10. ARGENTINA INFLATION AND THE 30% LIMIT (Business News Americas)



By Reynolds Holding and Martin Langfield
9 February 2016

Real money may finally be on the table in Argentina.

President Mauricio Macri’s government has asked owners of roughly $9 billion in defaulted bonds to accept a 25 percent discount. Two have agreed. The big holdout — Elliott Management — is still haggling, and the Argentine Congress and an American judge would have to bless any bargain. For the first time in ages, though, a functional economy and access to global markets seem in reach.

The legal battle for payment has raged since Argentina’s 2001 default on some $100 billion of debt. About 95 percent of creditors swapped their bonds in 2005 and 2010 for some 30 cents on the dollar or less. An Elliott affiliate refused, winning court orders saying the country cannot pay any other creditors before the hedge fund and other holdouts.

Mr. Macri’s offer on Friday of more than 70 cents on the dollar looks mighty sweet by comparison. Even if Elliott agrees to it, though, substantial hurdles remain.

The biggest for the president may be at home. His Peronist predecessor, the fiery leftist Cristina Fernández de Kirchner, refused to talk with the holdouts, belittling them as ”vultures.” A left-leaning Congress will still need convincing. But recent defections of a dozen legislators away from Mrs. Kirchner’s strand of Peronism may help Mr. Macri gain approval for the deal.

That still leaves Thomas P. Griesa, the 85-year-old federal judge whose scathing decisions have effectively blocked Argentina from international capital markets and garnered support from the United States Supreme Court. His rulings favoring Elliott may give it powerful leverage to cut a better deal. Yet even Judge Griesa has long insisted on a settlement, and obstinance could sway the judge to modify his orders and force Elliott’s hand.

In any event, there may never be as propitious a time for a bargain. Argentina is having one of its bouts of economic sanity, which do not tend to last. Mr. Macri has political momentum and probably needs this agreement to turn around an economy that the International Monetary Fund forecasts will shrink by 0.7 percent in 2016. If he fails, so may his administration, opening the way for a much less cooperative successor — perhaps even Mrs. Kirchner — in 2019.

Elliott and the other holdouts have won every hand so far in this high-stakes game. It’s time they cashed in their chips.

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9 February 2016

A mere 14 years after Argentina crashed into what was then the biggest sovereign default in history, the prospect of a resolution for the bondholders is, perhaps, in sight.

The government of Mauricio Macri, Argentine president since December, has offered about $6.5bn to settle claims of $9bn to holdout investors who refused to participate in restructurings in 2005 and 2010.

The offer, for a haircut of about 25 per cent, is more generous than for those earlier writedowns. This reflects the strong legal position of holdouts who have obtained judgments from American courts which in effect cut Argentina out of global capital markets until they are paid off.

Galling though it must be to pay ransom, Mr Macri’s government is right to make the offer. It is not yet clear how many of the holdouts, and particularly the combative Elliott Management , will accept the terms or something close to them. If they insist on full payment or a much smaller writedown, Mr Macri’s position becomes more difficult and his decision more finely balanced.

That Argentina ever came to this reflects a ruling by a judge in New York on pari passu clauses in sovereign bonds that was creative bordering on eccentric. That judgment and the extraterritorial reach of US law cut Argentina off from international bond investors.

Certainly Buenos Aires, even if it clears its arrears, should not be eager to start racking up debt again. But normalising its position in the international financial system is a big step on its journey back to economic sanity.

While Argentina’s travails with holdout creditors are hardly new, there is more at stake now than at almost any time over the past 14 years. Since Mr Macri took over, Argentina has seen perhaps the most remarkable outbreak of sensible economic policy since the unification of the republic in 1853.

In short order his government has removed capital controls, allowing the Argentine peso to devalue about 30 per cent, and restored independence to the politicised central bank and national statistics agency. Courageously, he has also made a start on dismantling expensive and ill-targeted energy subsidies that contribute to a fiscal deficit that last year reached almost eight per cent of gross domestic product.

