Archive for the ‘ARGENTINE UPDATE’ Category

ARGENTINE UPDATE – Sep 26, 2014

27 septiembre, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. HEDGE FUNDS TO BACK CITIBANK PAYMENT REQUEST IN ARGENTINA BOND DISPUTE (The Wall Street Journal Online)
By Taos Turner
25 September 2014
BUENOS AIRES—A group of hedge funds that sued Argentina in the U.S. has agreed to support a request by a Citigroup Inc. unit to allow the bank to make an interest payment due Tuesday to holders of restructured bonds governed by Argentine law, people familiar with the matter said Thursday.
Allowing Citibank to make the $5 million payment should ease the pressure on the parties and give the court more time to litigate new legal issues recently raised by Citibank, before Argentina has to make a $262 million interest payment on the local-law bonds on Dec. 31, one of people said.
Citibank couldn’t immediately be reached for comment. The bank has said employees at its Argentine unit could face “severe civil, regulatory and criminal risks” if the bank didn’t make the payment.
U.S. District Judge Thomas Griesa, who has been overseeing a yearslong dispute between the hedge funds and Argentina, is expected to decide at a hearing on Friday if Citibank can make the payment.
Last week, federal appeals court judges said Argentina was refusing to obey U.S. law and that the country was essentially holding a gun to the head of Citibank’s branch in Argentina, which was trying to comply with Argentina and U.S. law.
Thursday’s development could ease tensions, at least momentarily, between Argentina and a small group of hedge funds led by Elliott Management Corp.’s NML Capital Ltd. and Aurelius Capital Management LP, which are suing to collect on debt Argentina repudiated in 2001. The so called holdout creditors have successfully argued in U.S. courts that the Argentina owed them full payment on those defaulted bonds.
Argentina’s refusal to pay the holdouts led Judge Griesa to block banks, including Citibank, from transferring Argentina’s interest payments to investors who own bonds that Argentina issued as part of the restructuring of its defaulted debt, until the country pays hedge funds the roughly $1.6 billion they have won in litigation.
Judge Griesa’s order led Argentina to default on some of its current bonds on July 30. Argentina has repeatedly accused the judge of siding with the hedge funds and said it wouldn’t comply with his order because doing so would violate Argentine law and add billions of dollars to the country’s debt by forcing it to make similar concessions to investors who own restructured bonds.
Argentina’s latest default could eventually affect almost $29 billion in bonds the country issued overseas as part of heavily discounted restructurings in which investors swapped about 92% of eligible defaulted bonds for new debt in 2005 and 2010.
The default is also preventing President Cristina Kirchner’s government from borrowing abroad to alleviate hard currency shortages that are pushing the economy deeper into recession.
Argentina has moved to sidestep Judge Griesa’s ruling that blocked bond payments by passing a law to change the jurisdiction of its bonds that are currently governed by U.S. and U.K. law to Argentina or France. If the plan were to work, Argentina would be able to pay the restructured bondholders without having to obey Judge Griesa’s order to also pay the hedge funds. Judge Griesa, however, has repeatedly said this would be illegal.
2. ARGENTINA TRIES TO PAY DEBT OUTSIDE US (Financial Times)
By Vivianne Rodrigues in New York and Benedict Mander in Buenos Aires
September 25, 2014
In its latest attempt to circumvent US courts, Argentina will seek to pay nearly $200m due on its restructured bonds by disbursing the money to investors next week via a local bank instead of Bank of New York Mellon, its trustee.
In response, holders of the country’s defaulted bonds have asked US District Judge Thomas Griesa to find the nation in contempt of court and fine it $50,000 for seeking to evade legal rulings that require Argentina to pay them in full if it also services its restructured debt.
“Argentina has blatantly and repeatedly violated the court’s orders, making it abundantly clear that it has no respect for those orders, the court or the US judicial system,” the holdout creditors, led by hedge fund NML Capital, a subsidiary of billionaire investor Paul Singer’s Elliott Management, said in a Manhattan court filing on Wednesday.
Argentina was forced into default on its performing debt on July 30 after BNY Mellon, complying with US court orders, refused to pass on to bondholders a $539m payment. This week, Argentina took out full page adverts in the Financial Times and Washington Post asking BNY Mellon to resign as trustee, saying it was no longer “eligible”.
According to people familiar with Buenos Aires’ strategy, Argentina may replace BNY Mellon and turn instead to Nación Fideicomisos, a fiduciary agent affiliated with Grupo Nación, the country’s largest state bank. The almost $200M deposit is expected ahead of a September 30 payment deadline. Officials at Fideicomisos were not available for comment.
Argentina’s plan to switch trustees “won’t work,” warned Alejo Costa, head of strategy at Puente, an investment bank in Buenos Aires. “The way things are right now, this is just going to work as an escrow account, not as a payment.”
One problem Mr Costa identified is that it will not be possible for Fideicomisos to distribute the funds as it will be unable to identify the bondholders without the co-operation of BNY Mellon. Argentina’s central bank last month revoked BNY Mellon’s authorisation to operate an office in the country.
Ultimately, all the back and forth with these bonds has become a big distraction. Argentina’s economy has bigger problems to address
– Gabriel Torres, Moody’s
“BNY Mellon remains eligible to serve as Trustee,” the bank said in a statement. The bank “will continue to comply with binding court orders that govern its actions as Trustee in this matter.”
Separately, Buenos Aires is also threatening Citigroup’s Argentina branch with civil and criminal liability if it fails to make payments on another group of dollar-denominated bonds, worth about $8.4bn.
Citigroup has requested Judge Griesa to allow it to proceed with the payments on the local law debt, also due on September 30. A hearing on the matter is scheduled for September 26. Judge Griesa has also set September 29 for a court hearing on the holdout creditors’ request to declare Argentina in contempt of court.
Regardless of the outcomes, analysts say the tit-for-tat dispute over the payment mechanisms does little to help the country solve its broader economic challenges, such as a recession and rising inflation.
“Ultimately, all the back and forth with these bonds has become a big distraction,” said Gabriel Torres, a senior Latin America sovereign analyst for Moody’s. “Argentina’s economy has bigger problems to address.”
3. COULD ARGENTINA BONDS RALLY AFTER FRIDAY HEARING? (Barron’s Blog)
By Dimitra DeFotis
25 September 2014
A U.S. judge has ordered Argentina to show in court Friday afternoon why it is not in contempt for violating orders favoring bond holders — especially U.S. hedge funds — that refused to accept terms on restructured bonds.
After Argentina’s latest debt default, in July, it passed legislation that moved the bond jurisdiction from U.S. courts. Deutsche Bank fixed income analysts Drausio Giacomelli, Robert Burgess and Hongtao Jiang write about the possibility that new “local law bonds” may be treated differently. They quote NY District Court Judge Thomas Griesa thusly, from a recent hearing:
“It was my view … that the Argentine law bonds issued in Argentina, payable in Argentina, subject to Argentine law, are different from the bonds subject to the 19 February 23 order. And whether they’re payable externally or not, the factors I’ve talked about make them different. Now, if the Court has the responsibility of dealing with any issue about the payment due in Argentina September 30 or December 31, etc., then that will have to emerge from requests to the Court and briefing to the Court as necessary…”
Citibank ( C) asked to pay $5 billion in interest to Argentine bondholders on Sept. 30, but the U.S. court ruled against the idea, even on appeal (see ” Court Dismisses Citibank Appeal in Argentina Case,” The New York Times Dealbook). Judge Griesa scheduled a hearing for this Friday at 2 p.m. Deutsche analysts continue:
…it seems now more likely that Judge Griesa will allow the payments of local law bonds to be processed in the future, sans any new persuasive arguments the holdouts could use in the hearing to sway the Judge once again. This, once affirmed, will most likely fuel a strong recovery of the local law bonds, which have insofar significantly underperformed, relative to the global bonds. Interestingly, a main downside risk stems from that, to our surprise, the new Citibank filing seems to have broadened the universe of bonds under debate to all local law bonds (not just the Discounts and the Pars), so if Judge rules against this it could result in a wider range of default.”
The Global XFTSE Argentina 20 ETF ( ARGT) is down 1.4% today, but up 10.5% year to date.
4. ENOUGH MAY BE ENOUGH – ARGY CONTEMPT HEARING (New York Post)
By Michelle Celarier
25 September 2014
It looks like the Manhattan judge overseeing Argentina’s long-running war with billionaire Paul Singer may finally have had his fill.
Federal judge Thomas Grisea has agreed to hold a hearing Friday to decide whether to find the country in contempt for passing a law to allow bondholders to swap their bonds into local Argentine law bonds to avoid paying a small group of so-called holdout creditors, including Singer, some $1.6 billion.
The hearing was requested by the holdout group, which has proposed sanctions of $50,000 a day and attorney’s fees, which at this point probably are in the tens of millions of dollars.
Most Argentine bondholders did not get the $539 million in interest payments due in June because Argentina refused to follow the court’s order that the country pay the holdouts at the same time they paid the others.
The case stems from Argentina’s debt default in 2001. After the default, 93 percent of the bondholders agreed to exchange their debt for bonds with a 70 percent haircut, while a few hedge funds held out for the full 100 percent.
On Friday Argentina will have to show why it should not be held in contempt for violating the US federal court orders. Even as it was appealing Grisea’s order, which expressly forbid taking any evasive action, Argentina talked about finding an alternative way to pay the exchange bondholders.
In a previous contempt hearing, on Aug. 21, Grisea stopped short of finding the country in contempt but warned that passing the debt swap would be illegal. But, he asked Singer’s lawyers, “How does a finding of contempt contribute to the settlement of the case?”
There have been no settlement talks since then, and Argentina has become more defiant.
Citigroup is stuck in the middle. The bank, which is a custodian for some $8.4 billion in domestic Argentine bonds, is asking Griesa to reconsider his recent ruling that it can’t make a $5 million interest payment to its clients at the end of September.
Citi would be in violation of Argentina law if it doesn’t make the payment and fears getting kicked out of the country. The holdouts are worried that excluding Argentine law bonds sets a bad precedent for the debt swap.
Griesa will consider Citibank’s plea following the contempt hearing Friday.
5. WILL CONTEMPT SANCTIONS GET ARGENTINA TO YIELD? (Reuters News)
By Alison Frankel
25 September 2014
(The opinions expressed here are those of Alison Frankel, a columnist for Reuters.)
NEW YORK (Reuters) – Argentina’s contempt for the U.S. court system is not even debatable. Argentine officials have openly jeered at court orders enjoining them from making payments to bondholders who participated in Argentine sovereign debt restructurings without also paying more than $1.5 billion to hedge funds that hold defaulted bonds.
Argentina has run newspaper ads vowing not to capitulate, has attempted to bring an action against the United States at the International Court of Justice in The Hague and, most recently, pushed through legislation authorizing its government to replace BNY Mellon with a state-controlled bank in Buenos Aires as the exchange bond trustee, after BNY Mellon made clear that it would not process payments for fear of violating the U.S. injunctions.
Contempt, as it’s ordinarily defined, practically drips from the words of Argentine politicians when they talk about U.S. District Judge Thomas Griesa of Manhattan, who has presided over their standoff with the holdout hedge funds for nearly a decade.
Those funds, led by NML Capital and Aurelius Capital, asked Griesa on Wednesday to make Argentina’s contempt official. They filed a motion to hold the government in contempt and impose sanctions on it. Griesa has scheduled a hearing Monday on the motion.
This isn’t the first time that the funds have proposed a contempt finding after the U.S. Supreme Court refused in June to review the injunctions requiring Argentina to pay them.
So far, Griesa has delivered plenty of stern warnings to Argentina, via its lawyers at Cleary Gottlieb Steen & Hamilton, but hasn’t held the government in contempt, presumably in the hopes that court-ordered mediation would produce a settlement.
The hedge funds’ new motion argues that Griesa’s admonitions haven’t worked. Argentina has only cemented its defiance with the new legislation and followup newspaper ads billed as legal notices of its demand for BNY Mellon’s resignation as exchange bond trustee.
Sooner or later, unless Argentina changes course, Griesa is going to have to find that the country has violated court orders. Otherwise, he’ll be conceding that the federal court system must bow to the stubbornness of a foreign sovereign – even one that has voluntarily submitted to the jurisdiction of U.S. judges.
THE LIMITS OF U.S. COURTS As I’ve said before, Argentina’s intransigence has already exposed limits on the power of U.S. courts. The questions now for Griesa are whether he can impose sanctions on Argentina, and whether those sanctions can change Argentina’s behavior.
I’m pretty sure the answer to the first question is yes. Argentina – and possibly the U.S. State Department – will argue otherwise, but there’s strong precedent that federal courts have the authority to impose sanctions on a foreign sovereign that violates their orders.
The Supreme Court’s latest discussion of the Foreign Sovereign Immunities Act – a ruling last June in a different case involving NML and Argentina, as it happens – strengthens arguments that the law doesn’t shield foreign sovereigns from sanctions.
The justices said that FSIA only protects foreign sovereigns from having their U.S. assets seized to satisfy a judgment against them and from submitting to the jurisdiction of U.S. courts.
The second protection is irrelevant in the Argentine bond litigation because Argentina granted jurisdiction; it has, of course, benefited mightily from the FSIA’s protection of its assets.
Under the Supreme Court’s holding, because FSIA doesn’t address contempt sanctions, it doesn’t shield foreign sovereigns from them.
THIRD PARTIES So let’s assume Griesa has the authority to find Argentina in contempt and to impose sanctions. What can those sanctions accomplish? The hedge funds’ brief proposes a daily fine of $50,000 and asks that Griesa order Argentina to pay some of their legal fees.
But even the hedge funds acknowledge that Argentina – which has a long history of thumbing its nose at U.S. judgments in litigation against the holdout hedge funds – isn’t going to pay those fines. If Griesa only issues monetary sanctions, he risks underscoring the federal courts’ ineffectuality over foreign sovereigns.
The hedge funds know that – which is why, in a footnote, they suggest that if Argentina ignores a court-ordered fine, Griesa “can then impose additional sanctions – including non-monetary sanctions.”
That could be the most important sentence in the brief.
Remember: The hedge funds were able to force Argentina into default because they persuaded Griesa, the 2nd U.S. Circuit Court of Appeals and the Supreme Court that the courts had the authority to block third parties – such as bond trustees BNY Mellon and Citigroup – from processing Argentina’s payments to exchange bondholders.
Institutions with operations in the United States don’t have Argentina’s foreign sovereign immunity, so they are much more reluctant to defy U.S. court orders.
If the hedge funds can convince Griesa to implicate third parties subject to U.S. jurisdiction in non-monetary penalties against Argentina, sanctions could be a real lever for Argentina’s debtors.
Argentina still depends to some extent on the U.S. financial system. What if, for instance, Griesa held that Argentina cannot process dollar transactions through U.S. banks? Or that its Central Bank cannot do business with the Federal Reserve? Argentina’s refusal to pay the hedge funds has withstood the country’s isolation from the market for sovereign debt. Can it withstand exile from U.S. finance?
This is all incredibly speculative, of course. There’s very little precedent on monetary sanctions against foreign sovereigns, and, as far as I can tell, no precedent at all on non-monetary sanctions. Even if the hedge funds sell Griesa on a punishment that will actually impact Argentina, Argentina will appeal all the way to the Supreme Court – which means years of litigation.
My guess is that the hedge funds’ lawyers are hoping to float potential sanctions that will scare Argentina into settlement talks. It’s a dim hope, but at least it’s something.
6. ARGENTINA’S FIRST LOCAL BOND ISSUE SINCE JULY DEFAULT FULLY SUBSCRIBED (Reuters News)
25 September 2014
BUENOS AIRES, Sept 25 (Reuters) – Argentina on Thursday sold two-year bonds worth 10 billion pesos ($1.19 billion), the economy ministry said, in a strongly bid auction that was its first in the domestic market since the South American country defaulted on its debt in July.
The government will pay a yield of the benchmark Badlar rate – the interest rate that private banks pay on wholesale deposits of more than 1 million peso – plus 200 basis points.
The Badlar rate in pesos as of Tuesday was 20.125 percent, according to the central bank.
The ministry said it received bids worth a total 10.61 billion pesos after offering notes worth 10 billion.
Argentina has been locked out of international capital markets since it defaulted on a record $100 billion of debt in 2002.
It then issued bond swaps in 2005 and 2010 and had been servicing the debt until it failed to complete a payment in July because of a legal battle with U.S. investors who spurned the restructuring.
The government has relied heavily on the central bank to finance its spending and pay for energy imports.
7. ARGENTINA’S BALANCE OF TRADE CONTRACTS 9% AS HIGH INFLATION AND FALLING PRODUCTIVITY PUT PRESSURE ON EXCHANGE RATE (IHS Global Insight Daily Analysis)
By Paula Diosquez-Rice Mario Guillen
25 September 2014
According to its National Statistical Office (INDEC), Argentina’s balance of trade recorded a surplus of USD899 million in August, which represents a contraction of 9% since January 2014, despite being up 145% year on year (y/y). The values of exports and imports fell by 12% y/y and 20% y/y, respectively. For exports, this signals the eighth consecutive month of contraction on an annual basis, mostly due to the downward trend of soy prices and the productive sector’s limited access to foreign currency. The strongest decreases in the country’s exports were in the categories of fuel and energy (down 21% y/y), as well as industrial and agricultural manufacturing, both down by 13% y/y. On the imports side, the ongoing automotive crisis was signalled by a drop of 60% y/y, while the fuels and lubricants category decreased 31% y/y, along with a 29% y/y fall for the pieces and accessories for capital goods category.
This suggests a further drop in internal demand due to the country’s current recession.
Significance: The ongoing contraction in exports responds to a fall in competitiveness, which has been lost due to rampant levels of inflation within Argentina. This fuels speculation of a possible devaluation in the near future, as the government struggles to preserve historical low levels of foreign currency reserves from falling further. Meanwhile, the differential between the official exchange rate and the parallel “blue dollar” has reached 80%, a strong signal of economic distortion coupled with undermined credibility in the central bank’s ability to defend the rate. With policy change unlikely and access to international debt markets far from sight, Argentina’s woes will worsen in the short term.
8. TELECOM ITALIA SAYS FINTECH ASKS FOR EXTENSION ON ARGENTINA DEAL (Reuters News)
By Danilo Masoni and Juliana Castilla
25 September 2014
* Telecom Italia board to examine Fintech’s proposal Friday
* Argentine regulator has not yet decided on deal -source
* Deal completion deadline has already been pushed back twice
* Italian junior minister says unaware of Trujillo bid plans
MILAN/BUENOS AIRES, Sept 25 (Reuters) – Investment company Fintech has asked Telecom Italia to further extend an agreement to buy the Italian group’s controlling stake in Telecom Argentina, Telecom Italia said on Thursday, in a last-minute attempt to ensure the sale does not fall apart.
Telecom Italia agreed to sell its 22.7 percent stake in Telecom Argentina to the investment company of Mexican billionaire David Martinez for $960 million almost a year ago. In a statement late on Thursday, it said it would examine Fintech’s proposal at a board meeting on Friday.
It gave no details about Fintech’s proposal and a Telecom Italia spokesman was not immediately available to comment.
Italian daily La Repubblica said on Thursday Fintech and the Italian company had agreed on a compromise whereby the deadline for completion of the deal would be extended by 2-1/2 years, with penalties attached if it does not go through.
Closing of the deal was originally due by early August but it has already been delayed twice, awaiting regulatory approval in Argentina.
This month Telecom Italia CEO Marco Patuano said the group would rethink the deal if local regulators did not approve it by September. 25, raising the possibility it could fall apart.
Should this happen, it would leave the heavily indebted Italian group with less cash to invest in faster networks and 4G services, a major plank of Patuano’s strategy.
Late on Wednesday a source at Argentina’s competition watchdog said the regulator had not yet decided whether to approve the deal.
“They (regulators) might let the deal collapse. But a last-minute compromise solution cannot be ruled out,” a source familiar with the situation said on Thursday.
A default by Argentina and a devaluation of the peso have distracted authorities in Buenos Aires and are seen as factors in the delay.
Adding to the uncertainty was a Bloomberg report that U.S. businessman Sol Trujillo was seeking to raise as much as 7.5 billion euros ($9.6 billion) to bid for a stake in Telecom Italia.
According to the report, Trujillo has not approached Telecom Italia directly but has discussed his “Adriano project” with New York-based financial advisers and with Italian officials, including junior minister Antonello Giacomelli.
Giacomelli said, however, that he was not aware of Trujillo’s bid plans and added that the Italian government would use its special powers to defend the company if necessary.
“The only Adriano I know is the one who plays for (soccer club) Inter,” Giacomelli said.
The company declined to comment on the report.
The sale of Telecom Argentina is part of a broader 4 billion euro plan by Patuano to help cut net debt of more than 27 billion euros and fund investments in Italy and Brazil to keep up with competitors.
Some Telecom Italia investors led by Italian businessman Marco Fossati have criticized the terms of the deal, which was agreed under a previous board controlled by an investor group led by Telefonica, which also operates in Argentina.
Since then, Patuano has remained at the helm of the group, but the board has been renewed, while Telefonica and other core investors have taken steps to exit their seven-year investment.
Fossati, the second-biggest investor in Telecom Italia, told Reuters earlier this month the company should consider keeping its stake in Telecom Argentina.
If the deal fell apart, Telecom Italia, whose credit rating was cut to “junk” status last year, would own an asset whose profits and revenues rose more than 20 percent in the first half. A failed sale would not compromise Telecom Italia’s debt- cutting plans since Telecom Argentina is cash positive.
Shares in Telecom Italia ended up 0.11 percent, outperforming a 0.5 percent loss in the European index of telecoms stocks, after retracing from earlier strong gains triggered by the talk of new investment.
