By Taos Turner and Santiago Perez
18 November 2015

BUENOS AIRES — Police raided Argentina’s central bank as part of a federal investigation into allegations that it has put the country’s dwindling foreign-currency reserves at risk by aggressively trading derivatives.

Tuesday’s raid comes before Argentines vote for a new president on Sunday and amid rising concerns that the incoming administration will devalue the peso and tweak foreign-exchange policies to prevent a scarcity of U.S. dollars from suffocating the economy. Polls show Daniel Scioli of the ruling Victory Front coalition lagging behind opposition candidate Mauricio Macri.

The lack of greenbacks and the central bank’s criticism of Mr. Macri’s policy proposals to fix the currency system have taken center stage in the election campaign. The central bank is scrambling for ways to reduce tension in the exchange market ahead of the election, crimping access to dollars for individuals and companies and selling derivatives to offset foreign-exchange pressures.

Critics say that by setting artificial prices on futures contracts, the central bank is essentially subsidizing the price of dollars and that this could cost the next administration billions, just as it faces a cash crunch.

“I think it helped reduce pressure on the exchange rate, but it did so at an extraordinary cost to the country,” said former Economy Minister Jose Luis Machinea. “This is scandalous.”

Central bank President Alejandro Vanoli has accused Mr. Macri of planning to sharply devalue Argentina’s currency if elected. Mr. Vanoli, who economists here say is close to the current government, indicated he would be willing to resign if Mr. Macri were to win and devalue the peso.

His comments come after allies of Mr. Macri filed a criminal complaint against Mr. Vanoli and his board of directors for allegedly violating the bank’s charter by selling dollar futures contracts at below-market rates “to benefit third parties and causing grave damage to the bank’s assets.”

Federal Judge Claudio Bonadio ordered Tuesday’s raid as part of the investigation into the complaint. Experts say raids to secure evidence are standard procedure for Argentine judges after criminal complaints are filed.

The dispute arose after the trading volume of dollar futures rose sharply in late October, when investors jumped at the opportunity to profit from buying futures for just 10.6 pesos per dollar, when the market rate abroad was closer to 15 pesos.

After Argentina implemented foreign-currency controls in 2011, central-bank reserves fell by almost half to about $26 billion. The next president, who will be sworn in onDec. 10, will need to move quickly to stop the bleeding.

Mr. Macri has indicated that if elected, he would remove some foreign-exchange controls that have strengthened the peso to unsustainable levels. He has also criticized the central bank’s derivatives transactions.

“I’d be a Nobel Prize winner if I knew the peso’s exchange rate” after Dec. 10, Mr. Macri said last week. “No one knows how many foreign-currency reserves there are or how many will be left.”

The central bank doesn’t publish data on its futures transactions, and bank officials declined to comment on the matter. But economists estimate the bank has sold more than $15 billion in dollar futures over the past three months.

The bank could eventually have to finance the gap between those two rates, potentially increasing its liabilities by the equivalent of up to $7.3 billion at the current official exchange rate, according to Carlos Rodriguez, president of Ucema, a university in Buenos Aires that specializes in macroeconomic studies.

Such liabilities could widen the country’s budget gap, presenting a costly challenge to Argentina’s incoming president at a time when both Mr. Macri and his rival Mr. Scioli say the country is badly in need of fresh funding.

By Carlos Tejada
November 17, 2015

Beijing seeks to improve its international presence in nuclear technology

BEIJING—China struck a deal to build a nuclear reactor in Argentina and the agreement could result in more than 30 billion yuan (about $4.7 billion) in equipment exports, Chinese official media said.

The deal comes as China seeks to bolster its international presence in nuclear technology, where it hopes to someday export homegrown reactors.

The official Xinhua News Agency said this week that state-controlled China National Nuclear Corp. signed a commercial contract to build Argentina’s fourth nuclear power plant. The heavy-water reactor will be based on a Canadian technology called Canada Deuterium Uranium, or Candu.

State-run Industrial & Commercial Bank of China Ltd. , China’s largest bank by assets, will provide financing, which will cover 85% of the cost, according to Argentine and Chinese officials.

The two sides also struck a framework agreement—which is more tentative—for a long-discussed second reactor based on Chinese technology. Argentine officials said the two projects would require a total of about $15 billion in financing if the second project advances.

The second reactor would be based on a Chinese technology called Hualong-1, which China hopes will someday compete with reactors made by U.S. nuclear giant Westinghouse Electric Co. and French rival Areva SA . In April, China’s State Council, or cabinet, approved construction of the first Hualong-1 reactor.

Xinhua said the two sides hope to sign an agreement to begin construction on the second reactor in the coming months.