For the moment, despite the pain inflicted by these measures, Mr Macri’s government remains popular. But there can be no doubt that paying back at full value the holdout creditors who have held Buenos Aires to ransom for more than a decade would be expensive politically as well as financially. Outside investors would also ask, with good reason, why obstreperous bondholders with superior financial and legal resources should be paid so much more than those co-operating early on.

For the first time since the debt default in 2001, Argentina has a sensible government with whom those holdout investors can deal. Indeed, the US courts that handed them such a powerful weapon did so partly based on the unreasonableness of previous Argentine administrations. Those bond-holders, and the courts backing them, should recognise the change of approach by Buenos Aires and come to agreement around the current offer.

Argentine economic policy in the past has varied from the hubristic to the comic. That, however, does not justify Argentina being held to ransom, particularly at a time when a new government wants to put economic policy on a solid and legitimate footing. Mr Macri is right to make this offer. The holdout creditors should accept it.

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By Robin Wigglesworth and Benedict Mander
February 8, 2016

One of the hedge funds suing Argentina has said the country only reached an agreement with one of its rivals by effectively paying its claim in full, even as Buenos Aires looks to impose a “haircut” on other creditors.

Aurelius Capital has been one of the main hedge fund antagonists of Argentina, alongside Elliott Management, pursuing it through the global judicial system for more than a decade after the country’s $80bn debt default in 2001.

The new government of Mauricio Macri has made reaching an agreement with the “holdouts” that refused to restructure their debts at punitive terms in 2005 and 2010 a priority. Last week, it struck deals with a group of Italian investors and two other hedge funds, Montreux Partners and Dart Management.

Argentina’s finance ministry on Friday publicly offered to pay about $6.5bn to holdouts through various options — equating to a 25 per cent haircut on claims totalling roughly $9bn — and said that Montreux and Dart had accepted the offer.

Elliott and Aurelius — the latter led by Mark Brodsky, a former senior trader at Paul Singer’s Elliott — last week stayed silent on the status of their negotiations. A person with direct knowledge of the discussions confirmed on Monday that both of them, along with two smaller funds that have not accepted the offer, were continuing to negotiate with Argentina.

In a statement this weekend, Mr Brodsky said Argentina had “bought Dart’s support by agreeing to pay its claim in full”, rather than impose a haircut.

“Aurelius would gladly accept such generosity, though we have always been willing to take a haircut,” the hedge fund manager said. Dart’s lawyers at Debevoise & Plimpton did not respond to requests for comment.

The apparent treatment discrepancy comes from differences between the claims that creditors hold, and the interest bills attached to them. Dart holds a legal judgment from 2003 that has less past due interest than the claims of Elliott and Aurelius.

A person at Argentina’s finance ministry insisted on Sunday that the same offer had been made to all parties involved, in line with the public announcement of the proposal made to all remaining holdouts on Friday.

The long-running saga has been called the “trial of the century” for sovereign debt, and its twists and turns have been widely followed by public officials, fund managers, lawyers and academics for its potential impact on how countries restructure their debt.

A series of decisive courtroom victories for Elliott and Aurelius in practice forced Argentina to choose between paying off holdout creditors in full or defaulting on the investors that had accepted the restructuring terms. Rather than repaying hedge funds the former government lambasted as “vultures” and “financial terrorists”, the country defaulted for the eighth time in its history in 2014.

Last week’s proposal by Argentina was therefore “a historic breakthrough”, according to Daniel Pollack, a court-appointed mediator. Mr Pollack said that it was his “strong hope” that with continued negotiations Argentina would reach an agreement with Elliott, Aurelius and two other hedge funds that have yet to a strike a deal with Buenos Aires.

US Treasury Secretary Jack Lew spoke to his Argentina counterpart Alfonso Prat-Gay on Sunday, commending the government’s “good faith efforts to resolve this longstanding dispute”.

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By Julie Wernau
9 February 2016

Argentina is putting on a new face for the judge who will ultimately decide the outcome for a 15-year debt battle that has locked the country out of capital markets.

The Argentine government said Tuesday that New York-based law firm Cravath Swaine & Moore will represent Argentina before U.S. District Judge Thomas Griesa in New York.

