years ago, and threw out his expansion of one class action of bondholders suing the country.

By a 3-0 vote, the 2nd U.S. Circuit Court of Appeals in New York said U.S. District Judge Thomas Griesa erred in enlarging a euro-denominated bond class action to cover investors who held the bonds at any time, not just for a continuous defined period.

The appeals court ordered Griesa to make specific findings as to which bondholders are entitled to damages and how much, or else to consider awarding damages individually.

Circuit Judge Richard Wesley said the decision marked the fourth time the appeals court reviewed, and rejected, Griesa’s methods of calculating damages or defining bondholder classes.

He said the latest expansion would have made it too hard to determine who belonged in the class because the bonds are traded frequently, and because some investors may decide to “opt out,” or not join, any class action.

“Defining the precise class to which Argentina owes damages for its refusal to meet its bond payment obligations and calculating those damages have proven to be exasperating tasks,” Wesley wrote.

Wednesday’s decision is part of litigation by Argentina bondholders seeking full repayment after the country’s roughly $100 billion default at the start of 2002. Argentina defaulted again on some bonds in July 2014.

Plaintiffs led by Henry Brecher were seeking damages of about 68 million euros ($77 million) in the eurobond case.

“We’re very pleased with the court’s ruling,” Carmine Boccuzzi, a lawyer for Argentina, said in an interview. “The 2nd Circuit makes clear that plaintiffs cannot use the class mechanism to avoid their obligation to prove actual damages.”

Jason Zweig, a lawyer for the bondholders, was not immediately available for comment.

The case is Brecher v. Argentina, 2nd U.S. Circuit Court of Appeals No. 14-4385.

6. FITCH AFFIRMS ARGENTINA’S FOREIGN CURRENCY IDR AT ‘RD’ (Reuters News)
16 September 2015

(The following statement was released by the rating agency) NEW YORK, September 16 (Fitch) Fitch Ratings has affirmed Argentina’s Long-term foreign currency IDR at ‘RD’. In addition, Fitch has affirmed Argentina’s Long-term local currency IDR and Country Ceiling at ‘CCC’ and the Short-Term Foreign-Currency IDR at ‘RD’. KEY RATING DRIVERS Fitch’s affirmation of the foreign currency IDR at ‘RD’ reflects Argentina’s inability to cure the default on external market debt. The legal process related to the dispute between Argentina and certain holdout creditors that did not participate in the 2005 and 2010 exchange offers culminated in a prohibition that stipulates that Argentina could not make payments to exchanged bond holders unless payments were also made to the plaintiffs in the case. The government has not reached an agreement with holdout creditors that would allow Argentina to service its restructured debt.

Fitch does not expect a resolution in the near term given the the electoral cycle. There is considerable uncertainty regarding the timing and type of resolution with the holdouts by the incoming administration. Fitch’s affirmation of the local currency IDR at ‘CCC’ reflects Argentina’s weak and volatile macroeconomic performance, rising fiscal financing needs and limited sources of funding. Funding needs have increased due to widening fiscal deficit, and external financing sources remain limited. Fitch estimates that the national administration’s deficit (without taking into account social security (ANSES) or BCRA transfers) could rise to 7.3% of GDP in 2015, driven largely by higher spending. Although the fact that public sector entities hold 61% of government debt mitigates immediate refinancing risks, continued monetization of fiscal deficits would feed into greater macroeconomic instability.

Moreover, access to fresh sources of FX remains curtailed due to the inability of the sovereign to directly tap external markets. External vulnerability is significant given high commodity dependence, weak external liquidity (69% in 2015), limited material sources of external financing and protracted tensions in the FX market that fuel recurrent episodes of capital flight. While headline international reserves have increased since entering default in July 2014, partly explained by use of a currency swap facility with China, Fitch expects available external liquidity to remain under pressure due to rising FX interventions and the likely use of international reserves to service Boden 2015 amortization. RATING SENSITIVITIES Note that the Foreign and Local Currency IDRs do not have Rating Outlooks.

The resumption of timely debt service on defaulted bonds would lead to the upgrade of the foreign currency IDR. At such time, Fitch will review Argentina’s ratings and make an assessment based on the sovereign’s capacity to service debt, its economic fundamentals, and the remaining litigation risks. KEY ASSUMPTIONS Fitch expects China to manage a slowdown in its economy, growing by 6.8% in 2015 and 6.5% in 2016, thus providing limited upside for commodity prices. Fitch expects Brazil (an important trading partner for Argentina) to remain in recession in 2015 and downside risks have increased for 2016 growth outlook.