China has been broadening its presence in the global nuclear industry. In October, state-controlled China General Nuclear Power Corp. agreed to take about a one-third stake in the Hinkley Point nuclear-power project in the U.K.

By Kirk Mitchell
Nov 18, 2015

Former FEMA videographer Kurt Sonnenfeld claims he has framed to cover up evidence of U.S. complicity in 9/11 terror attacks

Argentina’s president has blocked the extradition of a Denver fugitive who claims he was framed for murder because video he took of ground zero proves U.S. complicity in the 9/11 terrorist attacks.

The government of Cristina Fernandez de Kirchner issued an executive order Sept. 16 overriding a December decision by the Argentina Supreme Court. The court had approved the extradition of Kurt Frederick Sonnenfeld to the United States.

The government’s order cited human rights in its denial of the request to grant extradition. It also says that extradition could put Argentina in a position of violating an international principle of not forcing the return of asylum seekers to countries where they could be persecuted.

Sonnenfeld, who was charged in the New Year’s Day 2002 murder of his first wife, Nancy, is a former videographer for the Federal Emergency Management Agency. His video over the course of several weeks in September 2001 documented rescue and recovery efforts that were broadcast around the world.

Sonnenfeld claimed in his book “El Perseguido” (“The Persecuted”) and in numerous interviews that he was framed for murder to silence him. He maintains his video proves U.S. authorities were conspirators in the 9/11 attack. He claims members of President George W. Bush’s government wanted to draw the country into a war with Iraq.

CBS’s “48 Hours” provided documents to The Denver Post on Tuesday that detailed the executive decision made by the government of Kirchner. The TV news magazine is airing a broadcast called “The Strange Case of Kurt Sonnenfeld” on Saturday.

Lynn Kimbrough, spokeswoman for Denver District Attorney Mitch Morrissey, said the office has not received any notice about Argentina’s decision in September. However, she added that such notification would come through the U.S. Justice Department.

Messages left for Peter Carr, spokesman for the U.S. Justice Department, were not returned Tuesday.

The latest order in Sonnenfeld’s case was signed by five officials from Kirchner’s government, including Hector Timerman, foreign relations minister of Argentina.

The Argentine Supreme Court approved Sonnenfeld’s extradition in December, 11 years after then-District Attorney Bill Ritter first sought his extradition.

The 2004 extradition request was initially rejected by an Argentine federal judge who said Colorado failed to offer adequate assurances that it would not seek the death penalty against Sonnenfeld.

In its extradition request, Ritter indicated that Sonnenfeld was charged under a statute that did not have death as a possible penalty. He also signed a document promising not to seek the death penalty against Sonnenfeld.

Former Gov. Bill Owens also signed a document saying that if Sonnenfeld was sentenced to the death penalty, he would not allow his execution.

By Katia Porzecanski
November 17, 2015

* Morgan Stanley and Owl Creek also reduced YPF holdings
* Gramercy Funds, Discovery Capital added to YPF stakes

Goldman Sachs Group Inc., Morgan Stanley and hedge fund PointState Capital LP reduced their stakes in Argentina’s state-controlled oil producer YPF SA before the nation’s presidential elections.

Morgan Stanley cut its position in the company held in various portfolios by $48 million in the third quarter to $23 million, while Goldman Sachs sold a $41 million stake to reduce its holdings to $88 million as of Sept. 30, according to regulatory filings. Zach Schreiber’s PointState, which began amassing a position in YPF in 2013, reduced its total holdings in YPF by about 70 percent to $12 million, and hedge fund Owl Creek Asset Management lowered its stake by 81 percent.

YPF, which was expropriated by the Argentine government in 2012, become a widely-held security among hedge funds betting on an investment boom once a new president is sworn into office next month, which could pave the way toward a settlement with creditors from the country’s 2001 default. While investors reduced their positions in the oil company amid a slump in crude prices in the third quarter, YPF’s American depositary receipts have rallied 35 percent since then as the nation heads towards a runoff election between market-favorite Mauricio Macri and Daniel Scioli on Nov. 22.

Companies including Rob Citrone’s Discovery Capital Management, Alan Howard’s Brevan Howard Asset Management, and Gramercy Funds Management increased their stakes in the third quarter. Still, Soros Funds Management lowered its holdings in the company for the second consecutive quarter, leaving billionaire George Soros’s position in the company at $154 million, the fourth-largest among minority shareholders.

By Carolina Millan
November 17, 2015

* Clorox, Telefonica also among companies with cash in Argentina
* Investors expect peso to plunge 38% over next three months

The currency devaluation that Argentina needs to restore its economic health is going to be painful for foreign companies swimming in pesos.