Cleary Gottlieb, who has represented Argentina in the courtroom since 2002 in the debt battle, will still be co-counsel for Argentina, but not in front of the judge.

Insiders say the move is a push by President Mauricio Macri to convince the judge that the new government is serious about ending the stalemate.

The government has failed to settle with holdout creditors who refused to settle for 30 cents on the dollar as part of two exchange offers that stemmed from a 2001 default on more than $80 billion in bonds.

The high profile case eventually led the nation to default on those exchange bonds as well after the judge issued an injunction under a legal premise that it couldn’t pay some bondholders and not others.

Under the new government, Mr. Macri’s administration traveled to New York last week to try to settle the matter and has an offer on the table to all holdouts, some of which have agreed to the proposal.

Argentina officials have said publicly that they hope to sway the judge to lift the injunction even if not all creditors have agreed to the deal.

Argentina says Cravath was selected from eight submitted proposals, calling it the firm that will “advise the country in the final stage of this long dispute.”

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By Julie Wernau and Taos Turner
8 February 2016

An end to a stalemate over Argentina’s defaulted debt faces a number of hurdles despite the country’s new $6.5 billion offer to U.S. bondholders Friday, said people familiar with the matter.

An agreement would have to contend with a number of thorny issues in the U.S. and Argentina as large debt owners haven’t yet signaled their approval, these people said. Argentina is trying to settle with these holdouts so it can return to the global bond market.

The government’s proposal was its first formal offer to U.S. bondholders since Argentina defaulted on more than $80 billion of debt in 2001, the largest government default at the time.

The offer represented 75% of the amount bondholders say they are owed, and any deal is expected to serve as a model for settlement talks with hundreds of other creditors who have sued the government.

Most of the U.S. hedge funds that own the debt — including one of the biggest creditors, Paul Singer’s Elliott Capital Management — haven’t signaled their approval of the offer, say people familiar with the matter. Analysts believe that some of these bondholders feel little pressure to rush to an agreement and may be inclined to push for better terms.

While newly elected, business-friendly President Mauricio Macri has pledged to end the standoff between Argentina and bondholders, he is expected to face strong opposition from much of the population and some members of Argentina’s Congress, who have derided bondholders as “vultures.”

Hundreds of smaller debtholders must also get on board with an agreement. There is a risk that these mostly local investors could try to scuttle a deal that works for big U.S. hedge funds.

Argentina’s negotiators have already left New York City, the setting last week for the most recent meetings to break the stalemate, a sign that no immediate agreement is expected, say people briefed on the matter.

“It’s not time to pop the champagne,” said Charles Blitzer, an economist and former senior International Monetary Fund staffer, who has been involved in many sovereign-debt restructurings. “It’s this kind of unilateral offer that got them into trouble five and even 10 years ago. They need to communicate with more creditors and actually negotiate.”

The default issue has been a lingering and painful problem for Argentina because it effectively bars the government from borrowing any money in the international capital markets.

The new administration views a global bond offering as crucial for raising new capital to stimulate an economy mired in recession.

Mr. Macri has some reasons for optimism. The Finance Ministry said in a statement that some creditors, including Dart Management and Montreux Partners, had already agreed to accept the offer. Representatives of those firms couldn’t be reached or declined to comment.

Mark Brodsky, chairman of Aurelius Capital Management, another of the lead holdouts, said that his firm is not insisting on getting paid in full. “We have always been willing to take a haircut,” he said in a statement.

Even Mr. Singer has said as recently as July that his firm would be willing to negotiate with Argentine officials and accept a discount to full value.

“In the past, these hedge funds, particularly Elliott, have said ‘we’re entitled to full payment,'” said Mark Cymrot, a partner with BakerHostetler in Washington. “The truth is, you can’t get a very determined sovereign to pay.”

That Argentine negotiators, including Financial Secretary Luis Caputo, traveled to New York to meet with bondholders is a step forward. Mr. Macri became personally involved, holding a phone call with the U.S. District Court-appointed mediator last week. By contrast, U.S. bondholders’ request last year to resume negotiations received no response from the former Peronist-led government.

Yet people on both sides think there is much more work to be done.