9. SHAREHOLDERS CHALLENGE TELECOM ITALIA’S EXIT FROM ARGENTINA (Reuters News)
26 September 2014
MILAN, Sept 26 (Reuters) – Telecom Italia should hang on to its controlling stake in Telecom Argentina, a group of small investors said on Friday, reflecting growing unease among shareholders about a planned exit.
The comments added to pressure on the Telecom Italia board which was meeting on Friday to discuss the deal.
Telecom Italia agreed to sell its 22.7 percent stake in Telecom Argentina to investment company Fintech almost a year ago for $960 million but the deal has been delayed awaiting regulatory approval.
Late on Thursday Telecom Italia said Fintech had asked it to further extend the agreement to buy the stake in a last-minute attempt to ensure the sale does not fall apart.
However, investor group Asati has challenged the sale.
“Telecom Italia should maintain (control of) the unit, the positive financial impact of which has already been booked in first-half results,” Asati said in a letter it sent to Telecom Italia’s board on September 22.
“There should be no discounted sale to Fintech,” Asati said.
The group says it represents around 6,000 small Telecom Italia investors with a combined stake of around 1 percent.
Its comments chime with the views of Telecom Italia’s second-biggest investor Marco Fossati, who has a holding of just under 5 percent. Fossati told Reuters earlier this month the company should consider keeping its stake in Telecom Argentina.
Telecom Italia CEO Marco Patuano has said the group would rethink the deal if local regulators did not approve it by a deadline of Sept. 25.
Failure to clinch the sale would leave the heavily indebted Italian incumbent with less cash to invest in faster networks and 4G services, a major plank of Patuano’s strategy.
In its letter Asati also said there was no need for Telecom Italia to sell its Brazilian unit TIM Participacoes.
10. THE LEGAL BUSINESS: THE DEFAULT CHOICE (The Economist)
27 September 2014
Don’t cry for sovereign borrowers’ favourite law firm
RARE is the finance minister of a developing country who does not have Cleary Gottlieb Steen & Hamilton on speed-dial. Cleary, based in New York, has long been the go-to law firm for governments in debt crises. Since 1983 the firm has advised 28 sovereign debtors in 54 restructurings. Its recent clients include Greece and Iraq, as well as sturdier places like South Korea. Cleary’s lawyers have reaped both fame and fortune as a result: a survey of 17,000 lawyers by Vault, a jobs site, ranked it America’s seventh most prestigious firm. Its profit per partner of $2.9m last year ranks it 12th, according to American Lawyer magazine.
In 2014, however, the firm’s sovereign litigation clients have had a year to forget. In July arbitrators in The Hague ruled that Russia had illegally expropriated Yukos, a big oil company. They ordered the government to pay shareholders $50 billion, 20 times the previous record for arbitration. Argentina has suffered three setbacks at America’s Supreme Court. In March the justices reinstated a $185m award against the country. Three months later, they let a ruling stand that banned Argentina from servicing the bonds it issued in debt swaps in 2005 and 2010, unless it also paid the full claim of “holdout” investors who rejected those deals. The decision led Argentina to default. The court also approved the holdouts’ use of American subpoenas to hunt for Argentine assets abroad.
Other parts of Cleary’s practice are also having a rough year. This week an appeals court in New York ruled that a lower court was wrong to dismiss lawsuits that victims of terrorist attacks in Israel had brought against Cleary’s client, National Westminster Bank (see “Arab Bank: Consorting with terrorists”). A charity linked to Hamas, a Palestinian militant group, had held an account at the bank. Cleary also represented Google in a failed effort to prevent a new “right to be forgotten” being established in Europe, forcing the company to block some search results. And press reports have identified Cleary as one of the firms said to have given advice to BNP Paribas, a French bank, on transactions with Iran, Sudan and Cuba, over which BNP later had to pay a $9 billion settlement. (Cleary has declined to comment on this.)
In any other industry, such a string of losses would send customers scurrying. Indeed, in Argentina opposition lawmakers have proposed a bill to make the government switch firms. However, the relationship between a law firm’s income and its success in court is murky. Clients know that in a high-stakes suit they and their opponents will both hire skilled and costly counsel, and one side will lose. Unlike in college debating contests, real-world results depend mainly on the merits rather than the ingenuity of the arguments. Furthermore, governments are sometimes more motivated by the political benefits of pursuing a case than by their chances of winning. Attempts by President Cristina Fernández de Kirchner (pictured) to make political hay out of Argentina’s restructuring case seem to have annoyed the judge, making Cleary’s job harder.
Since a firm’s record of suits won and lost is a poor measure of the quality of its work, clients rely instead on reputation, experience and capacity. And on these criteria, the barriers to entry in sovereign-debt litigation are formidable. Most diversified law firms are wary of advising governments, since that would prevent them from working for the hedge funds that often sue sovereign issuers for payment. Of the rest, few have the global presence to represent a government wherever its bonds are sold or creditors try to seize assets. About half of Cleary’s 1,200 lawyers work outside America, spread among 11 countries. Given Cleary’s prestige and generous pay, it would be hard for rivals to poach its lawyers.
Often, when Cleary loses it wins. If Argentina or Russia had been victorious in their recent cases, legal work for them would probably have fallen off. Instead, their defeats pave the way for years of enforcement battles, and thus lots of juicy fees for its lawyers.
11. STUDY ABROAD STUDENTS SHARE EXPERIENCES WITH ARMSTRONG (U-Wire)
By Lindsey Grovenstein
25 September 2014
‘From Under the Southern Cross: The People and Patterns of Argentina’ is on display at the Armstrong Fine Arts Gallery. The newest exhibition is inspired by study-abroad experiences in Argentina and includes artwork from students, faculty and Argentina craftspeople.
“Argentina is a beautiful and diverse country ideally suited for the study of art and anthropology from the museums and street art of its capital, Buenos Aires, to the traditional crafts of the Wichi and Calchaquí peoples of the Northwest,” Rachel Green, professor of art, said. Green accompanied the students with faculty member Barbara Bruno to Argentina.
Students developed relationships with the locals and their communities through service projects and were able to learn about the culture from the people themselves. “Students then incorporated aspects of what they experienced into their artwork and display the works in an art exhibit at Armstrong’s Fine Arts Gallery in order to share what they have learned with the Armstrong campus,” Green added.
Hoyt Ramey is studying at Armstrong for a Bachelor’s degree in Fine Arts and went to Argentina over the summer. His photographs are featured in the gallery and they capture the people of Argentina.
“I work quick,” Ramey said. “We were always moving, so I took photographs of people who stood out to me.”
One photograph that Ramey took was of an old Argentinean man with a cigarette. “We were hanging out by the bus and he was really drunk and chewing on cocoa leaves. He was all in our face and he wanted a cigarette. My friend gave one to him and I shot it,” he said.
In addition to photographs, there are sculptures, jewelry, mixed media, and graphic design pieces in the gallery that each have their own unique story. Students visited several indigenous communities to learn from master artisans. This year’s exhibit highlights the work of the Wichi and Calchaquí.
Students are auctioning select craft items in a silent auction that will end October 3 at 7:00 p.m. All proceeds will be returned to the artisans’ communities to help them maintain their culture and traditions and promote their crafts.
“To work with the Calchaquí ,” explained Green, “they traveled to a valley in the Andes mountains to spend four days on a family ranch. While there, they learned about traditional weaving techniques and took several trekking trips to photograph secret lagoons and caves. To work with the Wichi and Guarani, they traveled to the border with Bolivia, an area of tropical forests called the yungas.”
The Argentina Study Abroad program is open to students of all majors and is looking for participants open to new experiences. Previous art experience and knowledge of Spanish are not requirements. They will be leaving June 8 – June 30, 2015, and application deadlines are February 2.
“I definitely recommend study abroad,” Ramey added. “It makes an impression on you. You make lasting friends and the people that you encounter you’ll remember forever. You always remember the people.”
The exhibition will continue until October 3. The gallery is open from 9 a.m to 5 p.m on weekdays and admission is free.
12. ARGENTINA BOND STRAIGHTJACKET UNSHAKABLE AS PAYMENTS LOOM (Bloomberg News)
By Katia Porzecanski
Sep 25, 2014
The latest attempt to end Argentina’s second default in 13 years is faltering, a setback for overseas bondholders who are in jeopardy of missing out on a billion dollars more in payments through year-end.
A group of creditors may abandon an effort to get investors to waive a bond clause that Argentina says is an obstacle to resolving its decade-long dispute over unpaid debts, according to three investors with direct knowledge of the plan. The group planned to ask bondholders earlier this month to approve the waiver by Sept. 30, when about $190 million in interest comes due, said the people, who asked not to be identified because the discussions were being conducted privately.
Argentina, barred by a U.S. court order from paying bonds it renegotiated after its 2001 default until creditors who held out of the deal are compensated in full, has said it can’t comply because a clause in the restructured notes would require it to sweeten the payout to all holders. While Argentina has publicly cited the clause as a reason to avoid compromising with the holdouts, it was a lack of clarity about the government’s willingness to support the waiver that helped to stall the effort.
“I would fall off my chair if they paid in January,” after the clause expires, Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies Group LLC, said in an e-mailed response to questions. “It’s not a legal constraint. It’s an ideological constraint.”
‘All Offers’
Argentina doesn’t need to guarantee a volunteer waiver of the Rights Upon Future Offers clause, the economy ministry said in an e-mailed statement.
President Cristina Fernandez de Kirchner has said the so-called RUFO clause prevents her from complying with the ruling, and that she won’t be “extorted” into offering the holdouts a better deal.
The clause, which expires Dec. 31, could trigger as much as $120 billion in additional claims, Fernandez has said.
Economy Minister Axel Kicillof said Sept. 9 that while Argentina would be “open to all offers” to waive the clause, he couldn’t say if the government would be in favor of removing it.
“I’m not saying I’d be violating the RUFO clause by saying that I’m in favor of waiving it, since it’s not very clear,” he told a lower house commission.
Debt Payments
The so-called consent solicitation to get bondholders to approve the waiver was never started, and at this point there’s probably not enough time to complete it, the people said.
The delay in starting the process was partly due to financial intermediaries, such as clearinghouses, wanting assurance that they could participate without facing legal risks, two of the people said.
Craig Batchelor and Christopher Clark, attorneys at law firm Latham & Watkins LLP, which is leading the effort, didn’t return telephone calls or e-mails seeking comment on the plan.
After Sept. 30, Argentina has an interest payment of $42 million due on Dec. 2 and about $900 million due on Dec. 31.
Bond prices indicate investors don’t expect to be paid for one to two years, according to an analysis by Barclays Plc. Dollar-denominated securities due in 2033 traded at 86.9 cents yesterday, versus a fair value of 87.9 cents in a scenario where payments resume this year, the London-based bank said in a Sept. 19 report.
Argentina’s peso was little changed today at 8.4209 per dollar as of 9:21 a.m. in New York.
In July, Argentina failed to reach an agreement with holdouts led by Elliott Management Corp., which resulted in a default after the U.S. court blocked a $539 million bond payment from being disbursed to creditors.
Bondholder Support
The waiver effort represented creditors with at least 7 billion euros ($9 billion) of restructured Argentine debt, Clark said in August. While that’s more than 40 percent of the $23 billion of notes governed by the clause, agreement from 85 percent of creditors would be needed for the waiver to take effect.
Shahriar Shahida, a co-founder of hedge fund Constellation Capital Management LLC, which accepted losses of about 70 percent by participating in Argentina’s debt restructurings in 2005 and 2010, said that he wouldn’t want to waive the clause in his bond contracts. It was included as an incentive for bondholders to accept the terms.
‘Positive Note’
“As a long-term holder of exchange bonds who accepted both the first and second exchange, who participated based on assurances of no free riders, I don’t see why we would voluntarily dilute our recovery,” he said in an e-mail. “After the expiration of the clause, they are free to do what they want. I believe this president would like her legacy to end on a positive note.”
While Fernandez may be compelled to settle with the holdouts to avoid a crisis if the economy deteriorates further, bond investors aren’t anticipating a solution before the next administration takes office, said Sebastian Vargas, an economist at Barclays.
Argentina will hold presidential elections on Oct. 25, 2015, and the three leading candidates to replace her may be more willing to negotiate, he said.
“It doesn’t seem like RUFO is the only hurdle to a negotiation,” Vargas said by phone from New York. “If the government said, ‘Get rid of RUFO and we’ll pay tomorrow,’ bonds would be at 120 and getting rid of RUFO would be a lot easier. There’s more than RUFO, and that’s what the market started to become aware of.”
13. ARGENTINA GDP DEFIES JPMORGAN AND REIGNITES DATA SKEPTICISM (Bloomberg News)
By Charlie Devereux
Sep 25, 2014
Argentina’s gross domestic product was unchanged in the second quarter from a year earlier, the government said yesterday, reviving doubts over the veracity of the data after JPMorgan Chase & Co. estimated a 1.7 percent contraction.
First-quarter figures were also revised to an expansion of 0.3 percent from a 0.2 percent contraction, the national statistics agency said. From the previous three months, the economy grew 0.9 percent after shrinking for two quarters.
President Cristina Fernandez de Kirchner’s government unveiled a new national consumer price index in February and then revised growth numbers after the International Monetary Fund threatened sanctions if it didn’t improve the accuracy of the data. Doubt over the statistics has resurfaced as figures diverge from analyst estimates, said Daniel Kerner, head of Latin America research at the Eurasia Group.
“They showed close to realistic numbers earlier in the year when they were under threat from the IMF and since then they’ve been gradually moving away from that,” Kerner said in a phone interview from Washington. “They never really moved towards transparency.”
The median forecast of 10 economists surveyed by Bloomberg was for a contraction of 0.4 percent in the second quarter.
Maximiliano Castillo, director of Buenos Aires-based research firm ACM, said his estimate for a 0.3 percent contraction was based on what he thought the government would say. The economy shrank by 1.5 percent from a year earlier, according to his calculations.
Recession Ahead
“It would be very difficult for the government to say that GDP will fall in 2014 because it contradicts their version of events of so many years of sustained growth,” Castillo said in a telephone interview.
Imports fell 10.5 percent, while exports slid 3.7 percent, the government said in a statement.
The economy will deteriorate further in the second half of the year as the second default in 13 years puts pressure on dwindling reserves that are forcing the government to cut imports, said Miguel Kiguel, director of Buenos Aires-based consultancy EconViews.
“The economy began slowing from the first quarter because of a lack of reserves,” Kiguel, a former deputy economy minister, said in a telephone interview. “The default complicated a situation that was already bad.”
Peso Slump
The July default has spurred demand for dollars, pushing the peso down 23 percent against the dollar on the black market to a record 15.95 pesos per dollar. The widening gap with the official rate of 8.42 pesos per dollar is fueling speculation the government will have to devalue.
Seeking to preserve international reserves that have declined 19 percent in the past year to $28.2 billion, the government has increased import limits.
The limits and weaker domestic demand pushed imports down 20 percent to $5.7 billion in August from a year earlier, the biggest decline since October 2009.
The drop in consumer spending and a flagging Brazilian economy cut Argentine vehicle sales by 43 percent to 51,000 units in August from a year earlier.
In response to falling demand, the government signed an accord with credit card companies including Visa Inc. and MasterCard Inc. to provide shoppers with interest-free credit payable in 12 monthly installments to buy domestically-produced household appliances, bicycles and clothing.
Growth Estimate
The government this month revised down its growth estimates for 2014 to 0.5 percent from 6.2 percent. The economy will grow 2.8 percent in 2015, Economy Minister Axel Kicillof said Sept. 15 while presenting next year’s budget in Congress.
JPMorgan said in a note to clients Sept. 19 that growth figures may diverge from market expectations. While the government is likely to report a contraction of 0.4 percent this year, the New York-based bank expects the economy to shrink 1.6 percent.
A record soy harvest helped cushion what could have been a worse second quarter with the economy growing 0.5 percent from the previous quarter on a seasonally-adjusted basis, the government report said.
“As recession lingers the risk of a setback in the normalization of economic data reporting increases,” analysts Vladimir Werning and Iker Cabiedes wrote in the report.
14. ARGENTINA INCREASES TRAVEL BUREAUCRACY AS RESERVES RUN LOW (Bloomberg News)
By Charlie Devereux
Sep 25, 2014
Argentina will oblige airlines to provide detailed information about passengers on international flights in what analyst Luis Secco called an attempt to discourage overseas travel amid dwindling foreign reserves.
The tax agency published a resolution requiring airlines to answer 32 questions about passengers that include travel itineraries, the method of payment for flights and the number of no-shows and last-minute bookings.
The requirements are designed to deter Argentines who haven’t paid all their taxes or who obtained their foreign currency through the black market from traveling abroad, said Secco, the director of Buenos Aires-based research company Perspectiv@s Economicas. It’s the latest in a series of measures to halt the exit of dollars out of the economy following Argentina’s second default in 13 years in July, he said.
“It’s a way for the tax agency to obtain information it couldn’t get before and that obviously deters people who work in the informal economy,” Secco said in a phone interview. “It’s additional bureaucracy that acts as a deterrent.”
Reserves have fallen 19 percent in the past year, fueled in part by the $2.7 billion spent by Argentines abroad in that period, according to data compiled by the national statistics agency. The government last year increased a tax on credit card purchases abroad to 35 percent from 20 percent in a bid to deter Argentines spending dollars on holiday.
The measure is designed to modernize and improve the country’s immigration policy, Ricardo Echegaray, head of the tax agency, said in an e-mailed statement, dismissing “politicized” interpretations by local media. “Passengers won’t have to provide a single extra piece of data,” he said.
Demand for dollars has increased after the default on July 30. In the black market that Argentines turn to when they can’t get dollars from the government, the peso has weakened 22 percent to 15.7 pesos per dollar since the default, according to ambito.com.
15. SOUTH AMERICA’S BOOM TIME IS OVER, NOW FOR THE POLITICAL HANGOVER (Financial Times)
By John-Paul Rathbone in London
September 25, 2014
Venezuela may be teetering on the brink of a default. The Argentine economy is on the ropes. And Brazilians, fed up with corruption and a recession-bound economy, may soon elect an opposition candidate as president.
What do these countries have in common? They are straws in the wind. As South America’s most vulnerable economies, they are clear signs that the region’s decade-long boom is drawing to a close. And this may well force important political changes.
A decade ago, the Chinese-driven commodity price boom coincided with a rising “pink tide” in the region. Hugo Chávez was the socialist president of Venezuela, Argentina had the husband-and-wife double act of Néstor Kirchner and Cristina Fernández, while Brazil had the charismatic Luiz Inácio Lula da Silva.
Real wages rose, so did employment, while inequality fell across the continent as the middle class expanded alongside the bonanza. The good times, it seemed, would never end – including for the governments that presided over them. Venezuela’s Bolivarian revolution has been in power for 16 years; Ms Fernandez’s coalition for 12; and Mr Lula da Silva’s Workers’ party for 12 years as well. But any government in power that long risks losing touch.
That is especially so as the economic times change. China’s economy is cooling and commodity prices are falling – so exposing fragilities, such as wider current account deficits. Higher US interest rates will meanwhile make those deficits harder to finance. Moreover, the expanded middle class is flagging after a long consumer credit binge.
The least vulnerable countries today are those that prioritised investment. Peru and Colombia, for example, are investing at Asian-style rates of 28 per cent of output. The most vulnerable, by contrast, are those such as Venezuela and Argentina which mismanaged the boom and now face possibly traumatic political change.
Brazil, where voters go to the polls on October 5, crystallises the situation. It is a neck-and-neck presidential race. On the one hand, there is Dilma Rousseff, the president, a well-intentioned technocrat, handpicked by Mr Lula but whose mind unfortunately appears stuck in the 1970s. Her statist policies have led to stagflation and impeded Brazil’s transition away from its reliance on commodities.
Her principle competitor is Marina Silva, an environmentalist who has promised a supply side programme to boost investment and greater central bank autonomy.
A Ms Silva victory would be remarkable in many ways.
For one, it could reshape Brazil’s foreign relations. For 12 years, the Workers’ party has supported other leftist countries in the region, so withdrawal of that support could reshape South America’s political map and thus relations with the rest of the world. Ms Silva’s advisers are already talking about seeking trade deals with the US and Europe, and degrading the protectionist Mercosur trade bloc that includes Argentina and Venezuela.
Second, a Ms Silva victory would be the first time in 10 years that a Latin American incumbent has lost a re-election bid to an outsider. That might signal a new political trend as the region’s economies slow.
One factor shaping that trend is the 70m Latin Americans who have risen out of poverty over the past decade to form a new petty bourgeoisie that is less interested in state handouts than in opportunity. Another factor is the coming of age of a generation disenchanted with the status quo.
Over half of Latin America’s population is under the age of 27. They are well-connected, interested in new ideas rather than old nostrums and are as suspicious of crony capitalism of the left as of crony capitalism of the right.
As it happens, Ms Silva’s support is greatest among both these groups. That may be because the upwardly-mobile and young are more susceptible to her Barack Obama-esque promises of “hope” and “change”. But it may also be the shape of things to come as the region’s boom times end.
 