Coca-Cola Co., Clorox Co. and Telefonica SA are among businesses with millions of pesos that will lose value if the new government elected on Nov. 22 weakens the peso’s official rate, something economists are urging be done. Investors from George Soros to Richard Perry, and multinationals including Brazilian foodmaker BRF SA and American oilseed processor Bunge Ltd., have wagered on policy makers implementing much-needed economic reforms promised by the leading presidential candidates.

But the result could be bruising for some businesses with large hoards of cash, as currency controls have left foreign companies stuck with profits that they can’t move out of the country. There may be as much as $8 billion in company dividends that could not be repatriated in the period between 2012 and 2015, according to consulting firm Elypsis.

“It’s difficult, because they often have a lot of liquid cash that’s reserved for sending dividends abroad as soon as it’s possible,” said Orlando Ferreres, who runs Ferreres & Asociados, a consulting firm that advises companies including Coca-Cola and Total SA. “Some of them have bought buildings, but they don’t like that at all. It’s a way of protecting dividends, but it immobilizes the money.”

Argentina’s crawling currency peg has become one of the most prominent themes of the elections, with opposition leader Mauricio Macri vowing to lift currency controls and let the peso float freely on his first day in office. Ruling-party candidate Daniel Scioli has said he would lift restrictions gradually while continuing to control the exchange rate through central bank intervention so as to not hurt the purchasing power of Argentines.

Clorox, the U.S. consumer-products company that sells everything from bleach to salad dressing, has said it expects “business challenges” in Argentina next year, and warned it had $100 million of peso-denominated assets that would be affected by a devaluation. A 50 percent drop in the peso could have a material impact on earnings, Clorox executives wrote in a U.S. regulatory filing Sept. 25. The company is “monitoring developments in Argentina and is taking steps intended to mitigate the adverse conditions, but there can be no assurances that these actions will mitigate these conditions.”

Argentina contributed 4 percent of Clorox’s total sales in 2015, making it one of the about 70 companies in the Standard & Poor’s 500 Index that get at least a portion of their revenue from Argentina. A Clorox spokeswoman referred questions to the company’s latest earnings statement.

Coca-Cola said in a regulatory filing after the third quarter that it has $346 million stuck in Argentina because of currency controls. A Coca-Cola spokesman declined to comment on the country’s exposure to a peso devaluation. Madrid-based Telefonica told investors Nov. 6 that it has 105 million euros of pesos that it can’t send back to Spain. Telefonica declined to comment about its cash position in Argentina.

The list of companies that will be affected is incomplete because many break down their revenue by region, not specific country. Most also don’t specify how much cash they have in individual countries. It’s also not clear if the companies hedge their exposure to the peso, a move that could blunt any losses from a devaluation.

Investors expect the peso to fall 38 percent over the next three months to 15.5 per dollar, according to trading in non-deliverable currency forwards. That compares with the current official rate of about 9.6 per dollar. At the so-called blue-chip swap rate, a foreign-exchange value derived from buying bonds or stocks in pesos and then selling them abroad to obtain dollars, the peso trades at about 14.8 per dollar. Most individuals use illegal street markets to avoid controls, and pay 15 pesos per greenback.

Spanish security company Prosegur Cia. de Seguridad SA — after benefiting from increased demand for its armored-car services fueled by the country’s money printing –invested 70 million euros ($75 million) in real estate this year to “protect the cash” it has in the country, Chief Financial Officer Antonio Rubio Merino told investors Oct. 29. Prosegur gets 27 percent of sales from Argentina, according to data compiled by Bloomberg.

“Our business has a natural hedge because both our revenues and our costs, primarily labor, are in local currency,” Prosegur said in an e-mailed statement. “We also consider that the impact of a devaluation would be mitigated by Prosegur’s inflation adjustment.”

A devaluation could be advantageous for businesses that pay employees in the local currency while receiving dollars for their exports, such as mining companies. The chief executives of Silver Standard Resources Inc. and Globe Specialty Metals Inc. both told investors in recent presentations that a drop in the peso could be beneficial as it would lower their operating costs.

A peso devaluation would increase the flow of dollars into the country, helping rebuild foreign reserves, according to Barclays Plc strategist Sebastian Vargas. Exporters who have been delaying sending goods abroad in hopes of a better exchange rate will unleash a flurry of trade, he said.

Alejandro Diaz, the CEO of the local chapter of the U.S. Chamber of Commerce, which sent its first delegation to the country in 20 years earlier this month, said companies are looking toward the long term as they confront the upcoming changes.

“There’s a lot of expectation ahead — we’re not waiting for it to be Disney World in 2016, but we are ready for the challenges ahead,” Diaz said. “We’ve heard from different economic groups the intention to take the right long-term decisions, and we’re ready for these decisions and optimistic on how to face them.”