Any deal would have to overcome significant political opposition. Former President Cristina Kirchner made blaming the holdouts a pillar of her political discourse.

On social-media networks over the weekend, opponents of the government’s offer accused Mr. Macri of selling out, saying that even if Argentina pays the holdouts 75% of what they are owed, Mr. Singer would be making a windfall.

Some smaller Argentine debtholders may continue to hold out.

Jennifer Scullion, a partner at Proskauer Rose LLP representing bondholders in eight class-action cases in New York, said Argentina hasn’t included them in negotiations. The two sides are arguing over how to quantify the size of those classes, and Ms. Scullion said she would move for an injunction if the government settles with other bondholders before they have agreed to a deal with her clients.

“These are literally the same bonds,” she said. “We have the same rights.”

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8 February 2016

The US government, analysts and followers of new Argentine president Mauricio Macri applauded the government’s decision to make a repayment offer to creditors that hold some US$9bn in defaulted bonds.

Argentina’s country risk – or the spread between the interest the country would need to offer to raise funds on international markets and what the US pays – fell sharply after the US Treasury Department said this weekend that secretary Jacob Lew “commended Argentina’s good faith efforts to resolve this longstanding dispute.” The offer implies a 25% haircut for the so-called holdout creditors on the consolidated debt and it has alredy been accepted by some funds in the US and Italy.

The holdouts are those creditors, hedge funds from abroad, who refused to accept Argentina’s debt restructuring terms after the country defaulted in 2001, effectively cutting the country off from international markets.

Despite the carnival holiday in Argentina on Monday, the opposition to Macri – whose party does not control either of the two chambers in congress – did not hesitate to send a clear signal about what to expect in parliament.

“We are alarmed by the 1,000% profit that these vulture funds would get [with the offer], now they seem to be white doves, for some people they’re no longer vultures,” Héctor Recalde, head of the opposition block of deputies that follow former president Cristina Fernández de Kirchner, said on Monday, according to local media.

To be able to effectively pay the holdouts, the government would have to nullify the so-called Ley Cerrojo, which prohibits the country from making a deal on the bonds that offers better conditions than the ones offered in 2005 and 2009.

And a second law that says debt payments can only be made in Buenos Aires would also need to be repealed.

When asked if his block would back the government’s proposal in congress, Recalde said his legislators will discuss the issue but would stick to “the same principle we have always had.” The two laws that Macri needs to nullify were proposed by Fernández and approved quickly by the legislators of her party, called Frente para la Victoria.

Capital Economics said in a report that a solution for the whole problem is still far away. “One concern is that congress has, until now, had zero appetite for a deal. Mr Macri’s Cambiemos [Let’s Change] coalition does not have a majority in either the upper or lower house, and the left-wing Front for Victory coalition still has the power to block a deal,” the report says.

Last week, however, the political movement behind Fernández showed its first sign of weakness since Macri took office in December, as 12 Frente para la Victoria legislators left the block saying they did not agree with the former president’s view on the role of the opposition.

Credit Suisse highlighted that development and said it expects Macri to gather the needed support to repeal the two laws. “Additionally, we expect collaboration from various governors who would also like to seek financing abroad to aid in building support in the senate,” the bank said.

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8 February 2016

NEW YORK, Feb 8 (IFR) – Argentina bonds outperformed on Monday after two of six holdout investors agreed to a government offer last week to pay a total US$6.5bn to them.

Discounts and pars were up about half a point Monday afternoon at 117.00-118.00 and 64.50-65.00, respectively, after Dart Management and Montreaux Equity Partners – signed up to the government’s proposal.

Daniel Pollack, the special master presiding over the negotiations, said it “stood solidly behind the deal,” praising President Macri for addressing this “long-festering problem.”

US Jack Lew also reportedly chimed in over the weekend, voicing his support of the Argentine government’s efforts to cut a deal with holdout investors.

“All this points toward a fresh attitude on the side of important stakeholders and we think it can help Argentina’s negotiating hand,” Alejo Czerwonko, emerging markets economist at the chief investment office at UBS Wealth Management.


Yet while investors cheered progress on last week’s arduous negotiations in New York between government officials and litigant investors, the country still faces an uphill battle as it works to bring other holdouts on board.