— ————————————

Presidents who launch retrenchment after stalemated wars always do so by centralizing control in the White House and imposing their own policy concepts. They do so because they mistrust the bureaucracy, resist Congress, and resent the media…Dwight Eisenhower and Richard Nixon managed national security the same way. They, too, inherited policies they saw as overextended; they, too, centralized decision-making. And–this is the worrisome part for Mr. Obama–they, too, faced increasing resistance to the new approaches they put in place.

— Stephen Sestanovich   WSJ Blogs  9/18/14

ARGENTINE UPDATE – Sep 16, 2014

16 septiembre, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. FROM DEADBEAT TO DESPOT – REVIEW & OUTLOOK (EDITORIAL) (The Wall Street Journal)
2 September 2014
We told you last week that L.A.’s city council has picked a fight with Wall Street that could put the City of Angels on the fiscal road to Argentina. Now comes the tale of how Argentina, which picked its own fight with Wall Street and defaulted this summer for the second time in 13 years, may be going the political way of Venezuela.
R.R. Donnelley & Sons is a 150-year-old printing company based in Chicago, which for 22 years operated a subsidiary in Argentina that employed about 400 workers. It shut its doors in mid-August amid what it called “rising labor costs, inflation, materials price increases, devaluation, inability to pay debts as they become due, and other issues.” It also couldn’t come to terms with its union, which refused to countenance layoffs or even negotiate in good faith.
In a country where growth is negative, inflation is approaching 40%, and foreign reserves are running low, the closure of a medium-sized factory shouldn’t count as a major economic event. But this is Cristina Fernandez de Kirchner’s Argentina. In a televised 45-minute rant, La Presidenta denounced the plant’s closure as a “fraudulent maneuver and attempt to sow fear in the population,” while seeking without credible evidence to connect Donnelley to the U.S. “vulture funds” she accuses of destroying the economy.
To underline her point, Mrs. Kirchner held up a picture of Sam Zell, who insists he has no investments in Argentina. Mrs. Kirchner seems to have confused the Chicago real-estate magnate with one of the holdout creditors who have won victories in U.S. courts to require Buenos Aires to honor its contracts. Mr. Zell said Mrs. Kirchner’s stunt “just makes her look even stupider.”
That may be true, but it isn’t funny that Mrs. Kirchner invoked an anti-terrorism statute to go after Donnelley. The 2011 law offers a vague definition of terrorism to mean any action “with the aim of terrorizing the population” and was used earlier this year to bring charges against a newspaper editor. The Argentine government has since dialed back the charges against Donnelley from terrorism to “fraudulent bankruptcy,” with the head of Argentina’s tax authority calling for the arrest of Donnelley’s Argentina-based executives. The charges carry prison sentences of up to six years.
Mrs. Kirchner is also seeking to resurrect the Peronist-era “Supply Law,” which empowers regional governors to set price controls, seize goods, set production targets and take over enterprises without formally expropriating them. Sergio Massa, a onetime chief cabinet officer for Mrs. Kirchner and now a political opponent, summed up the government’s legislative ambitions. “The bills have a distinctive characteristic,” he said. “They helped the Venezuelan government to expropriate 1,193 companies, close 400,000 stores and more than 2,000 industries.”
That example ought to chasten Mrs. Kirchner’s cheerleaders in the West, especially one or two Nobelists who have given intellectual cover to her efforts to demonize American hedge funds and dethrone U.S. courts in favor of some international bankruptcy court that might look favorably on deadbeats like Argentina. Those who suffer most from populist governments such as Mrs. Kirchner’s are people like Donnelley’s former factory workers, lashed first by their government’s financial recklessness, and then by her demagoguery.
2. TELECOM ITALIA DELAYS SALE OF STAKE IN ARGENTINE BUSINESS (NYT Blogs)
By Chad Bray
2 September 2014
LONDON – Telecom Italia said on Tuesday that it had extended the deadline to Sept. 25 to complete the sale of its controlling stake in Telecom Argentina to the investment firm Fintech Advisory.
The deadline, which had been set for Sept. 1 after a prior extension, has been extended again as the companies await regulatory approval.
Telecom Italia agreed in November to sell the stake it holds directly and through several subsidiaries to Fintech for $960 million, including 68 percent of the voting rights in Sofora Telecommunications, a holding company that controls part of its stake in Telecom Argentina.
As part of the deal, Telecom Italia would provide technical support to Telecom Argentina for three years.
The deal, if completed, is part of Telecom Italia’s efforts to reduce its debt. As of June 30, Telecom Italia had about 28.8 billion euros, or about $37.8 billion, in net debt.
The Argentine business posted €1.45 billion in revenue and €262 million in profit in the first half of the year. The unit had about 4.1 million traditional landlines and about 19.8 million cellphone accounts at the end of June.
Fintech is controlled by the Mexican businessman David Martínez.
The extension comes just days after Telecom Italia lost out in a bid to acquire Global Village Telecom, which operates a broadband network in Brazil, from the French conglomerate Vivendi.
Vivendi, which is exiting the telecom business to focus on its media offerings, agreed on Thursday to enter exclusive talks with Telefónica of Spain for the Brazilian broadband business.
Telefónica had offered to buy Global Village Telecom in early August, but Telecom Italia made a last-minute bid for the Brazilian unit, and said it would combine it with TIM Participações, also known as TIM Brasil, which it controls.
Telefónica, one of Telecom Italia’s main rivals in Brazil, quickly sweetened its offer and gave Vivendi an accelerated deadline to enter exclusive talks.
Telefónica has offered to pay about $9.8 billion for the business, including the option for Vivendi to exchange shares in the combined company for 5.7 percent of the share capital and 8.3 percent of the voting rights of Telecom Italia.
Telefónica, based in Madrid, is looking to reduce its stake in Telecom Italia to appease Brazilian competition regulators.
3. ARGENTINA AIMS TO BOOST OIL OUTPUT, LIMIT WAGES AS ECONOMY CONTRACTS (Market News International)
By Charles Newbery
1 September 2014
Argentina’s government this week will press ahead with initiatives aimed at boosting salaries, tightening controls on companies and spurring oil investment, as economists warn that the economy is poised for a deeper-than-expected recession.
The government will hold a meeting with corporate and labor leaders Monday to discuss the minimum wage after unions held a national strike last week. The unions want a 35% salary hike and less of a tax burden to contend with inflation, which private estimates show is 40% annual.
The government is expected to offer a 28% increase in the minimum wage to 4,600 pesos ($547) per month. Companies, however, warn that higher wages could lead to layoffs, as profits shrink with slowing consumption.
While the ruling party has long been a proponent of raising wages to spur consumer demand as a motor of economic growth, Economy Minister Axel Kicillof last week warned that rising global interest rates and a stagnating world economy combined with weaker commodities prices pose big threats to Argentina’s economy. The country’s biggest export is soybeans, a large source of dollar inflows.
Kicillof said he will continue to pursue policies to spur consumer spending, reduce the foreign debt and rebuild energy supplies after a decade-long decline.
For the latter, the government is seeking support from the provinces for legislation to make it easier for companies to explore for and produce oil and natural gas, including with tax breaks and fiscal incentives.
The country holds among the world’s largest unconventional hydrocarbon resources, enough to help it replicate the U.S. shale boom. But investment has been tepid because of concerns about the economy and a new debt default stemming from a U.S. lawsuit won by creditors.
Economists have been cutting their GDP forecasts, now warning of a contraction of 3% this year, more than a previously expected 1.0-1.5% downturn. Worse, they now expect the recession to drag through 2015, a presidential election year.
To help minimize the contraction and its impact on employment, the government may repeat a 20% devaluation of the peso against the dollar later this year, economists say.
That would encourage exports to bring dollars into the economy to help sustain foreign reserves at around $29 billion as more the government faces more than $1 billion in debt service payments through the end of the year.
But the flipside of a devaluation is that it will make it costlier in peso terms to import oil, gas and fuel, offsetting gains in foreign reserves from increased exports.
In the short term, Kicillof likely will toughen controls to contain the exchange rate and protect reserves, including by restricting imports, requiring banks to reduce dollar holdings and calling on companies to limit prices.
Congress is reviewing a bill to allow the government to sanction companies that fail to adequately supply the market.
Economists warn that the government’s strategy will not contain inflation, which is expected to continue rising at a faster pace as the central bank prints pesos to finance the government and pay the national debt.
The government will report August tax collects Monday, while an automakers association will release production, sales and export data for the same period later in the week, an indicator of consumer demand and the health of the manufacturing industry.
4. ARGENTINA EXPORT TAX REVENUES FALL IN YEAR TO AUGUST (Reuters News)
1 September 2014
BUENOS AIRES, Sept 1 (Reuters) – Argentina’s tax revenues increased roughly in line with inflation in the year to August, but a fall in export taxes underscored the ailing health of Latin America’s third-biggest economy, which is in recession and has defaulted on its debt.
The government said on Monday that overall tax revenues rose 31.3 percent over the 12 month period to 99.7 billion pesos ($11.852 billion). This fell short of the median forecast of 103 billion pesos in a Reuters poll of analysts
Private economists have estimated Argentina’s inflation at between 30 percent and 35 percent, which would mean the increase in tax revenue is largely explained by consumer price increases.
Tax revenue on exports in August fell 3.4 percent year-on-year to 6.6 billion pesos. Argentine grain farmers have been stung by low world prices for soy, wheat and corn, while the South American country’s car industry is confronted by anemic demand in its main export market, Brazil.
Argentina is a leading exporter of soybeans and corn.
Sales tax (VAT) rose 34.9 percent to 20.0 billion pesos, again mirroring private estimates of inflation, one of the highest rates in the world.
Argentina fell into default in late July for the second time in 12 years, and economists say the recession is likely to deepen with little hope for a swift resolution to the debt saga.
5. APHIS ISSUES PROPOSED RULE ABOUT IMPORTATION OF BEEF FROM REGION IN ARGENTINA (US Fed News)
1 September 2014
WASHINGTON, Sept. 1 — Animal and Plant Health Inspection Service (APHIS), United States Department of Agriculture (USDA), has issued a proposed rule called: Importation of Beef From a Region in Argentina.
The proposed rule, published in the Federal Register on Aug. 29 by Michael C. Gregoire, Acting Administrator, states: “We are proposing to amend the regulations governing the importation of certain animals, meat, and other animal products to allow, under certain conditions, the importation of fresh (chilled or frozen) beef from a region in Argentina located north of Patagonia South and Patagonia North B, referred to as Northern Argentina. Based on the evidence in a recent risk assessment, we believe that fresh (chilled or frozen) beef can be safely imported from Northern Argentina provided certain conditions are met. This proposal would provide for the importation of beef from Northern Argentina into the United States while continuing to protect the United States against the introduction of foot-and-mouth disease.”
For more information, contact Silvia Kreindel, Senior Staff Veterinarian, Regionalization Evaluation Services, National Import Export Services, Veterinary Services, APHIS, 4700 River Road Unit 38, Riverdale, MD 20737-1231, 301-851-3313.
The full text of the proposed rule can be found at: http://www.gpo.gov/fdsys/pkg/FR-2014-08-29/html/2014-20643.htm
6. IMPORTATION OF BEEF FROM A REGION IN ARGENTINA – FEDERAL REGISTER EXTRACTS (Department of Agriculture Documents)
29 August 2014
Animal and Plant Health Inspection Service
SUMMARY: We are proposing to amend the regulations governing the importation of certain animals, meat, and other animal products to allow, under certain conditions, the importation of fresh (chilled or frozen) beef from a region in Argentina located north of Patagonia South and Patagonia North B, referred to as Northern Argentina. Based on the evidence in a recent risk assessment, we believe that fresh (chilled or frozen) beef can be safely imported from Northern Argentina provided certain conditions are met. This proposal would provide for the importation of beef from Northern Argentina into the United States while continuing to protect the United States against the introduction of foot-and-mouth disease.
DATES: We will consider all comments that we receive on or before October 28, 2014.
ADDRESSES: You may submit comments by either of the following methods:
* Postal Mail/Commercial Delivery: Send your comment to Docket No. APHIS-2014-0032, Regulatory Analysis and Development, PPD, APHIS, Station 3A-03.8, 4700 River Road Unit 118, Riverdale, MD 20737-1238.
Supporting documents and any comments we receive on this docket may be viewed athttp://www.regulations.gov/#!docketDetail;D=APHIS-2014-0032 or in our reading room, which is located in Room 1141 of the USDA South Building, 14th Street and Independence Avenue SW., Washington, DC. Normal reading room hours are 8 a.m. to 4: 30 p.m., Monday through Friday, except holidays. To be sure someone is there to help you, please call (202) 799-7039 before coming.
FOR FURTHER INFORMATION CONTACT: Dr. Silvia Kreindel, Senior Staff Veterinarian, Regionalization Evaluation Services, National Import Export Services, Veterinary Services, APHIS, 4700 River Road Unit 38, Riverdale, MD 20737-1231; (301) 851-3313.
SUPPLEMENTARY INFORMATION: The regulations in 9 CFR part 94 (referred to below as the regulations) prohibit or restrict the importation of certain animals and animal products into the United States to prevent the introduction of various diseases, including rinderpest, foot-and-mouth disease (FMD), African swine fever, classical swine fever, and swine vesicular disease. These are dangerous and destructive communicable diseases of ruminants and swine. Section 94.1 of the regulations contains criteria for recognition by the Animal and Plant Health Inspection Service (APHIS) of foreign regions as free of rinderpest or free of both rinderpest and FMD. Section 94.11 restricts the importation of ruminants and swine and their meat and certain other products from regions that are declared free of rinderpest and FMD but that nonetheless present a disease risk because of the regions’ proximity to or trading relationships with regions affected by rinderpest or FMD. Regions APHIS has declared free of FMD and/or rinderpest, and regions declared free of FMD and rinderpest that are subject to the restrictions in SEC 94.11, are listed on the APHIS Web site at http://www.aphis.usda.gov/import_export/animals/animal_disease_status.shtml.
APHIS considers rinderpest or FMD to exist in all regions of the world not listed as free of those diseases on the Web site. On June 26, 1997, we published in the Federal Register a final rule (62 FR 34385-34394, Docket No. 94-106-5) allowing, under certain conditions, the importation of fresh (chilled or frozen) beef from Argentina. These conditions were laid out in SEC 94.21 of the regulations. However, on March 12, 2001, Argentina reported to the World Organization for Animal Health (OIE) and the United States that they had detected an outbreak of FMD in a herd of 300 young bulls in the Province of Buenos Aires. Argentina’s Servicio Nacional de Sanidad y Calidad Agroalimentario (SENASA) subsequently reported the spread of FMD to 15 of the country’s 23 Provinces. In an interim rule published in the Federal Register on June 4, 2001 (66 FR 29897-29899, Docket No. 01-032-1), and effective retroactively to February 19, 2001, we removed SEC 94.21 and removed Argentina from the list in SEC 94.1 of regions declared to be free of both rinderpest and FMD. APHIS adopted the interim rule without change as a final rule in a document published in the Federal Register on December 11, 2001 (66 FR 63911, Docket No. 01-032-2). Although there has not been a major outbreak of FMD since 2001/2002, we do not consider Northern Argentina to be free of FMD because of Argentina’s vaccination program in that region.
With few exceptions, the regulations prohibit the importation of fresh (chilled or frozen) meat of ruminants or swine that originates in or transits a region where FMD is considered to exist. One such exception is beef and ovine meat /1/ from Uruguay, which conducts FMD vaccinations of cattle. The regulations allow the importation of fresh beef and ovine meat from Uruguay into the United States provided that the following additional conditions have been met:
FOOTNOTE 1 The provisions allowing the importation of ovine meat from Uruguay were added in a final rule published in the Federal Register (78 FR 68327-68331) on November 14, 2013, and effective on November 29, 2013. END FOOTNOTE
* The meat is beef or ovine meat from animals born, raised, and slaughtered in Uruguay.
* FMD has not been diagnosed in Uruguay within the previous 12 months.
* The meat comes from bovines or sheep that originated from premises where FMD had not been present during the lifetime of any bovines or sheep slaughtered for the export of beef and ovine meat to the United States.
* The meat comes from bovines or sheep that were moved directly from the premises of origin to the slaughtering establishment without any contact with other animals.
* The meat comes from bovines or sheep that received ante-mortem and post-mortem veterinary inspections, paying particular attention to the head and feet, at the slaughtering establishment, with no evidence found of vesicular disease.
* The meat consists only of bovine or ovine parts that are, by standard practice, part of the animal’s carcass that is placed in a chiller for maturation after slaughter. The bovine and ovine parts that may not be imported include all parts of the head, feet, hump, hooves, and internal organs.
* All bone and visually identifiable blood clots and lymphoid tissue have been removed from the meat.
* The meat has not been in contact with meat from regions other than those listed in the regulations as free of rinderpest and FMD.
* The meat comes from carcasses that were allowed to maturate at 40 to 50 [degrees] F (4 to 10 [degrees] C) for a minimum of 24 hours after slaughter and that reached a pH of below 6.0 in the loin muscle at the end of the maturation period. Measurements for pH must be taken at the middle of both longissimus dorsi muscles. Any carcass in which the pH does not reach less than 6.0 may be allowed to maturate an additional 24 hours and be retested, and, if the carcass still has not reached a pH of less than 6.0 after 48 hours, the meat from the carcass may not be exported to the United States.
* An authorized veterinary official of the Government of Uruguay certifies on the foreign meat inspection certificate that the above conditions have been met.
* The establishment in which the bovines and sheep are slaughtered allows periodic on-site evaluation and subsequent inspection of its facilities, records, and operations by an APHIS representative.
In response to a request from the Government of Argentina that we reconsider our decision to prohibit the importation of fresh (chilled or frozen) beef into the United States from Northern Argentina in light of improvements Argentina has made in its FMD detection and eradication procedures, we conducted a risk analysis of that region, which can be viewed on the Internet on the Regulations.gov Web site or in our reading room. /2/ For the risk analysis, we evaluated information provided by SENASA in accordance with SEC 92.2 regarding the country’s FMD status, reviewed published scientific literature, and conducted five site visits to the proposed exporting region. We concluded that Argentina has infrastructure and emergency response capabilities adequate to effectively contain, eradicate, and report FMD in the event of an outbreak in a timely manner. We further concluded that Argentina is able to comply with U.S. import restrictions on the specific products from affected areas. Based on the evidence documented in our recent risk assessment, we believe that fresh (chilled or frozen) beef can be safely imported from Northern Argentina, provided certain conditions are met. Accordingly, we are proposing to amend the regulations in SEC 94.29 to allow the importation of fresh beef from Northern Argentina. Under this proposed rule, fresh beef from Northern Argentina would be subject to the same import conditions imposed on fresh beef and ovine meat from Uruguay.