7. THE ECONOMIST EXPLAINS; HOW COMPETING CLAIMS TO THE FALKLANDS/MALVINAS COMPARE (News Analysis from Economist.com)
15 September 2015

ONE of the first foreign leaders to congratulate Jeremy Corbyn on his election as the new leader of Britain’s Labour Party on September 12th was Cristina Fernandez de Kirchner. Argentina’s president tweeted her government’s felicitaciones to Mr. Corbyn, “a great friend of Latin America, [who] shares, in solidarity, our demands for equality and political sovereignty.” She was referring to a long-running dispute between Britain and Argentina over the Falkland Islands, or Malvinas, as they are known in Spanish, which lie 480km (300 miles) off the eastern coast of South America. Britain and Argentina both claim them. Unusually for a British politician, Mr. Corbyn has argued that the islands should be jointly administered. How do the countries’ respective claims compare?

In 1982 Argentina’s then military dictatorship invaded the islands in a desperate search for popularity at home. Britain recovered them after a ten-week war in which 649 Argentine and 255 British troops died, along with three Falklanders. Military defeat triggered a return to democracy in Argentina. Its subsequent governments have renounced the use of force, but still pursue a diplomatic claim to the islands. Ms. Fernandez has been particularly energetic in this. Argentina deploys two main arguments. First, according to the Foreign Ministry, in 1833 Britain “illegally occupied the islands and evicted the Argentine authorities”, preventing Argentine settlement there. Secondly, Argentina says that Britain is acting as a colonial power against the UN Charter. Britain disputes both these claims, and says there is nothing to negotiate. It argues that it has continually and legally occupied the Falkland Islands since 1833 and that their inhabitants have a right to self-determination under the UN Charter.

The islands were intermittently occupied in the 18th century by French, Spanish and British sailors but had no permanent inhabitants between 1806 and 1826. In 1820 the newly independent state of the United Provinces of the River Plate, the forerunner to Argentina, declared that it had inherited Spanish sovereignty over the islands. This claim was disputed by both Britain and the United States. Buenos Aires appointed a governor in 1829, but his small settlement was razed by an American warship two years later; his replacement was murdered by a group of Argentine convicts. Britain then occupied the islands in 1833, declaring them a Crown Colony and settling them with Scots and Welsh.

Today the Falklands are a self-governing British Overseas Territory, with 2,932 inhabitants, some of whose families have lived there for seven generations. The Falklands’ economy has been boosted by the issue of licences for fishing and by oil exploration. In March 2013 the Falklands’ government held a referendum on the territory’s political status in which 99.8% of the voters supported the status quo. Neither side will change their mind for the foreseeable future.

8. ARGENTINA MILITARY REPORT SHOWS INTERNAL ABUSE DURING FALKLANDS WAR (The Jurist.org)
September 16, 2015

The Argentina Armed Forces [official website, in Spanish] has released documents revealing that Argentinian soldiers were tortured and abused by their superiors during the Falklands War in 1982. It is reported [BBC report] that many low level soldiers faced hash conditions such as being ill equipped and tortured by superiors. Soldiers reportedly endured mock executions and being placed in mass graves while tied up. The documents state that the conflict resulted in the death of 900 soldiers.

The Falkland Islands [BBC profile], called Las Islas Malvinas by Argentinians, are located in the South-West Atlantic Ocean. The dispute dates back to the 1800s when an island settlement by the newly-formed Argentina was banned by the UK. The UN ordered the two nations to reach an agreement over the territory in 1965, but after years of talks, Argentina sent troops to the island. Between April and June 1982, UK and Argentina fought a war over the territory which led to the deaths of 655 Argentinian and 255 British soldiers. Although Argentina surrendered, the countries have continued to disagree over the islands. In November 2008 the governments of the UK and the Falkland Islands announced [JURIST report] that they agreed on a new constitution for the disputed islands. In June 2012 the government of the Falkland Islands announced that it would hold a referendum [JURIST report] on its political status and the residents voted overwhelmingly to remain under British control in 2013.

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