Elliott Management and Aurelius Capital Management, the most high-profile funds in the sovereign’s 14-year old battle with holdouts, have yet to accept the offer.

It was their lawyers who won a pari passu case in US Courts in 2012, effectively prohibiting Argentina from paying existing holders of restructured debt unless holdout investors were made whole as well.

The subsequent pari passu injunction effectively forced the country to default for a second time in a decade as the former president refused to bow down to what she described as “vulture funds”.

Recently elected President Mauricio Macri has taken a more conciliatory approach to the litigant funds, realizing the importance of regaining access to vital hard currency funding.

In the offer announced Friday, the government said it would pay holders of defaulted bonds without a pari passu injunction 150% of their principal claim.

On the other hand, accounts covered by the pari passu injunction will receive 72.5% of their total claim or 72.5% of the amount they have been awarded in US courts if they accept the terms by February 19. Thereafter, they will only garner 70%.

The deal is conditional upon US Judge Griesa lifting the pari passu injunction that gives the likes of Elliott and Aurelius considerable leverage in negotiations.

It is also subject to approval by Argentina’s Congress, which will need to amend a lock law that prohibits the country from offering better terms than those given to participants in the 2005 and 2010 exchanges.

New terms, however, were thought unacceptable for certain funds like Elliott and Aurelius who because of the nature of their Argentine holdings are seeking greater claims on past due interest on which there is no judgment.

“Argentina bought Dart’s support by agreeing to pay its claim in full,” Mark Brodsky, chairman of Aurelius Capital Management, said in a statement.

“Aurelius would gladly accept such generosity, though we have always been willing to take a haircut.”

‘Me-too’ investors

With a clear offer on the table, a growing chorus of so-called ‘me-too’ investors holding defaulted debt are also clamoring for payment and complaining they have not been invited to participate in settlement negotiations.

For now, analysts think President Macri should have little trouble persuading what is now a more compliant Congress to agree to haircuts proposed in Friday’s deal.

“The proposed haircut of 27.5%-30% of the total claim for par passu injection holders is affordable, in terms of political cost, for the administration,” wrote Barclays analysts on Monday.

Barclays analysts speculated that Elliott and Aurelius may simply have kept quiet on Argentina’s recent offer, as a negotiating tactic.

If too many investors sign on to the deal, Congress may think the president has been too soft and hence force the government to return with a tougher deal, the UK bank said.

“For the pari passu injunction to be lifted, you need the major funds at the table,” said Sean Newman, a US based senior portfolio manager at Invesco, which holds Argentina exchange debt.

Newman sees an eight point upside on the discount bond if the injunction is lifted and past due interest starts being paid again.

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By Dimitra DeFotis
8 February 2016

Unlike many of its South American neighbors, Argentina has enjoyed some good news of late.

The Argentine government last week agreed to pay down $1.5 billion on defaulted debt to Italian bondholders who had sought $2.5 billion. At the same time, Buenos Aires’ emissaries met in New York with remaining bondholders to try to resolve a long, contentious battle over more than $9 billion in defaulted-debt claims. The claims — pitting the country against a small group of hedge funds that have held out for better terms — stem from Argentina’s default on $29 billion in debt in 2001.

The fight is far from over, but the progress was a rare breath of fresh air amid reports from South America about Brazil’s frightening Zika virus and Venezuela’s looming debt crisis. Since taking office in December, Argentina’s reform-minded President Mauricio Macri has devalued the peso, cut energy subsidies, and secured billions in financing to reduce the country’s deficit. The center-right successor to former Peronist President Cristina Fernandez de Kirchner still must convince his Congress to settle the default claims, but a number of market observers think the business could get resolved by the middle of the year. That would help Argentina return to the global capital markets and lift investing prospects, especially for bonds.

Following last week’s news, Standard & Poor’s raised its ratings on Argentina’s local-currency sovereign debt.

Some dollar-denominated Argentine bonds maturing in the next few years that were issued under Argentine law now look attractive, says Sean Newman, a senior portfolio manager at asset manager Invesco. The bonds generally have traded at a discount to equivalents in Brazil, but that spread should contract.