FOOTNOTE 2 Instructions on accessing Regulations.gov and information on the location and hours of the reading room may be found at the beginning of this document under ADDRESSES. You may also request paper copies of the risk analysis by calling or writing to the person listed under FOR FURTHER INFORMATION CONTACT. END FOOTNOTE
In this proposed rule, we are also giving notice that we would add Argentina to the list of regions that we recognize as free of rinderpest, which can be viewed athttp://www.aphis.usda.gov/wps/portal/aphis/ourfocus/importexport?1dmy&urile=wcm%3apath%3a/aphis_content_library/sa_our_focus/sa_animal_health/sa_import_into_us/sa_entry_requirements/ct_rinderpest. Historically, rinderpest virus has never become established in North America, Central America, the Caribbean Islands, or South America.
Miscellaneous
–This is a summary of a Federal Register article originally published on the page number listed below–
Proposed rule.
CFR Part: “9 CFR Part 94″
RIN Number: “RIN 0579-AD92″
Citation: “79 FR 51508″
Document Number: “Docket No. APHIS-2014-0032″
Federal Register Page Number: “51508”
“Proposed Rules”
7. NOTICE OF DETERMINATION OF THE FOOT-AND-MOUTH DISEASE AND RINDERPEST STATUS OF A REGION OF PATAGONIA, ARGENTINA – FEDERAL REGISTER EXTRACTS (Department of Agriculture Documents)
29 August 2014
Animal and Plant Health Inspection Service
SUMMARY: We are adding a region of Argentina, consisting of the areas of Patagonia South and Patagonia North B, to the lists of regions that are considered free of rinderpest and foot-and-mouth disease (FMD). We are taking this action because we have determined that this region is free of rinderpest and FMD. We are also adding the Patagonia Region to the list of regions that are subject to certain import restrictions on meat and meat products because of their proximity to or trading relationships with rinderpest- or FMD-affected countries. These actions update the disease status of the Patagonia Region with regard to rinderpest and foot-and-mouth disease while continuing to protect the United States from an introduction of those diseases by providing additional requirements for any meat and meat products imported into the United States from the Patagonia Region of Argentina.
DATES: Effective Date: October 28, 2014.
FOR FURTHER INFORMATION CONTACT: Dr. Silvia Kreindel, Senior Staff Veterinarian, Regionalization Evaluation Services, National Import Export Services, VS, APHIS, 4700 River Road Unit 38, Riverdale, MD 20737-1231; (301) 851-3300.
SUPPLEMENTARY INFORMATION: The regulations in 9 CFR part 94 (referred to below as the regulations) govern the importation of certain animals and animal products into the United States to prevent the introduction of various animal diseases, including rinderpest and foot-and-mouth disease (FMD). The regulations prohibit or restrict the importation of live ruminants and swine, and products from these animals, from regions where rinderpest or FMD is considered to exist.
Within part 94, SEC 94.1 contains requirements governing the importation of ruminants and swine from regions where rinderpest or FMD exists and the importation of the meat of any ruminants or swine from regions where rinderpest or FMD exists to prevent the introduction of either disease into the United States. We consider rinderpest and FMD to exist in all regions except those listed in accordance with paragraph (a)(2) of that section as free of rinderpest and FMD.
Section 94.11 of the regulations contains requirements governing the importation of meat of any ruminants or swine from regions that have been determined to be free of rinderpest and FMD, but that are subject to certain restrictions because of their proximity to or trading relationships with rinderpest- or FMD-affected regions. Such regions are listed in accordance with paragraph (a)(3) of that section.
The regulations in 9 CFR part 92, SEC 92.2, contain requirements for requesting the recognition of the animal health status of a region. If, after review and evaluation of the information submitted in support of the request, the Animal and Plant Health Inspection Service (APHIS) believes the request can be safely granted, APHIS will make its evaluation available for public comment through a notice published in the Federal Register . At the close of the comment period, APHIS will review all comments received and will make a final determination regarding the request that will be detailed in another notice published in the Federal Register .
In accordance with that process, on January 23, 2014, we published in the Federal Register (79 FR 3775-3777, Docket No. APHIS-2013-0105) a notice of availability /1/ in which we announced the availability for review and comment of our evaluation of the FMD status of the areas of Patagonia South and Patagonia North B, referred to below as the Patagonia Region of Argentina. Based on this evaluation, we determined that that the animal disease surveillance, prevention, and control measures implemented by Argentina in the Patagonia Region are sufficient to minimize the likelihood of introducing FMD into the United States via imports of FMD-susceptible species or products.
FOOTNOTE 1 To view the notice of availability, the assessments, and the comments we received, go to http://www.regulations.gov/#!docketDetail;D=APHIS-2013-0105. END FOOTNOTE
However, because of the Patagonia Region’s proximity to and trading relationships with FMD-affected regions, we found that it is necessary to impose certain restrictions in accordance with SEC 94.11 on the importation of meat of any ruminants or swine from the Patagonia Region.
In the same notice we also made available an evaluation assessing the rinderpest status of South America for public review and comment. Rinderpest has never been established in South America. No South American country has ever reported the disease except Brazil, which had an outbreak in 1921 that was limited in scope and quickly eradicated. Furthermore, the global distribution of rinderpest has diminished significantly in recent years as a result of the Food and Agriculture Organization Global Rinderpest Eradication Program. The last known cases of rinderpest worldwide occurred in the southern part of the “Somali pastoral ecosystem” consisting of southern Somalia, eastern Kenya, and southern Ethiopia. In May 2011, the World Organization for Animal Health (OIE) announced its recognition of global rinderpest freedom.
We solicited comments on the notice of availability for 60 days ending on March 24, 2014, and extended the comment period for an additional 30 days, ending April 23, 2014. We received 33 comments by that date, from State and national livestock associations and from private citizens. The commenters raised a number of issues about our proposed action. The comments are discussed below.
Five commenters specifically addressed our proposal to recognize South America as free of rinderpest. All of those commenters expressed support for that determination.
Many commenters raised concerns about the risk analysis for FMD. These concerns included concerns about the methodology, scope, hazard identification, release assessment, exposure assessment, risk estimation, and discussion of geographical details.
Several commenters stated that the specific methodology and measurements used during the site visits to support the qualitative risk analysis are not available for review. One commenter expressed concern that such documentation was not collected or recorded. That commenter also stated that APHIS should develop a protocol to be used for site visits so that reviewers’ assessments can be analyzed and summarized more objectively, and then made available with APHIS’ conclusions of the risk analysis.
The purpose of the site visit is to verify and complement the information previously provided by the country. APHIS site visits consist of an in-depth evaluation of the risk factors identified by APHIS in SEC 92.2 as factors to consider in assessing the risk of the relevant animal disease posed by a region. /2/ The animal disease risks are identified in the risk analysis from the information gathered on these factors during the site visits and APHIS’ document review, and whenever mitigations are considered necessary, such mitigations are discussed in the risk analysis.
FOOTNOTE 2 The risk analysis for the Patagonia Region includes an in-depth assessment of the 11 factors used by APHIS to evaluate the animal health status of a region prior to 2012. In 2012, APHIS consolidated the 11 factors listed in SEC 92.2(b) into 8 factors. APHIS introduced this simplification in order to facilitate the application process; however, since the evaluation of the Patagonia Region started before 2012, and the topics addressed by the 11 factors are encapsulated in the 8, this analysis follows the 11 factor format. END FOOTNOTE
APHIS has also published guidance on our approach to implementing our regionalization process and the way in which we apply risk analysis to the decision-making process for regionalization. This document can be found on the APHIS Web site athttp://www.aphis.usda.gov/import_export/animals/downloads/regionalization_process.pdf.
Site visit findings are thoroughly described throughout the risk analysis, including visits to local offices (pages 21-22), airports (pages 33-34), border controls (pages 37-38), farms (page 43), and laboratories (pages 60-64).
One commenter stated that APHIS should regard the eight factors as more than a simple checklist for reviewers and that consistent implementation of the factors should be completely verified.
APHIS agrees with the commenter. When conducting a site visit, APHIS verifies that all the factors related to the FMD control and eradication program, including prevention, controls, surveillance, and reporting, are in place and that the country has strong veterinary authority and infrastructure to carry out the FMD program.
Some commenters stated that according to the risk analysis, APHIS only conducted three site visits to the Patagonia Region. The commenters stated that APHIS should maintain a more active and robust presence in the region.
APHIS believes that its site visits to the Patagonia Region, in conjunction with the other documentation and information APHIS has reviewed, provided APHIS with sufficient information to correctly determine the region’s FMD status. As a member of the OIE, Argentina must immediately notify the OIE of any suspect cases of FMD that may occur in the future. In addition, under SEC 92.2, a region that is granted a specific animal health status may be required to submit additional information pertaining to that animal health status, or to allow APHIS to conduct additional information collection activities in order to maintain its animal health status.
–This is a summary of a Federal Register article originally published on the page number listed below–
Notice.
Citation: “79 FR 51528″
Document Number: “Docket No. APHIS-2013-0105″
Federal Register Page Number: “51528”
“Notices”
8. ARGENTINA POLITICS: QUICK VIEW – GENERAL STRIKE HITS ACTIVITY(Economist Intelligence Unit – ViewsWire)
29 August 2014
Event
On August 28th the president, Cristina Fernández de Kirchner, faced its second 24-hour general strike in just four months, triggered by the rapid deterioration of labour conditions as joblessness rises and real wages fall.
Analysis
The strike (the third in the Kirchner era) was called by Hugo Moyano, leader of the Confederación General de Trabajadores (CGT, Argentina’s largest trade union confederation) and a former government ally; Luis Barrionuevo, the leader of the restaurant workers’ unions; and Pablo Micheli, the leader of the Central de Trabajadores de la Argentina (CTA, another trade union confederation). Some other unions also supported the strike and led road blockades in the Buenos Aires metropolitan area. The strike was called mainly in protest against rising unemployment and falling real salaries, but unions are also demanding more specific measures from the government, including income tax reform, the reopening of wage negotiations after the rapid acceleration of inflation in recent months, and the introduction of a bill suspending worker dismissals for a period of one year.
Although Mr Moyano did not initially support the implementation of road blockades during the strike, the fact that the bus drivers’ union did not join the strike (reducing the overall impact of the walk out) appears to have caused him to backtrack. Workers from a variety of other sectors did join the strike, including transport (trains, planes, trucks and ports), banks, petrol stations, and waste collection. Some bus drivers also joined the strike, as did workers on some subway lines. The strike affected schools, hospitals and government offices, as some unions representing teachers, healthcare workers and public employees participated. According to Mr Moyano, around 80% of workers in total joined the strike, although the government disputes these figures. Whatever the actual number, services were clearly disrupted, and it appears that despite the low credibility of many of the country’s union leaders, the worsening of the labour market has increased their support. With the country’s growing economic woes likely to cause a further deterioration in labour market conditions, this will set the stage for continued conflict.
9. RETAIL SALES SIGNAL FURTHER ECONOMIC CONTRACTION AS ARGENTINE WORKERS DEMAND HIGHER WAGES DURING NATIONAL STRIKE (IHS Global Insight Daily Analysis)
By Paula Diosquez-Rice, Mario Guillen
1 September 2014
According to official figures released by Argentina’s National Statistical Institute (INDEC), real supermarket sales reported a decrease of 0.5% month on month (m/m) in July, while sales in shopping centres dropped 9.1% m/m in real terms. Although sales in the food and beverages sector increased slightly by 1% m/m in nominal terms, some important sub-categories showed a decrease, namely vegetables and fruit (down 1.7% m/m), processed foods and rotisserie (down 1.1% m/m), and meat (down 0.2% m/m). Electronics and home appliances also recorded a reduction of 2.7% m/m in nominal terms. INDEC clarified that the weights used in this month’s report are based on the modified methodology of the consumer price index (CPI), using the fourth quarter of 2013=100 as its base. For this reason, INDEC did not report a year-on-year (y/y) variation of real prices for July 2014, nor did it correct for seasonality.
Ignoring the effects of inflation, the numbers indicate an increase in supermarket and shopping centre sales of 35% y/y and 17.5% y/y, respectively.
Significance: The figures suggest that households are cutting back on the most expensive items in the basic basket of goods, an expected symptom of economic downturn. Demand contraction in Argentina is a sign of wages that are unable to keep up with the pace of inflation, reducing the purchasing power of the population and therefore increasing poverty. With rising unemployment and falling production adding to precarious public accounts, President Cristina Fernández de Kirchner’s administration will have to negotiate with trade unions if it wishes to avoid social unrest following a 24-hour national strike on 28 August.
10. ARGENTINA’S CLASH WITH HEDGE FUNDS LEADS TO REVISED BOND CLAUSE (Business News Americas)
29 August 2014
The International Capital Market Association (ICMA) revised certain clauses in sovereign bond contracts to avoid a recurrence of the problems that have marred the restructuring of Argentina’s debt.
The ICMA, which sets conventions for capital markets and produces standard documentation for transactions such as debt issuance, said it had updated collective action clauses and established a new standard pari passu, or equal treatment clause, for sovereign debt securities.
The changes to collective action clauses would prevent a minority of investors from blocking a restructuring deal agreed by 75% or more of bondholders. The agreed deal would subsequently be legally binding for all holders of the bonds, including those who voted against it.
Changes to the pari passu would also prevent holdouts from using the clause to obstruct debt payments to holders of restructured bonds.
Following Argentina’s record US$93bn debt default in 2001-02, the country made offers to settle its debts to bondholders through swaps in 2005 and 2010, and restructured 92% of its debt. But a number of holders led by NML Capital, a unit of hedge fund firm Elliott Management, refused to accept Argentina’s offers.
Following a lengthy legal battle in the US courts, the holdouts pushed the country into default in July by demanding full repayment, while preventing the country from paying restructured bondholders under the pari passu clause.
“ICMA’s new pari passu provision details clearly the scope of its application, thereby reducing the risk of the pari passu clause being a basis for disrupting future sovereign debt restructurings and raising concerns with inter-creditor equity,” said the organization.
“ICMA’s new standard collective action clauses provide a practical solution to the problem of blocking minorities through the inclusion of aggregation mechanisms, which allow voting across multiple bond issues.”
ICMA represents around 400 debt issuers globally, including some of the world’s biggest investment banks.
11. ARGENTINA ASSESSING 2015 LNG DEMAND, NO TENDER SOON -YPF SOURCE (Reuters News)
By Oleg Vukmanovic
1 September 2014
MILAN, Sept 1 (Reuters) – Argentina’s state-controlled YPF is evaluating the scale of national demand for liquefied natural gas (LNG) imports in 2015 and, with ample stocks at hand, does not expect to issue a tender soon, a company official said.
“We are already covered for the next six months at least, and so we are not in a rush to launch any kind of tender for next year,” the Buenos Aires-based official who asked not to be named told Reuters on Monday.
Over the past month, LNG traders have been expecting Argentina to tap the market for supplies for 2015 and even 2016 as well as possibly the fourth-quarter of this year, hoping that such a deal would cement a nascent recovery in spot prices for the fuel.
The source said that YPF had no intention of launching a tender last month and that it was still only gauging demand for 2015, adding that a tender for 2016 supply may be further off.
Some traders said no tender had emerged due to low demand and high stocks at Argentina’s two terminals, Escobar and Bahia Blanca.
The company source confirmed that abnormally mild weather in Argentina’s southern hemisphere winter, with temperatures in Buenos Aires currently around 20 degrees Celsius, has complicated the demand outlook and reduced any urgency to secure additional LNG cargoes.
“We are moving step by step (towards a tender), and there are many steps in state-owned companies,” he said, adding that politicians were “keeping their noses out” of the process.
Argentina’s latest debt default in July and its scrabble for reserves in dollars has so far not impeded its ability to buy dollar-denominated LNG, the YPF source and traders said.
Pre-payment terms agreed with Argentina’s LNG suppliers last year have eased concerns over the impact of the latest crisis.
In the new system, YPF pays for a quarter of a cargo’s value before it is loaded onto a tanker and transfers the rest before the vessel enters its territorial waters, traders said.
Argentina, which typically buys its LNG in annual tenders, refined its strategy last year by tapping markets for supply two years forward while leaving a portion of its demand unmet.
12. ARGENTINA, CHILE SEEK TO FACILITATE NATURAL GAS, POWER EXCHANGE (Platts Commodity News)
By Tom Azzopardi
29 August 2014
Santiago (Platts)–29Aug2014/744 pm EDT/2344 GMT   The governments of Argentina and Chile will explore ways to facilitate the exchange of energy, including electricity and natural gas, between the two countries under an agreement signed in Buenos Aires on Friday.
Under the deal, signed by Chilean Energy Minister Maximo Pacheco and Argentina’s federal planning minister, Julio De Vido, the two countries will also seek to support each other when dealing with energy emergencies and strengthen cooperation in energy matters, the Chilean energy ministry said in a statement.
“For Chile it is important to continue develop all opportunities for regional integration and the signing of this agreement forms of the efforts we are making in the area of energy, both electricity and gas,” said Chile’s Pacheco.
The two countries, separated by the Andes mountains, are already linked by four gas pipelines and one transmission line, but the infrastructure is only rarely used after Argentina’s energy crisis forced the country to halt almost all exports of gas and power.
Chile’s energy ministry said the new agreement would seek to permit the exchange of gas between the two countries “not through sales contract, as it was done in the past, but through swaps,” referring to this as a “molecule-by-molecule” approach.
Argentina’s state energy company Enargas will instruct GasAndes, the operator of the main pipeline linking central Chile with western Argentina, to carry out work that would allow such exchanges.