November 16, 2015

Facebook Page behind the Campaign Claims It Was All a “Joke”

The creativity of Argentinean government supporters has no limits when the goal is to win an election.

On Saturday, November 14, a day before the presidential debate ahead of the presidential runoff, pro-government groups on Facebook called on their follower to “hide the national ID” of relatives who don’t intend to vote for candidate Daniel Scioli of the ruling Front for Victory party.

The pro-Cristina Kirchner Facebook page “I Support Cristina” posted: “The campaign to ‘hide the national ID of your opponent relative’ has begun. If you couldn’t persuade them with arguments, and they can’t realize the government’s achievements, and, despite everything, they will still vote against themselves, don’t insist on making them listen to reason. On the 21st of November [one day before the election], hide their national ID card, and when they ask you about it, tell them: ‘it wasn’t magic.”

Felipe Alonso ‎@felipealonso19
Si tenes un familiar, amigo o conocido que vote a Macri NO LO DUDES, robale el DNI
1:47 PM – 10 Nov 2015
“If you have a relative, a friend, or an acquaintance that will vote Macri. Don’t think it twice, steal his national ID.”

The national ID is the only valid document to vote in Argentina.

The campaign quickly gained traction, first among pro-government supporters, and then among Kirchner’s opponents, who expressed outrage over the idea. Local media quickly picked up the post.

After 48 hours, however, the “I Support Cristina” page’s administrator wrote a new post explaining that the previous exhortation had been “a joke.”

“Who can believe that someone would steal a national ID card from someone else?” the page administrators wrote. “Do I have to explain that this was a joke? As you may know, our post has been widely covered by the media, but we win by being active every day on the streets.”

Buenos Aires Governor Daniel Scioli is now trailing in the polls. He was the favorite to win prior to the first round of voting on October 25, but he obtained less votes than expected.

While pollsters put Scioli between seven and 10 points ahead of Mauricio Macri, the candidate for the Let’s Change coalition of opposition parties, Macri came in only three percentage points behind — 34.15 percent to Scioli’s 37.08 percent — in the official results. After the narrow defeat, Macri gained sufficient momentum to overtake Scioli in the polls.

According to the pollster Management & Fit, Macri would defeat his rival, securing an eight-point difference over Scioli.

By Kabir Sehgal
Nov. 17, 2015

On Nov. 22, Argentines will go to the polls to elect a new president. It’s a watershed moment for the country, as the late Néstor Kirchner and then his wife, Cristina Fernández de Kirchner, have held the president’s office for 12 years — long and arduous years for Argentina.

During their back-to-back tenures, Argentina has experienced recession, high bouts of inflation, disputes with creditors and fiscal deficits. In 2009 it was downgraded from an emerging market to a frontier market. Many blame the populist policies of the Kirchners as causing and exacerbating the country’s problems. Therefore, the prospect and promise of a new president has some thinking that Argentina could finally turn the page on its lost decade. Argentina could shift to the right and adopt more market-friendly policies, which would benefit local and foreign investors.

So who will win the upcoming election? Argentines will choose between two candidates during this Sunday’s runoff election: Mauricio Macri, a businessman and current mayor of Buenos Aires; and Daniel Scioli, the former vice president of Argentina and the governor of Buenos Aires Province. A recent poll shows Macri leading Scioli by 8 points. Scioli is viewed as an incumbent and was endorsed by the current president. That Macri is leading suggests that Argentina is ready for a more dramatic change from Kirchnerism and wants to finally embrace the opposition party. “This is a problem of trust,” Macri said in a recent interview. “This government has destroyed trust among Argentines and the world. We are going to put Argentina back on a path to growth and back into the world.”

During the latest presidential debate, Scioli failed to disassociate himself from the Kirchners while attacking Macri as wanting to dismantle Argentina’s welfare programs. Macri counterattacked Scioli by saying, “You’re not change. You chose continuity.” Macri also made the case that Argentina’s roadblock was in fact its own government: “Argentina’s problem is not the dollar. It is a government that does not stop lying and has destroyed confidence in our country, which is why there’s no investment or growth.

Inflation has diluted the income of our retirees and our workforce.” Macri also said that he would emphasize market-friendly policies that would help generate confidence among local and foreign investors. Macri added that he would implement an ambitious infrastructure program of about $16 billion, cut taxes to attract investments, reduce tariffs to encourage trade and unwind many capital controls.

If Macri wins, Argentina’s market should respond favorably. There are a few companies with exposure to Argentina to watch: 98% of Americas Petrogas’s revenue comes from the country, 45% of Silver Standard’s (SSRI – Get Report) total assets, 18% of Mercado Libre’s (MELI – Get Report) revenue, and 8% of AMBEV’s (ABEV – Get Report) revenue. These stocks might appreciate on news of Macri’s potential victory.

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