“With a lack of other policy choices, opposition parties have to . . . accept reasonable proposals to resolve the holdout issue,” says Newman. “I prefer Argentine bonds issued under local law, as there are still risks to a settlement being reached with holdouts.”

Bank of America Merrill Lynch bond analysts Jane Brauer and Sebastian Rondeau expect a settlement could amount to a 20% haircut for holdout bondholders governed by U.S. law and a 30% haircut for European-law holdouts. They like discounted, dollar-denominated Argentine government bonds subject to U.S. law. They wrote last week that roughly $15 billion in new Argentine bond issuance this year may be needed to pay holdouts and finance the fiscal deficit, and too much supply could dampen returns. But they still expect a rally in higher-yielding Argentine bonds, assuming a settlement by June.

Argentine Finance Minister Alfonso Prat-Gay has said the holdout investors’ terms are unacceptable on $7 billion in past-due interest. But Nomura bond strategist Siobhan Morden points to last week’s deal with Italian bondholders — which shaved interest payments by two-thirds — as possible precedent for other agreements.

For equity investors, Argentina’s menu of offerings remains limited. The thinly-traded Global X MSCIArgentina exchange-traded fund (ticker: ARGT) can languish without generating a quote even on a busy news day. The fund, which rose nearly 1% last week, is down roughly 5% so far this year, which is slightly better than the decline of emerging markets overall.

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By Dimitra DeFotis
8 February 2016

On Friday, Argentina’s government presented a formal offer to holdout creditors after a week of meetings in New York.

But the Global X MSCIArgentina exchange-traded fund ( ARGT) was down 2.8% just before the close of trading, despite the positive movement in the debt case as markets submit to selling pressure. Among Argentina’s largest publicly-traded companies trading in the U.S., YPF (YPF) was down more than 5%, and MercadoLibre (MELI) was down 5.7%. Banks, however, were higher including Banco Macro (BMA), up 1%, and BBVA Banco Frances (BFR), up nearly 1%. Empresa Distribuidora y Comercializadora Norte or Edenor ( EDN), an Argentine electric utility, was up nearly 5%.

Eurasia Group provides the details from the Ministry of Finance: a $6.5 billion cash payment, representing a 25% haircut on average of the full claim. The government will issue debt to raise the funds. Eurasia Group notes that two holdout investors in Argentina’s defaulted debt, Dart Management and Montreux Partners, accepted the deal. Eurasia Group writes:

“The government’s proposal includes a base offer–which includes payment of the full principal plus an additional 50% payment of the claim–and an offer for those with pari-passu rulings: a 30% haircut for those with rulings prior to 1 February 2016, to be reduced to 27.5% if an agreement is signed before 19 February. … The very complimentary statement from Special Master Daniel Pollack on 5 February has been seen by many as evidence that the court could have a more constructive attitude towards Argentina, but we have no way of evaluating whether this will indeed occur. It is important to remember that investors have been misled by a common sense approach to the judge’s action, only to be later disappointed …

The key issue to watch now is Judge Thomas Griesa’s decision on whether Argentina’s more constructive approach merits reinstatement of a stay that would open access to markets, increase the government’s leverage and potentially entice more holdouts toward a deal …

The second precondition in this deal is congressional approval. Congress does not need to approve the specific deal, but needs to reform two laws (the Lock Law and the Law of Sovereign Payment) that ban the government from making offers to holdouts better than those of the 2005 and 2010 restructurings. Macri’s PRO party has a fairly weak position in congress, but should be able to obtain enough support to get the deal through …”

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10. ARGENTINA INFLATION AND THE 30% LIMIT (Business News Americas)
9 February 2016

Argentina finished 2015 with inflation of about 27-31%, according to the referential regional indices the new government published to make up for the lack of a national one.

And even though President Maruicio Macri said one of his priorities was to normalize prices, the first signals show 2016 could also end up with inflation of over 25%.

The first annual salary negotiations have started and local media reported the government’s first goal was to agree to a 20-25% increase, knowing this number is key to containing inflation, which is out of control after years of printing money and private spending incentives under Cristina Fernández de Kirchner’s mandate.