The development of two regasification terminals in central and northern Chile has opened the possibility of reversing flows across the Andes, while Argentina could resume supplies to Chile’s gas-dependent Magallanes region at the continent’s southern tip.
The deal also seeks to promote joint ventures between state-owned oil producers ENAP and YPF to increase gas production capacity in both countries.
It also establishes the possibility of exchanging electricity between Argentina and Chile to deal with emergencies and to take advantage of synergies, as long it does not put at risk power supplies in either country.
In April, Argentina sent around 400 MW of electricity to northern Chile after a major earthquake knocked out power supplies in the region. Chile returned the electricity in August, the first time electricity had been sent east across the Andes.
13. HORROR MOVIE PRODUCTION GETS BOOST FROM ARGENTINE GOVERNMENT (Daily Variety)
By John Hopewell
30 August 2014
In a further pioneering Argentine push into genre pic production, Lucrecia Cardoso, president of Argentina’s INCAA Film Institute, has put aside specific funding for horror movie production.
Targeted state financing kicks off with a call for applications, to be launched shortly, for INCAA subsidy funding for two scarefare movies.
In a parallel move, Blood Window, Ventana Sur’s genre pic mini-mart launched in 2013, will expand with a Blood Window horror movie mini-fest playing in Buenos Aires parallel to early December’s Ventana Sur Latin American film market, a joint venture of INCAA and the Cannes Film Market.
Programmers from Blood Window and many of the world’s top genre events — including Austin’s Fantastic Fest, Spain’s Sitges-Catalonia Festival, the Puchon Fantastic Fest and Mexico’s Morbido Fest — will select the lineup.
San Sebastian Festival director Jose Luis Rebordinos is once more on board to select Blood Windows Bloody Works in Progress, a pics-in-post competition.
Argentina’s genre push comes as Damian Szifron’s Cannes competition player “Wild Tales,” a Sony Pictures Classics pickup unspooling at Telluride and Toronto, has nabbed 750,000 admissions through Friday in Argentina.
Over 2014, a selection of Argentine movies, often distributed by studios, have outperformed B.O. expectations, including Disney-distribbed “Baneros 4: Los Rompeolas” ($5 million); “The Mystery of Happiness” ($3 million), a career-best for director Daniel Burman; and “Death in Buenos Aires” ($2.3 million), released by Distribution Co.
14. LATIN AMERICA ECONOMY: EIU’S LATEST ASSUMPTIONS (Economist Intelligence Unit – ViewsWire)
1 September 2014
Argentina’s debt default is unlikely to cause contagion
Latin America will experience another year of sub-par growth in 2014, slowing to 1.8% from 2.6% in 2013. The regional aggregate will be held down by Brazil, where we currently maintain our forecast of growth of only 1% but with increasing downside risks. The successful staging of the Fédération Internationale de Football Association (FIFA) World Cup in June and July has failed to stir the sluggish economy and there is no obvious catalyst to improve sentiment ahead of the October elections. Mexico, the region’s second-largest economy, is also disappointing: we maintain our 2014 growth forecast at 2.4%, although we do expect a pick-up in 2015. Argentina, the region’s third-largest economy, is again in default following unfavourable court rulings in the US. The implications for Argentina’s economy are unclear, in part because of the particular circumstances of the case. The wider region is unlikely to be affected by contagion, as Argentina has long been considered a special case.
The region is feeling the squeeze from slower growth in China. This has exerted downward pressure on many commodity prices, worsening the region’s terms of trade at a time when the outlook for capital inflows has become less certain owing to the winding-down of the US Fed’s bond-buying programme (on schedule to be terminated in October) and the expectation that US policy rates will start to rise from the second half of 2015. In some markets, notably Brazil, domestic supply constraints that built up during the growth spurt of the previous decade have become binding, with tight labour markets and infrastructure shortcomings creating bottlenecks and fuelling inflationary pressures. In others, notably Argentina and Venezuela, policy mismanagement is the main drag on the economic outlook (in both countries we are projecting recession in 2014). While some of these headwinds to the region’s growth prospects will ease over time, we expect only a gradual pick-up in the medium term, to an average growth rate of 3.6% in 2015-18 (well below pre-2009 rates of expansion).
Our forecast features several downside risks
Even this relatively modest forecast for growth is subject to downside risks. Owing to stronger external and fiscal balance sheets than in the past decade, most countries are less vulnerable to the balance-of-payments crises that periodically marred their performance in the 1980s and 1990s. However, tighter global financing conditions that result from an end to QE and a rise in the Fed funds rate will be a constraint on financing and may curtail the investment that the region needs if it is to fulfil its potential. (Latin America recorded a current-account deficit of around US$150bn in 2013, and we expect it to remain at this level in 2014.) Banking systems in the region, which expanded rapidly during a period of low interest rates, are likely to suffer increases in non-performing loans as the normalisation of US monetary policy leads to higher domestic interest rates, putting pressure on the debt-servicing capacity of borrowers. In addition, the expected weakening of Latin American currencies as US monetary policy is normalised may claim casualties among entities with large, unhedged dollar liabilities, although it will have the benefit of helping to restore the competitiveness of the region’s manufacturers.
Given less favourable external conditions, productivity gains will be the crucial determinant driving economic growth in the region in the forecast period. In some countries, such as Mexico, where the administration of the president, Enrique Peña Nieto, has won congressional approval for an ambitious programme of structural reform, the outlook for such productivity gains is improving (and forms the basis for our assumption that growth will pick up towards 4% in the medium term). Elsewhere, including in Brazil, political obstacles to structural reform persist and will continue to cloud the growth and investment outlook. Our forecasts for the region as a whole assume a pick-up in gross fixed investment growth from current lows (from 2.6% in 2013 to over 6% in 2016-18). But the outlook will vary by country, and businesses will look carefully at policies and the reform agenda across countries when selecting where to allocate their investments.
Stronger demand from developed countries will offset some of the negative factors affecting the region this year. After a poor first quarter, we forecast that the US will post annualised quarter-on-quarter growth of around 3% in the rest of the year. The recovery in the euro zone remains uneven and we have revised down our growth forecast to 0.9%. Even so, this will represent a marked improvement on last year’s contraction. Beyond this year we expect the recovery in the euro zone to be consolidated in 2015-18, which, together with a period of sustained growth in the US, will provide support for the region by boosting demand for its exports. In the emerging world, we have edged up our 2014 growth forecast for China to 7.5%, although the medium-term structural trend of slowing growth remains unchanged.
Divergent monetary policy trends in the region this year
Latin American central banks are currently following divergent monetary policy paths. Brazil embarked on a monetary-tightening cycle as early as April 2013 in response to inflationary pressures. Successive increases since then have brought the benchmark Selic rate to 11% from a low of 7.25%. Having raised the rate to 11% in April, it has been on pause since, although the inflation rate (6.5% in July) remains well above the 4.5% target. In Mexico, by contrast, where inflation has fallen below 4% since March, Banco de México (the central bank) cut rates in June, by 50 basis points to 3.5%. In Chile the central bank cut rates twice in the first quarter and, as inflation is now trending down, we expect a further cut later in the year. Although the future trend of policy rates in the region will be influenced by inflation and domestic economic conditions in each country, we believe that there will be a general upward trend in rates from next year as monetary policy is progressively tightened in the US.
Growth remains slow in Mexico but should quicken over the medium term
The Mexican economy remains mired in a soft patch, as evidenced by the meagre 0.8% year-on-year growth rate recorded in the first quarter of 2014. This follows growth of just 1.3% for 2013 as a whole. Depressed consumer confidence (which dropped again in July) suggests that it will take time before domestic demand picks up to a level more compatible with the economy’s potential growth, and as a result we have revised our 2014 GDP forecast down to 2.4% (from 3% previously). A stronger US outlook for the rest of the year after a particularly harsh winter (which took its toll on Mexican exports) and the combination of higher public spending and monetary easing (Banco de México cut its target rate to 3% in June, from 3.5%) adds some upside risks to the short-term forecasts, but there is still a chance that growth will be lower than expected in 2014 if private consumption fails to accelerate and if public spending fails to compensate for weak consumption and investment. Prospects for medium-term growth in Mexico remain positive provided that the Peña Nieto government is able to follow through and implement the range of structural reforms for which it has secured congressional approval. The reforms could eliminate some of Mexico’s longstanding bottlenecks to growth and add 1-2 percentage points to annual GDP growth, pushing Mexico’s structural growth rate from current levels of under 3.5% to at least 4-5%. The byelaws for the reforms have now been passed and it is now up to the government to implement them effectively, mainly by ensuring that authorities, including the new regulatory institutions, can adequately address the lack of competition and poor outcomes in the sectors that are targeted by the reforms. Our forecasts (which currently contemplate growth averaging 3.9% in 2015-18) will not fully reflect these improvements until progress on implementation has been made and investment (particularly in the energy sector) has been announced.
Brazil’s economy weakened further in the first half
As the October elections draw nearer, the outlook for Brazil’s economy remains poor. A deterioration in macroeconomic policy management and government intervention have undermined investor confidence at a time when Brazil’s terms of trade have been adversely affected by weaker Chinese growth and lower commodity prices. Sentiment has also been hit by public protests over the poor level of public services and over corruption scandals, most notably at the state-owned oil company, Petrobras. Brazil’s costly hosting of the 2014 FIFA World Cup became a focus for such protests. In the event, the tournament was successful, although it has not galvanised the sluggish economy.
The shortcomings in macro policymaking and in regulation have dampened investment, which was only 18.4% of GDP in 2013. A lack of investment in turn has contributed to bottlenecks and supply constraints, fuelling inflationary pressures to which the Banco Central do Brasil (the central bank) has responded by an aggressive monetary tightening. This has pushed up borrowing costs for firms and households alike and, although unemployment is low (4.9% in April), job creation and real wage growth are weaker than in the past, constraining private consumption. The government is hoping that oil and infrastructure concessions will buoy activity, but confidence in policymaking will need to be restored if business investment is to recover. Following GDP growth of only 0.2% in the first quarter, and evidence of further weakness in the second quarter, last month we cut our 2014 GDP growth forecast to 1%. In recent weeks, business and consumer confidence have fallen further and job creation has weakened, creating downside risks to our already modest growth forecast.
Eduardo Campos’s death shakes up the Brazilian presidential election
Eduardo Campos’s death in a plane crash on August 13th has shaken up the October presidential race, increasing uncertainty about the outcome. Mr Campos, of the centre-left Partido Socialist Brasileiro (PSB) party, was trailing in third position in the polls (9% of voter intentions), behind the incumbent Dilma Rousseff (38%) of the leftist Partido dos Trabalhadores and Aecio Neves (23%) of the centrist Partido do Social Democracia Brasileira (PSDB). The PSB is now likely to choose Marina Silva, who was Mr Campos’s running-mate, as the party’s presidential candidate. She polled 19% at the October 2010 presidential election and retains considerable support. If she does run, this will almost certainly take the election to a second-round run-off (on October 26th), as it will deprive Ms Rousseff of the 50% needed to win outright in the first (on October 5th). Ms Silva could possibly even win more votes than Mr Neves, although this is not our baseline forecast. We currently expect the race to go to a second round between Ms Rousseff and Mr Neves, with Ms Rousseff ultimately prevailing despite the malaise currently affecting the country. She will win support from low-income earners as well as most of the more than 14m households that benefit from conditional cash transfer programmes (CCTs), particularly in the north and north-east. Ms Rousseff raised benefits under Bolsa Família, the government’s flagship CCT, by an additional 10% in May.
Mr Neves would probably pursue more market-based policies than Ms Rousseff, which would lift Brazil’s medium-term growth prospects. On our assumption that the incumbent wins and presides to some degree over a strengthening of policy management in her second term, GDP growth will remain sluggish at 1.8% in 2015 as adjustment measures are felt, but will then pick up to 2.7%. Our baseline forecasts are far weaker than in 2004-10 (when annual growth averaged 4.5%), reflecting poor labour market dynamics, softer Chinese demand and slower credit growth. Economic expansion will have to be driven more by productivity gains, with limited pro-gress amid low investment rates (18% of GDP currently) and political resistance to reforms that would enhance competitiveness and ease supply constraints.
Chile, Colombia and Peru are among the investment hotspots in the region and are forecast to post solid GDP growth rates over the medium term. A high dependence on commodity exports leaves them exposed to external shocks, but risks are mitigated by strong macroeconomic fundamentals and long track records of good policy management.
Argentina is in default again as court judgements favour holdouts
Argentina and Venezuela are exceptions to our generally positive view of the region’s capacity to withstand external shocks. In both countries, policy mismanagement over a period of several years has heightened the risk of a balance-of-payments crisis. In Argentina we forecast a GDP contraction of 1.2% in 2014 following the peso’s decline by around 20% since the start of the year. Aside from longstanding problems of policy mismanagement, Argentina’s outlook is clouded by the latest default.
Argentina’s economic performance in the medium term will hinge on the policy framework after the 2015 elections (as well as a resolution of the debt default). Our forecasts are based on the most likely scenario of a change to a more pragmatic, business-friendly government, which would engender greater confidence in the rules of the game and work to eliminate economic distortions. Under these assumptions, we expect investment growth to accelerate and GDP growth to rise above 4% in 2017-18.
In Venezuela, the president, Nicolás Maduro, will struggle to contain rising public discontent over the ailing economy, which is now spilling onto the streets. Further violent clashes between the opposition and security forces are likely, although we currently do not believe that these will bring the government down. At best, GDP will stagnate in 2014-15, but a recession is possible if inflation continues to climb. Access to US dollars will be highly restricted and the business climate will remain hostile.
Argentina files anti-US lawsuit at the ICJ
The government has brought a case against the US at the International Court of Justice (ICJ) in The Hague in protest at a ruling by a New York-based court that requires Argentina to pay holdout creditors at the same time as those who participated in debt swaps in 2005 and 2010.
The ruling by a US judge, Thomas Griesa, caused Argentina to enter into technical default on July 30th after it failed to reach an agreement with litigant holdouts, despite its willingness to pay current creditors. The government argues that paying the litigant holdouts would trigger the Rights Upon Future Offers (RUFO) clause included in the 2005 debt swap, which stipulates that any improved offer on defaulted bonds before end-2014 must also be made to the holders of restructured debt.
The decision to bring the case before the ICJ was advanced by the economy minister, Axel Kicillof, when Mr Griesa refused to grant a stay on July 30th. In the lawsuit, the government claims that the judge’s ruling violated its sovereignty by forcing it to adhere to decisions in US courts that prevent it from dealing with its sovereign debt.
However, the US government would have to agree to have the case heard before the ICJ. This is highly unlikely, given that it withdrew from ICJ jurisdiction in 1986 and that it has already stated that the ICJ is not the appropriate forum. Argentina may be attempting to push the US towards seeking a diplomatic solution to the disagree-ment, a tactic that the US has used previously in such situations. Both Mr Kicillof and the cabinet chief, Jorge Capitanich, have asked for US government intervention.
The government has used increasingly harsh language against the holdouts and Mr Griesa, which caused the judge on August 8th to threaten to hold Argentina in contempt of court. This aggressive strategy may be designed to distract Argentinians from the effects of the fall-out and to bolster government support, which has been low.
Despite the government’s defiance, we continue to see the default as temporary, with payments to restructured bondholders restored on January 1st 2015 (when RUFO expires) if no agreement is reached before then. However, a failure to reach a deal in the meantime could increase foreign-exchange pressures and deepen the current economic downturn, further weakening political stability and the government’s position ahead of the October 2015 general election.
Latin America growth and inflation
(% change)
                2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Real GDP growth -1.6 5.9  4.4  2.9  2.6  1.8  3.0  3.5  3.6  3.6
 Mercosur       -0.6 6.7  4.0  1.5  2.4  0.2  1.7  2.6  3.0  3.0
Inflation       6.7  6.8  7.6  7.0  7.5  9.7  7.9  6.9  6.5  6.5
 Mercosur       9.4  10.5 11.8 10.5 12.0 12.0 10.8 9.7  9.2  9.2
Full members:
Argentina, Brazil, Paraguay, Uruguay and Venezuela.
Source: The Economist Intelligence Unit.
15. S&P TAKES RTG ACTIONS ON 13 ARGENTINE COS; OFF WATCH NEGATIVE (Dow Jones Institutional News)
1 September 2014
1 Sep 2014 13:18 ET Press Release: S&P Takes Rtg Actions On 13 Argentine Cos; Off Watch Neg
The following is a press release from Standard & Poor’s:
— On June 18, 2014, we placed the local currency ratings of 15 corporate entities on CreditWatch with negative implications.
— On July 30, 2014, we lowered the unsolicited long-term foreign currency rating on Argentina to Selective Default ‘SD’ from ‘CCC-/C’. At the same time, we affirmed our unsolicited ‘CCC+/C’ long- and short-term local currency rating and the ‘CCC-‘ transfer and convertibility (T&C) assessment for the country.
— We are resolving the CreditWatch listing on the local currency ratings of 12 entities and taking various negative rating actions on them. At the same time, we are also affirming the foreign currency rating on these entities.
— The outlook for both the local and foreign currency ratings on these corporate entities is now negative, reflecting the potential of further deterioration in our assessment of the economic environment in Argentina.
BUENOS AIRES (Standard & Poor’s) Sept. 1, 2014–Standard & Poor’s Ratings Services lowered the local currency ratings on the following corporates and utilities and removed them from CreditWatch negative. At the same time, we affirmed the foreign currency ratings on these entities (please see ratings list at the end of the article). The outlook on these ratings is negative.
     — Aeropuertos Argentina 2000 S.A. (AA2000)
     — Alto Palermo S.A.
     — CAPEX S.A.
     — CLISA-Compania Latinoamericana de Infraestructura & Servicios S.A.;
     — Compania de Transporte de Energia Electrica en Alta Tension TRANSENER
S.A.;
     — Hidroelectrica Piedra del Aguila S.A.;
     — IRSA Inversiones y Representaciones S.A.;
     — Mastellone Hermanos S.A. (Mastellone);
     — Metrogas S.A.;
     — RAGHSA S.A.; and
     — Transportadora de Gas del Sur S.A. (TGS).
 