Interior minister Rogelio Frigerio told a local radio station on Monday that the government still expects inflation to be around 25% this year, adding that wage negotiations could include a promise to open a new window of talks by mid-year if the CPI was running above 25%.

The unions, however, seem to be pushing the wage discussion towards a 30% hike. The head spokesperson of the rail workers union, Mario Calegari, said that “in the situation we are in, we can’t accept a percentage below 30.”

Macri assumed power in December and two of the first measures he took were to get rid of the official FX rate, sending the Argentine peso down from around 10 per US dollar to 14, a move that pushed prices on imported goods higher.

And this month saw the energy ministry decide to abolish most of the subsidies on electricity consumption, another decision that will have an impact on prices.

Former central bank president Martín Redrado said recently that Macri’s honeymoon would end as soon as the union negotiations started.

Macri has decided to face this situation asking for prudence. “My commitment is to lower inflation”, he pledged.

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By Katia Porzecanski & Chiara Vasarri
February 8, 2016

Ø Prat-Gay predicts funds will make concessions in coming days

Ø Aurelius says offers vary widely for different creditors

The 15-year dispute between Argentina and holders of its defaulted bonds is set to drag on after the biggest holdout creditors refused to accept the government’s terms.

Hedge-fund billionaire Paul Singer’s Elliott Management, along with Aurelius Capital Management, Davidson Kempner Capital Management and Bracebridge Capital, declined an offer made public on Feb. 5 that Argentine officials said would pay as much as $6.5 billion on $9 billion of holdout claims. The proposal, which was accepted by two of the six biggest hedge funds suing the country, was more generous than offers made by President Mauricio Macri’s predecessors in two restructurings after the 2001 default.

Argentina will remain locked out of international bond markets as long as the dispute is unresolved, limiting its ability to raise financing overseas and attract foreign investment to its dollar-starved economy. Finance Minister Alfonso Prat-Gay said in a radio interview over the weekend that he expects the remaining holdouts to make some concessions during the next few days, while Aurelius Chairman Mark Brodsky issued a statement signaling that the different terms offered to investors have left the two sides far from a deal.

While Argentina’s offer was “a very promising starting point, it may require additional negotiations down the road,” said Alejo Costa, the head strategist at Puente Hermanos, a Buenos Aires-based brokerage. “At the end of the day, it will depend on Elliott’s and Aurelius’s attitude toward an agreement.”

Court Orders

The hedge funds battling Argentina have put the nation in a bind. A U.S. court ruling means Argentina can’t make payments on notes issued in its two post-default debt swaps until the holdouts are paid in full because of a so-called equal-treatment clause in the bonds. Former President Cristina Fernandez de Kirchner refused to obey the order as it took effect in 2014, triggering the nation’s second default in 13 years.

Macri, who took office in December, has said he’s committed to reaching a fair deal with the holdouts after campaigning on a pledge to reverse his predecessor’s economic policies, which he blamed for stalling growth, inflation of more than 25 percent and a paucity of investment in the country.

The nation’s bonds have rallied in anticipation of a settlement, with benchmark bonds due 2033 reaching a record high of 116.7 cents on the dollar Monday.

Proposals Accepted

The proposal made public Friday was accepted by two funds — billionaire foam-cup magnate Kenneth Dart’s Dart Management Inc. and Montreux Partners. Talks between the government and representatives of the creditors took place last week at the office of court-appointed mediator Daniel Pollack in New York.

The terms offered by Argentina vary depending on whether the bondholders have an equal-treatment ruling against the government and if they have a court judgment that specifies how much they’re owed. Investors with the ruling who lack a judgment were offered as much as 72.5 percent on their claim, while those with a judgment would be paid 72.5 percent of the amount awarded by the court. Bondholders without an equal-treatment injunction were offered 150 percent of the face value of the bonds they own.

Once a New York court awards a judgment to an investor, the bonds start accruing interest equal to the average for a one-year Treasury note. Bonds that aren’t attached to a judgment accrue interest at a faster rate based on the securities’ original coupon as well as a statutory rate of 9 percent.