At the same time, we affirmed our ‘B-‘ local currency and ‘CCC-‘ foreign currency ratings on Alto Parana S.A., and removed the local currency rating from CreditWatch negative. The outlook on both ratings is negative.
We also affirmed our ‘CCC-‘ foreign currency rating on Petrobras Argentina S.A. The outlook remains negative.
Finally, we affirmed our ‘BBB-‘ senior unsecured debt ratings on Petrobras Argentina’s $300 million notes due 2017 and on Alto Parana’s $270 million notes due 2017, which are irrevocable and unconditionally guaranteed by their respective parents, Petroleo Brasileiro S.A. – Petrobras (BBB-/Stable/–) and Celulosa Arauco y Constitucion S.A. (BBB-/Stable/–).
The downgrade of Clisa, Raghsa, Mastellone, Metrogas, Transener, AA2000, HPDA, and TGS to ‘CCC-‘ reflects our belief that these entities won’t be able to generate enough local currency resources to honor all of their financial obligations under our base-case scenario, which is heavily influenced by the sovereign’s selective default and its implications on the economic environment that those entities will be facing in the near and intermediate term. The affirmation of the ‘CCC-‘ foreign currency ratings on these eight entities reflects our belief that none of them would be able to continue honoring their foreign currency obligations under potential restrictions to access to foreign currency and/or restrictions on the ability to transfer money abroad. As a result, we are now aligning our local currency ratings on these companies to their respective foreign currency ratings and to the T&C assessment on Argentina.
Given that the foreign currency rating on the Republic of Argentina is in selective default, the relevant reference points for the corporate ratings are the sovereign local currency rating and the T&C assessment for the country. Given that these corporate entities have no mitigating factors to withstand scenarios of restrictions to access foreign currency or transfer it abroad, the foreign currency rating on each of these companies is capped by our T&C assessment for the country. Although local currency ratings are not directly capped by the T&C assessment, we crafted a base-case scenario that incorporates our views of the short- and intermediate-term prospects of the economic conditions in Argentina following the sovereign’s selective default and includes the incremental stress associated with potential T&C restrictions within the next six months in considering whether the local currency rating of any of these entities can exceed the T&C assessment.
16. ARGENTINES FLOCK TO STOCKS AS DEFAULT PROPELS BEST GAINS (Bloomberg News)
By Camila Russo
Sep 2, 2014
Argentina’s debt crisis is producing the world’s biggest stock gains as investors buy equities as protection against peso depreciation and soaring inflation.
The benchmark Merval index has jumped 85 percent this year in peso terms after stocks surged in August following the country’s second default in 13 years on July 30. While that’s the greatest return among 92 global indexes tracked by Bloomberg, the gain shrinks to 43 percent in dollar terms when using the official exchange rate and 27 percent at the unofficial rate investors use to skirt currency controls.
The domestic market is getting a leg up as the peso heads for its worst year in more than a decade while inflation accelerates to about 38 percent. Stocks (MERVAL) offer protection from the weakening currency and an opportunity for investors to get around government limits on dollar purchases by buying Argentine assets locally and then selling them abroad for dollars, a practice called the blue-chip swap.
“Buying shares means you’re buying real assets — local companies with earnings that rise in line with inflation,” Christian Reos, the head of research at Allaria Ledesma & Cia., a Buenos Aires brokerage, said in a telephone interview.
The Merval stock gauge trails only Dubai’s DFM General Index among global indexes tracked by Bloomberg when calculated using dollar returns at the official rate. The Argentine peso has weakened 22 percent this year, the most in the world after the currencies of Ghana and Ukraine.
Blocked Payment
A U.S. judge blocked Argentina’s $539 million interest payment in July after President Cristina Fernandez de Kirchner refused to comply with his orders to pay holders of bonds from the country’s 2001 default in full at the same time. This year’s default has stoked dollar demand as Argentines wager the peso will weaken further as central bank reserves decline. Argentines are also buying stocks as a bet that company valuations will surge if the country settles with its creditors, according to Allaria Ledesma & Cia.
Argentine share prices are cheaper relative to their earnings than peers. The Merval index of 13 Argentine shares has an average price-to-earnings ratio of 12.1, while Latin America’s biggest indexes, including Brazil’s Ibovespa and Colombia’s Colcap, have ratios that surpass 18.
“Shares have room to more than double in price because they’re so ridiculously cheap now,” Reos said.
All of the index’s shares have climbed this year in peso terms, with Empresa Distribuidora y Comercializadora Norte SA, a power distributor, more than tripling on speculation the government will increase capped electricity rates. Tenaris SA, the steelmaker, rose the least, with a 47 percent increase.
Tumbling Peso
The peso fell at the fastest pace in seven months in August after the default as exports slowed, reserves fell and demand for dollars increased from Argentines. The Merval jumped 20 percent last month.
Foreigners who want to invest in Argentine stocks with returns in dollars outside of the country can buy American depositary receipts. Investors can move back and forth between peso and dollar securities using the blue-chip swap.
The peso rate implied in that transaction is about 12.8 per dollar, according to a Bloomberg index of eight local shares and ADRs, or 35 percent weaker than the official rate.
Global X MSCI Argentina (ARGT), an Argentina-focused exchange-traded fund, composed of 28 ADRs, gained 6.5 percent this year, compared with 8.4 percent for the Standard & Poor’s 500 Index.
“Most foreigners invest only in ADRs,” Reos said. “They’ll be more willing to come to the local market as soon as the debt situation gets resolved.”
17. ARGENTINA’S ABNORMAL DEFAULT STILL HURTS AS LOSSES SWELL (Bloomberg News)
By Camila Russo and Katia Porzecanski
Aug 29, 2014
Argentina’s default last month may not have looked or felt like a typical sovereign debt debacle, but that doesn’t mean bondholders have escaped scot-free.
No developing nation’s bonds have lost more value this month than Argentina’s, according to a JPMorgan Chase & Co. index of dollar-denominated debt. The country’s benchmark notes have slumped 16.07 cents to 79.51 cents on the dollar since a legal standoff with holdout creditors from a previous default blocked the distribution of an interest payment due by July 30.
While that bond’s price tag is about three times higher than the 26-cent-on-the-dollar norm following sovereign defaults, it is still inflicting losses on investors who piled into Argentine debt last month in a bet that a deal would be struck to break the legal impasse. In the four weeks since the $539 million payment was missed, negotiations between banks, investors and the holdout creditors, who are led by Elliott Management Corp., have failed to yield an agreement.
“Investors had initially hoped that there would be a relatively quick resolution,” said Jorge Piedrahita, the chief executive officer of Torino Capital LLC, a New York-based investment bank that specializes in emerging markets. “Now it’s looking like that might not be the case.”
According to a Moody’s analysis of defaults going back to 1998, the average price for government securities 30 days after a missed payment or during a debt swap was 26 cents.
Argentina’s legal dispute stems from its record $95 billion default in 2001. While 92 percent of creditors accepted discounts of 70 percent in restructurings in 2005 and 2010, hedge funds including billionaire Paul Singer’s Elliott sued for better terms, eventually winning a ruling to be paid in full.
Local Payment
U.S. District Judge Thomas Griesa blocked the country from making payments on bonds until it also pays the hedge funds about $1.6 billion.
President Cristina Fernandez de Kirchner, whose term ends in 2015, announced a plan Aug. 19 to circumvent the order by paying foreign bonds through a local trustee, while also offering investors a swap into identical bonds issued under Argentine law. The local debt bill passed a lawmaker commission Aug. 27 and will be debated by the Senate on Sept. 4.
Griesa has called the proposal “illegal.” That may make it difficult for investors and financial intermediaries to participate without risking being held in contempt of court, according to Claudia Calich, who helps oversee $1.5 billion of emerging-market assets at M&G Ltd. in London. Those could include bond trustees, banks and clearinghouses.
Workers Strike
“I cannot imagine there’s going to be a tremendous amount of acceptance,” Calich said by phone the day after Fernandez disclosed the proposal.
In the black market, the peso weakened to a record low 14.38 per U.S. dollar on Aug. 27, the day before Argentina suffered its second national strike in five months. Truckers, train conductors, port workers and waiters walked off their jobs yesterday in a 24-hour strike to demand higher wages to combat inflation and protest dismissals.
Jefferies Group LLC estimates that the benchmark Argentine bonds could plunge to 60 cents on the dollar if the default is prolonged and there’s an erosion of central-bank reserves that the government uses to make debt payments.
“The default won’t be fixed quickly,” Torino’s Piedrahita said.
18. POLITICS IN ARGENTINA : A GAME OF POLARISATION (The Economist Blog)
By H.C.
September 1, 2014
EVEN when Argentina defaulted on July 30th, for the second time in 13 years, some nonetheless hoped for a negotiated settlement between the government of Cristina Fernández de Kirchner and its “hold-out” creditors. Those hopes are fading. Ms Fernández seems to be calculating that the political benefits of recalcitrance outweigh its economic costs.
The default was prompted by a ruling in a New York court in 2012 which barred Argentina from paying bondholders who accepted the country’s 2005 and 2010 debt restructurings without fully remunerating those hold-outs (Argentina prefers to call them “vultures”) who rejected the deals. Argentina ended up paying neither, tipping it into default. Ms Fernández has now proposed allowing holders of the restructured bonds to swap to new bonds governed under local law. The Senate will begin to debate a bill to that effect on September 3rd.
Even if the country’s legislators sign off on the idea, as they are likely to, the plan will be hard to execute because it would require the co-operation of financial intermediaries that might thereby run afoul of America’s courts. But Ms Fernández is unlikely to care—her aims seem more political than practical.
First, passing such a law would prove that she is still in charge of the political agenda in spite of spiralling inflation, recession, and an ongoing corruption probe into her vice-president. Second, says Ricardo Rouvier, a political analyst, it would reinforce her message that Argentina is willing to continue paying its exchange bondholders. Third, the bill allows her further to build a Manichean political narrative around the choice purportedly facing Argentina—“homeland or vultures”.
The president is blaming almost all of her country’s woes on the hedge funds she says have forced her country into the red. When RR Donnelley, a US-based printing company, filed for bankruptcy and wrapped up its local Argentine operations last month, Ms Fernández threatened to slap it with criminal sanctions, claiming it was an attempt by vulture funds to incite fear. Her chief of staff insisted the vulture funds were also behind a massive general strike on August 28th.
This strategy has given the president a lift in the polls, without supercharging her ratings. “In the past three months presidential approval has increased from 30% to 42%, but the balance is still negative,” says Hugo Haime, a pollster. The bond-swap bill has also placed those hoping to run for president in 2015 in a quandary: vote against it and be called a vulture-lover, vote in favour and mute hopes that the country will normalise once a new president is in office.
The contenders for next year’s race have jumped in different directions. Mauricio Macri, the reformist mayor of the City of Buenos Aires, quickly insisted that his party would not vote for the bond-swap measure, and that Argentina should pay its debts. Congressman Sergio Massa, the opposition candidate with the highest popularity ratings who sells himself as a moderate reformer, took a day to announce he would also vote against the bill. Daniel Scioli, the governor of Buenos Aires province and a member of Ms Fernández’s party, stuck to his boss’s line and slammed his opponents, writing on his website: “Some have unfortunately already announced that they will vote against [the bill], and now I ask voting against this—what does that mean? Voting in favour of what? Of the vultures.”

Courage. The obvious form of intellectual courage is the willingness to hold unpopular views. But the subtler form is knowing how much risk to take in jumping to conclusions. The reckless thinker takes a few pieces of information and leaps to some faraway conspiracy theory. The perfectionist, on the other hand, is unwilling to put anything out there except under ideal conditions for fear that she could be wrong. Intellectual courage is self-regulation, Roberts and Wood argue, knowing when to be daring and when to be cautious.

—  David Brooks – NYTimes 08/29/14  — http://nyti.ms/1pNXc7f

 

ARGENTINE UPDATE – Aug 29, 2014

29 agosto, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. OPPOSITION STRIKE HAS MIXED RESULTS IN ARGENTINA (The Washington Post)
August 28, 2014
BUENOS AIRES, Argentina — Labor groups opposed to Argentine President Cristina Fernandez staged their second general strike of the year Thursday, disrupting life in the capital and other parts of the country as many people stayed away from work and union demonstrators blocked streets to call for higher wages and lower taxes.
The effects of the strike were mixed. There were fewer people on the streets of Buenos Aires and goods went undelivered, and trash uncollected, as truck drivers took part in the strike. In some places, protesters tangled with police.
Some bars and cafes stayed open even though a restaurant workers union joined the strike, in which union members also called for more spending on social welfare and an end to a wave of private-sector layoffs.
Hugo Moyano, a leader of the General Confederation of Labor who has been a fierce critic of Fernandez from the left, said that in many places up to 90 percent of workers stayed away from their jobs.
“In the capital, there are some vehicles running, including taxis and buses, but they are empty, and that demonstrates the support for this action,” he said.
The government sought to downplay the effects of the strike. Cabinet Chief Jorge Capitanich said only about 25 percent of workers took part in the strike.
Labor Minister Carlos Tomada said the strike could not in reality be called a “general strike,” given the level of participation, with no real effect on industrial production and other sectors completely unaffected.
Fernandez has faced increasing criticism with the economy in recession and a rate of inflation estimated at 40 percent that is among the highest in the world.
2. GROUP HOPES TO AVERT ARGENTINA DEFAULT DISASTERS (New York Post)
By Michelle Celarier
August 29, 2014
The call for sovereign default reform is taking a big step.
The International Capital Market Association, an influential group of 400 banks and investors, will call Friday for reforms aimed at preventing repeats of the bitter debt dispute between Argentina and Paul Singer that has spiraled into a new default by the South American country.
The ICMA’s plan would reduce the ability of holdout creditors like Singer to litigate and undermine debt restructurings, in part by using contract clauses to bind all bondholders to debt restructurings in which 75 percent of all holders are in agreement, said Eric LeCompte, of Jubilee USA, a debt relief organization.
Additionally, the plan will argue that the parity clause in existing bond contracts should mean that holdout funds should always receive the same restructured bonds that won support of the majority of investors.
News of the report was first reported by the Financial Times.
3. ARGENTINA RULES OUT SECOND DEVALUATION OF PESO (Reuters News)
28 August 2014
BUENOS AIRES, Aug 28 (Reuters) – Argentina on Thursday ruled out a second sharp devaluation of the peso this year, despite heavy pressure on the local currency as savers and companies faced with high inflation and the country’s default scrabble for dollars.
The government implemented a shock 20 percent devaluation of the peso in January, although President Cristina Fernandez had previously sworn this would never happen under her watch.
The widening gulf between the official rate and the black market rate since Latin America’s third-biggest economy defaulted on its debt have fuelled expectations of another hefty intervention.
The head of the influential Industrial Union of Argentina, Hector Mendez, said earlier this month the peso should trade at 10 per dollar at the official rate to provide exporters with a cushion against one of the world’s highest inflation rates.
Speaking about calls for a devaluation, Argentine Cabinet Chief Jorge Capitanich said “obviously this will not happen”. The government has said a devaluation would fuel inflation, which private economists already see running at more than 30 percent this year.
The peso has tanked 1.37 percent to 8.4 since Fernandez unveiled plans to skirt U.S. court rulings that prevent Argentina’s servicing its debt until the country settles with U.S. hedge funds demanding full payment on their bonds. The currency has fallen 22.4 percent this year.
On the black market, the peso has fallen even more, dropping by 8 percent since Fernandez’s announcement and by 30.2 percent this year to 14.33 per dollar. The so-called “blue peso” has dropped 11.7 percent in August alone.
Argentina missed a June interest payment after U.S. District Judge Thomas Griesa blocked a coupon payment owed to holders of debt that was restructured after the country’s 2002 default on $100 billion in debt.
4. ARGENTINE UNIONS STAGE GENERAL STRIKE AS ECONOMY DETERIORATES (Reuters News)
28 August 2014
BUENOS AIRES, Aug 28 (Reuters) – Argentine opposition labor unions staged their second general strike this year on Thursday to protest soaring inflation and job cuts, slamming the brakes on business activity and bringing the Rosario grains export hub to a near standstill.
Latin America’s third largest economy is mired in a recession that is set to worsen after its default last month as pressure on the peso currency builds, investment withers and borrowing costs for companies and provinces rise.
The 24-hour strike called by the powerful CGT labor organization impacted trains, air transport, gas stations and public administration.
“The reasons (for the strike) are suspensions, job cuts … and we are also raising the issue of the income tax and the reopening of wage talks,” said Ruben Sobrero, a leader of the rail workers trade union.
Accelerating inflation is pushing workers into higher income tax brackets although their wages are not rising in real terms.
The Argentine economy slipped into recession in the first quarter as both industry and private consumption dropped. The country has one of the world’s highest inflation rates, currently running at more than 30 percent, according to private economists.
“If our demands are not listened to, then there will be another strike of 48 hours in September,” Sobrero said.
About 80 percent of Argentine grains and oilseeds leave from Rosario, located on the Parana River. Unionized workers are needed to manage the entrance and exit of each ship from the constellation of ports that make up the Rosario hub.
Port workers have staged many walkouts at Rosario over the past few months, slowing trade. Analysts fear social unrest could grow as the default lengthens, darkening the economic outlook.
Argentina slipped into default again in July after a U.S. court blocked a coupon payment owed to holders of debt that was restructured after the country’s record default in 2002 on $100 billion in debt. The court said Argentina could only service its debt if it also paid so-called holdouts who rejected its restructuring.
Argentine Cabinet Chief Jorge Capitanich said the strike was politically-motivated due to general elections next year, saying only 25 percent of workers had joined the protest.
5. ELLIOTT UNIT EXTENDS LEGAL FIGHT ON ARGENTINA DEBT TO CHINA (HedgeWorld News)
By Davide Scigliuzzo
28 August 2014
NEW YORK, Aug 28 (IFR) – A unit of billionaire Paul Singer’s Elliott Management, which is Argentina’s main holdout creditor, is extending its legal fight with the South American nation to China.
NML Capital served subpoenas this week to Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC) in an effort to obtain information on $6.8 billion in financing for deals signed by the two countries in July.
“We want to understand the mechanics of these credit facilities to establish whether assets to which Argentina has a legal title could surface in jurisdictions where we would be able to attach them,” a lawyer advising Elliott told IFR on Thursday.
The subpoenas are aimed at a $4.7 billion facility provided by China Development Bank, ICBC and BOC to finance the construction of two hydroelectric dams in Patagonia and a $2.1 billion loan from China Development Bank and ICBC to finance the Belgrano Cargas railway project.
Both deals were signed by Argentine President Cristina Fernandez and her Chinese counterpart, Xi Jinping, during an official visit of a Chinese delegation to Buenos Aires.
Elliott hopes to be able to track the payment mechanisms and time legal actions in any relevant jurisdiction accordingly.
The hedge fund is also hoping to bring to light disclosures that Argentina may have made to its Chinese creditors with respect to its dispute with the holdouts, which in July pushed Argentina into its second default in 13 years.
“We think that Argentina may have provided some assurances to the lenders that they have plans to evade the pari passu injunction,” said the lawyer, referring to an injunction issued in 2012 by US district court Judge Thomas Griesa that prevents Argentina from paying holders of its restructured bonds unless it also makes holdouts whole.
The Chinese banks have about a month to provide the documents and have been asked to testify at the New York offices of law firms Dechert and Miller & Wrubel on October 8, according to subpoena documents seen by IFR.
While the banks can oppose the request, Elliott is confident that the U.S. courts would ultimately allow its request to go through.
The subpoenas apply to any form of financing and currency swaps the banks may have arranged for Argentina or hundreds of Argentine government-related entities over the last four years.
Elliott – via its NML Capital unit – is one of the lead creditors who sued Argentina for full repayment after the sovereign’s 2001 default.
The hedge fund has won a number of legal battles against the country, including obtaining a green light from the U.S. Supreme Court to seek information about Argentina’s non-U.S. assets.
In separate proceedings, Elliott plans to subpoena international banks including Citigroup, HSBC and Standard Chartered to seize what it suspects are embezzled Argentine funds, a source at the hedge fund told IFR last week.
Bank of China declined to comment, while Industrial and Commercial Bank of China was not immediately available for comment.
6. BASS ‘SING’-ING ARGENTINA BLUES (New York Post)
By Michelle Celarier
28 August 2014
Lesson for Paul Singer: Never come between another hedge-fund manager and his money.
Kyle Bass, the outspoken founder of Hayman Capital, is one of the heavies on the other side of Singer in his battle with Argentina.
But on Wednesday, Bass sounded more like Argentina’s leftist economy minister Axel Kicillof than a US hedge-fund manager.
“Singer is holding poor countries as hostages,” Bass told the Buenos Aires Herald, referring to the recent debt default that occurred as a result of Singer’s legal victory to get full value on Argentine bonds he owns.
That has ended up hurting hedgies like Bass, who is joining George Soros and other euro bondholders in a suit against their trustee, the Bank of New York Mellon in London, to try to get the money owed them.
BoNY held onto $539 million after Manhattan federal judge Thomas Griesa ordered the bank not to process quarterly interest payments to those bondholders, who accepted a discounted debt swap, unless Argentina also paid holdouts like Singer.
Argentina has refused to pay the holdouts, saying that it can’t afford to do so.
This week, it yanked BoNY’s banking license because it didn’t process the payments, causing a technical default on those bonds.
7. ARGENTINA ECONOMY MINISTER WARNS GLOBAL FACTORS HURTING ECONOMY (Market News International)
By Charles Newbery
28 August 2014
BUENOS AIRES (MNI) – Argentine Economy Minister Axel Kicillof warned Thursday that global factors are hurting the local economy, even as unions protest rapid inflation and opposition leaders point the finger at faulty policies.
Kicillof said global economic uncertainty is a big threat to the Argentine economy, led by rising interest rates, stagnation and falling commodities prices.
He warned that higher global interest rates will put the brakes on economic growth in emerging markets countries, including Argentina.
After the 2008 global financial crisis, “emerging countries became the locomotive of global growth,” Kicillof said in a one-hour speech at a business conference in Buenos Aires. “But now with the rise of financing costs there could be ‘flight to quality’ of funds from emerging countries to the developed countries.”
He said this will reduce financing in emerging markets and put pressure on currencies to depreciate against the dollar, leading to slower growth.
“We are in a time when we don’t know what the pace of growth will be for the world economy,” he said. “The world economy is not recovering, and this is affecting exports from Argentina and around the world.”
Kicillof added that there “is little that can be done” by the government in terms of stimulus and policymaking to counteract such a situation.
He did not estimate how much the economy could grow – or contract – this year.
Most economists expect the economy to shrink at least 1.5% this year after 3.2% expansion in 2013 and largely robust growth over the previous decade as the country emerged from a 2001-02 financial crisis.
WEAK COMMODITIES PRICES
Kicillof said another big worry for the economy is a decline in commodities prices, including soybeans, the country’s biggest export.
Most economists say the 2003-11 economic boom came largely thanks to a surge in global soy prices on the back of rising world demand, led by China.
Now soy prices are showing “weakness,” Kicillof said.
He also blamed a “lack of demand” for products in Brazil, Europe and elsewhere for much of the woes in Argentina.
Kicillof said he would focus on the domestic market “as a motor” for growth to protect employment and consumer spending. This will include policies to promote industrial development in the agriculture-strong country, as well as efforts to sustain low levels of foreign-currency debt. The foreign debt in private hands has dropped to 8% this year from 96% in 2001, Kicillof said.
“Argentina has cut its debt like no other country in the world,” he said, adding that this allows “the liberty to determine our own economic policies.”
The minister said this debt-reduction policy will be remain in effect even as pressure mounts on the country after a $539 million default last month. He did not mention any new plans to emerging from the default and finding a solution to a $1.5 billion claim from creditors in U.S. courts on defaulted bonds left over from a 2001 default on $100 billion.
ENERGY SUPPLIES
The other big challenge for the country is to rebuild energy supplies after a decade of decline led to a shortages and a surge in imports.
Kicillof called for more investment in developing maturing oil and natural gas reserves, and to put into production its largely unexplored shale resources.
He mentioned as promising a deal signed Thursday between Argentina’s state-run YPF and its Malaysian counterpart, Petronas, to invest $550 million in developing the Vaca Muerta shale play, among the world’s biggest. YPF also is working with Chevron and Dow Chemical in drilling for shale oil and gas there.
This investment is key for gaining energy self-sufficiency so the economy “can continue growing for 10 or 20 years more,” Kicillof said.
CRITICISM
Earlier in the conference, opposition leaders slammed the government for poor decisions that have pushed the country into a looming economic crisis.
Buenos Aires Mayor Mauricio Macri, a conservative who has presidential ambitions, said he is worried about the souring economy as companies cut back, leading to less working hours, suspensions and layoffs and companies.
“People are losing jobs. There is a lot of anguish in Argentina because of the recession,” he said. “This time it is not a result of external problems. This time it is because of the poor handling of the day-to-day administration of the economy, the poor handling of finances that has led to a fiscal deficit and inflation.”
Macri mentioned concerns about the government’s aims to reform a so-called supply law giving the state greater control over companies and seemingly ineffective ways to resolve the new debt default.
“This is not they way to get out of this situation,” he said.
Instead, clear policies are needed, not a state that “is only interested in collecting taxes,” Macri said. “We need to recover confidence. This happens when a team works together to build institutions, to build a community that is confident, and to create rules that are sustained over time.”
“We don’t need any more slogans,” Macri said. “We need to work together to build the Argentina we want.”
Ernesto Sanz, a center-left senator who also hopes to run for president in 2015, said the next government must focus on “progress” instead of the “corruption and decadence” that he now sees in the government.
The next administration will have to have “leadership not with confrontation but with open dialog, democracy and tolerance,” Sanz said.
The conference came as unions walked off the job for a second national strike this year to demand wage hikes and tax breaks to protect salaries as inflation runs at 40% annual, up from an average of 25% between 2010 and 2013.
“It is clear that people didn’t go to work,” Julio Piumato, head of the court workers union, said on Nacional Rock radio. “Traffic is like on a Sunday.”
8. YPF, PETRONAS TEAM UP ON $550 MILLION SHALE PROJECT IN ARGENTINA (Platts Commodity News)
By Charles Newbery
28 August 2014
Buenos Aires (Platts)–28Aug2014/1016 am EDT/1416 GMT  Argentina’s state energy company YPF said Thursday it has reached an agreement with Malaysia’s state-owned Petronas worth $550 million to jointly develop shale oil resources in the giant Vaca Muerta play in southwestern Argentina.
YPF said in a statement Petronas will contribute $475 million of the initial outlay.
YPF CEO Miguel Galuccio signed the deal with his Petronas counterpart, Tan Sri Dato’ Shamsul Azhar bin Abbas, in Kuala Lumpur earlier Thursday.
In the first three years of the project, the companies plan to develop a pilot for shale oil production in the 187 sq km La Amarga Chica block in Neuquen, using the total planned investment of $550 million.
The companies will drill 30 wells, including horizontal and vertical, with the aim of launching pilot production in the first quarter of 2015.
YPF will operate the block and will farm-out 50% of the production license to Petronas. After the first three years, the companies will move into factory development-mode with an investment of more than $1 billion over five years.
The companies also agreed to evaluate teaming up on the development of other exploration blocks that have potential for shale resources, YPF said.
“We see Neuquen as a very prolific region, with huge potential for growth that will certainly bring enormous benefits for Argentina,” the Petronas CEO said in the statement.
This is the latest partnership YPF has reached for developing the country’s shale resources, estimated among the world’s largest.
YPF already is producing 25,000 b/d of oil equivalent from Vaca Muerta, the largest of the shale plays. That production is coming via a partnership with Chevron, in which the companies plan to invest a total of $16 billion to put a block into full production.
Another partnership has been signed with Dow Chemical for the development of unconventional gas.
YPF, which came under state control in 2012, is seeking to turn around a 6% annual decline in oil and gas production that occurred between 2002 and 2012. The target this year is to increase oil production by 5% and gas by 18% compared with 2013, with a strong focus on unconventional resources.
9. ARGENTINE GOVERNMENT SEES RETURN TO ENERGY SURPLUS IN 19 (Platts Commodity News)
By Charles Newbery
28 August 2014
Buenos Aires (Platts)–28Aug2014/1026 am EDT/1426 GMT   Argentina’s government expects the country will return to an energy surplus over the next five years as the development of shale resources increases oil and natural gas output, Cabinet Chief Jorge Capitanich said Thursday.
“We expect to return to a surplus in energy supplies in 2018 or 2019,” Capitanich said at a business conference in Buenos Aires, listing energy independence as the government’s chief priority.
He said the turnaround will come in a large part thanks to “the role of YPF in oil and gas production.”
Argentina took YPF under state control in 2012 as flagging production led to shortages and a surge in energy imports, led by gas supplies that meet 50% of national energy demand. Oil and gas production have dropped by more than 20% over the past decade, with the decline most notable for gas. Argentina has gone form exporting up to 20 million cu m/d in 2004 to importing more than 40 million cu m/d at times of peak demand this year.
“We need to achieve energy self-sufficiency,” Capitanich said
YPF plans to increase oil production by 5% this year and gas by 18% through the squeezing out of more supplies from maturing conventional reserves and by developing the country’s shale resources, estimated at among the world’s largest.
YPF has reached partnership deals with Chevron and Dow Chemical for developing unconventional resources in Vaca Muerta, and on Thursday entered a new partnership with Malaysia’s state-owned Petronas for the same southwestern play (See story, 1416 GMT).
10. ARGENTINA SEEN AS A FUTURE SHALE GAS SUPPLIER TO CHILE (Platts Commodity News)
By Charles Newbery
28 August 2014
Buenos Aires (Platts)–28Aug2014/1250 pm EDT/1650 GMT  Chile stands to benefit from Argentina’s shale development as a source of much-needed natural gas supplies, a former Chilean government official said Thursday.
The production of Argentina’s shale gas resources “will be a gigantic benefit for the whole region,” Andres Velasco Branes, who was Chile’s finance minister from 2006 to 2010, said at a business conference in Buenos Aires.
The economist said the Argentine supplies will help meet rising demand for gas in Chile, which already has pipeline connections in place to bring in the supplies across the Andes.
Chile was a big buyer of Argentine gas in the 1990s and early 2000s, purchasing up to 20 million cu m/d. But when shortages hit Argentina, that country halted most of its gas exports to meet rising domestic demand. Argentine gas production has dropped 20% to 114 million cu m/d since 2004, leading it to import up to 40 million cu m/d from Bolivia and off global markets in its liquefied form.
Chile responded to the cutbacks by turning to coal and liquid fuels, and then building receiving terminals for liquefied natural gas.
The attraction of the shale gas is that it can be cheaper than importing LNG, and can help diversify imports and suppliers, Velasco Branes said.
Argentina is starting to develop its shale resources, estimated at among the world’s largest.
11. INTERNATIONAL NOIR (Chicago Sun-Times)
By Laura Emerick
29 August 2014
Noir knows no boundaries.
That’s the theme of Noir City 6, the touring film festival opening Friday and running through Sept. 4 at the Music Box. Curated and co-presented by the Film Noir Foundation, this year’s lineup goes international, with titles from Argentina, France, Japan, Italy and Spain, alongside American classics starring noir stalwarts such as Dan Duryea, Charles McGraw, Robert Ryan, Lizabeth Scott and Audrey Totter.
Though regarded as a distinctly American cinema style, noir had a global impact, insist film historians and Noir City programmers Eddie Muller and Alan K. Rode. After all, French critics in the late ’40s first identified this American, largely postwar phenomenon of fatalistic crime dramas as “noir” — black film.
“It’s amazing to realize that all these foreign films are contemporary with what we consider American film noir,” said Muller, the founder and president of the San Francisco-based Film Noir Foundation, which also hosts an annual 10-day festival in its home city every winter. “These films weren’t necessarily a response to anything.”
Muller and Rode, who will appear at the Music Box as hosts and moderators of Noir City 6, worried that noir fans might not accept the global concept. “Though we’ve found there is a rich vein of untapped film noir all over the world, we hesitated initially to program these titles,” said Rode, a Film Noir Foundation director and treasurer.
“This is something we’ve wanted to do for years, and we always knew that we’d have to try it first at our home festival,” Muller said. “I was stunned at how well-received it was. But I might have let the genie out of the bottle, because we might have to set up a satellite festival of foreign film noir.”
This year’s lineup attests to the variety and depth of foreign noir, with films by international auteurs such as Henri-Georges Clouzot (“Quai des Orfevres”), Jules Dassin (“Rififi”), Julien Duvivier (“Pepe Le Moko”), Akira Kurosawa (“Drunken Angel” and “Stray Dog”), Jean-Pierre Melville (“Two Men in Manhattan”) and Luchino Visconti (“Ossessione”). “All of which prove that when it comes to noir, this cinema style crosses all boundaries,” Rode said.
Also represented are the lesser-known Latin noirists Hugo Fregonese and Roman Vinoly Barreto. Born in Argentina, Fregonese did two tours of duty in Hollywood, in 1937-38 and 1949-56, making his U.S. directorial debut with “One Way Street” (1950), starring James Mason as a doctor turned thief on the lam in Mexico. It’s part of Noir City 6, along with Fregonese’s “Hardly a Criminal” (1949), which Muller first encountered during a research trip to Argentina.
 