Attractive Offer

As a result of the distinction, Argentina’s offer is more attractive for investors such as Dart — who received a judgment on his $595 million of defaulted bonds in 2003 — because less of the claim is composed of accrued interest, allowing him to be repaid in full, Aurelius’s Brodsky said in a statement on Sunday.

Dart received a judgment for about $725 million, including interest, and by accepting 150 percent of the principal will be repaid about $890 million. His claim would currently be worth less than that, at about $850 million, according to data compiled by Bloomberg.

“Argentina bought Dart’s support by agreeing to pay its claim in full,” Brodsky said. “Aurelius would gladly accept such generosity, though we have always been willing to take a haircut.”

Kenneth Johns, an attorney for Dart, said in an e-mail that the two parties “were able to reach an agreement in principle settling our substantial unpaid judgment.”

“Argentina’s constructive approach to the negotiations this week, and the very significant settlement offer publicized on Friday, demonstrate the government’s genuine commitment to bringing this long-running dispute to an end,” he added.

Interest Claims

For investors such as Brodsky and Singer, most of their claim on their bonds that don’t have a judgment comes from the interest accrual. Some of the bonds Singer owns accrue interest at an annual rate of more than 100 percent, according to court documents.

Elliott also owns bonds with $1.7 billion in judgments. Stephen Spruiell, a spokesman for Elliott, declined to comment.

Argentina’s proposal offered to pay the creditors in cash raised from issuing bonds abroad, sales that would require them to drop or suspend the lawsuits that prevent the country from accessing international capital markets.

Prat-Gay said that each agreement he reaches will put additional pressure on the remaining holdouts to settle. With enough participation, the judge may be convinced to suspend the ruling against the nation, he said.

“Then, if one fund wants to hold out, they’re going to have a tough time,” Prat-Gay said in a interview on Radio Mitre.

The proposal came days after Argentina announced that it reached an agreement to pay 50,000 Italian bondholders 54 percent of their $2.5 billion claim on defaulted debt in cash. Those creditors also accepted payment of 150 percent of principal.

The Italian accord and the one reached Friday are subject to approval from Argentina’s Congress, which would also need to repeal a law that prevents the country from providing the holdouts with better terms than those the nation offered in restructurings.

Argentina and the remaining holdouts are “working constructively” to resolve their differences and reach an agreement, Pollack wrote in a statement Friday.

Argentina, which borrowed more money internationally than any developing nation in the 1990s, defaulted in late 2001 following a four-year recession. A one-to-one currency peg to the dollar had made local companies lose competitiveness after Brazil, its largest trading partner, devalued its currency in 1999.

“There’s still a long way to go in terms of the additional agreement with the other holdouts, but this is a very positive step towards that,” said Gerardo Rodriguez, a money manager at BlackRock Inc. in New York. “The negotiations haven’t been easy for anybody, so it’s going to take some time.”

By Julie Mazziotta

Mar Tarrés is breaking down body norms!

The plus-size comedian won Argentina’s annual “La Chica del Verano,” or “The Girl of the Summer,” competition, the first of her size to take home the top prize for the beach body battle.

Tired of hearing people criticize her body on her Facebook fan page, Tarrés, 28, entered the competition this year, undeterred by the past winners’ more Sports Illustrated Swimsuit Issue-type figures. (Although they too, are finally embracing a wider range of sizes this year with curvy model Ashley Graham).

But the road to winning wasn’t easy, Tarrés explains.

“I suffered a lot from comments online, it made me feel bad that my family had to read so many insults about my body,” she tells TN.

“[I realize it’s] a big social change of acceptance of body diversity, and that it would be a different person winning from what the media always puts out there as ‘stereotypically beautiful,’ ” she said on Facebook before winning.

Now she hopes that her win will inspire women of all different sizes to feel more confident and enter the competition in the future.

“The Girls of the Summer are us all, all of us are beautiful,” Tarrés tells TN. “I represent plus-size women and I hope that all of the competitions will include girls like us, because we want to take part. But I am very happy, very appreciative.”

“Today I didn’t win, inclusion won.”

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