“Fregonese had a very cross-cultural career,” Muller said. “In ‘Hardly a Criminal,’ you can definitely see the influence of Hollywood noir. It’s very reminiscent of ‘The Naked City,’ ” Dassin’s landmark noir made for Universal in 1948.
 
Even more of a rarity is Vinoly Barreto’s “The Black Vampire” (1953), which Muller describes as a feminist reworking of Fritz Lang’s “M” (1931). Muller was introduced to the film by Fernando Martin Peña, the archivist responsible for the rediscovery of the complete “Metropolis” (1927). Virtually unseen outside Argentina, “The Black Vampire” is making its U.S. debut at the Music Box with a brand-new, subtitled 35mm print funded by the Film Noir Foundation.
 
“The Black Vampire” also points to the Film Noir Foundation’s primary mission: film preservation. Noir City proceeds underwrite the foundation’s efforts to restore neglected classics for future generations. “Fernando had the only print anywhere of ‘The Black Vampire,’ and through him, we found an original negative used for the restoration,” Muller said. “And there’s even more stuff in Argentina that we’re working on preserving and getting back into circulation.”
Another restored film serves as the showpiece of Noir City 6, “Too Late for Tears” (1949), which had fallen into public domain and thus had been seen only in inferior prints. The saga of how the foundation came to save “Too Late for Tears” might be worthy of its own documentary. Muller and Rode found a collector with a nitrate copy (which in the U.S. are illegal to own because they are unstable and highly flammable), but he died before the film’s fate could be determined. Eventually, they tracked down dupe negatives in France, and thus began “an amazing feat of restoration, which eventually took five years,” Rode said. “But any noir with greats such as Liz Scott, Dan Duryea and Arthur Kennedy is definitely worth preserving.”
12. CORN HEISTS TURNING GRAIN PORT INTO ARGENTINA’S CHICAGO (Bloomberg News)
By Charlie Devereux and Pablo Gonzalez
Aug 29, 2014
The 200 pesos ($24) that truck driver Hector Jofre usually carries to bribe gang members or shanty dwellers for access to Argentina’s biggest grain port did no good one night in April.
Six youths in a pickup climbed on the back of the rig when Jofre slowed near a railroad track. They opened hatches that spilled 10 metric tons of corn onto 100 meters of road and swept up as much as they could. Jofre says it took three more deliveries without pay to compensate his employer for the loss.
“It used to happen once a month,” said Jofre, 31. “Now it’s every day. Truckers are getting spooked.”
Truck drivers in Argentina, the world’s third-largest exporter of corn and soybeans, say theft and extortion are on the rise at the main port, Rosario. While police have pledged to step up security, escalating crime has boosted shipping fees and compounded delays at terminals, threatening the country’s biggest source of dollar income at a time when Argentina’s debt crisis has sent central bank reserves near an eight-year low.
As grain supplies arrive from a harvest that is almost complete, thieves are targeting cargo, fuel and personal belongings on trucks headed into Rosario, where increasing drug trafficking led to a doubling of the murder rate in three years. The river city handles 80 percent of agricultural exports, and is known as Argentina’s Chicago — the deadliest municipality in the U.S. — for its link with commodities and crime.
Jeopardizing Profit
While data on agricultural crime isn’t available, police and port authorities interviewed by Bloomberg News say incidents are on the rise, affecting deliveries to grain handlers including Cargill Inc. and Archer-Daniels Midland Co. (ADM) Even railway owner Belgrano Cargas & Logistica SA added security after convoys were looted in the province of Santa Fe, which includes Rosario.
“The federal and provincial governments need to get a grip on the situation,” said Ernesto Ambrosetti, chief economist at the Rural Society, the largest farming group. “It isn’t just jeopardizing public safety, but also the ability of the nation’s agricultural industry to operate profitably.”
Government and police officials pledged to step up security near Rosario’s 28 export terminals after meeting with drivers on Aug. 6, the Federation of Argentine Truck Drivers, which represents about 6,000 drivers, said in a statement. After receiving the assurances, the union said it canceled a planned strike to protest the crime wave.
Rising Costs
Fernando Sostre, a spokesman for the Argentine Federal Police, declined to comment when contacted by telephone in Buenos Aires. Damian Umansky, a spokesman for Santa Fe Governor Antonio Bonfatti didn’t respond to two voice-mail messages seeking comment, and the provincial police office in Rosario didn’t respond to six telephone calls seeking comment.
Theft losses and demands from truckers for more pay to deliver in danger zones has sent grain-shipping costs surging, Ambrosetti said by telephone from Buenos Aires.
For a typical 400-kilometer (248-mile) journey to Rosario, the freight rate for grain is up 35 percent in the past year to 325.30 pesos a ton, Interior & Transport Ministry data show. That compares with an increase of 27 percent to 287.35 pesos for other goods. Based on an average load of 29 tons, the difference is about $133 per truckload. Corn futures on the Chicago Board of Trade are up 0.3 percent this month, set for the first monthly gain since April.
Grain-Strewn Road
Massimo Macchiavello, a spokesman for Minneapolis-based Cargill in Buenos Aires, declined to comment on the violence and its costs. Mark Klein, a Cargill spokesman in Minneapolis, deferred questions to Macchiavello. Victor Camargo, a spokesman for Decatur, Illinois-based ADM, declined to comment on whether the company is paying higher prices. He said the company’s security is handled by a third-party firm that’s monitoring the situation. Jackie Anderson, a spokeswoman for ADM in Decatur, didn’t provide a comment.
“Theft has risen to such a level that it’s now normal to see grains and oilseeds strewn over the roads to terminals,” said Alfredo Sese, the technical secretary for the transport and infrastructure commission at the Rosario Exchange, the nation’s largest grain bourse. “That wasn’t the case a couple of years ago.”
Trains are being targeted, according to Belgrano Cargas, the Buenos Aires-based rail operator that doubled security following attempts to steal crop cargoes. A Rosario-bound freight train carrying 2,730 tons of soybeans valued at about $550,000 was looted May 19 after it was derailed by an object left on the tracks, Belgrano spokesman Gonzalo Sanchez Sorondo said. The attack took place in a poor area of the provincial capital, Santa Fe, about 145 kilometers north of Rosario.
Debt Default
The thefts are compounding delays and costs for shipments already being held up by the government’s effort to curb drug trafficking with more terminal inspections, said Guillermo Wade, manager of the Port and Maritime Chamber in Rosario. Keeping a loaded ship docked for four days until inspectors conduct searches can cost an extra $100,000, he said.
For President Cristina Fernandez de Kirchner, Rosario is more than a public security concern. Crop exports generated $23.2 billion last year, the nation’s biggest source of dollars, Association of Grain Exporters data show. The industry estimates grain accounted for 37 percent of all the country’s shipments.
Last month, Argentina defaulted for the second time in 13 years after failing to reach an agreement with holders of government debt. A U.S. court ordered the nation to pay investors in full when it makes payments on restructured bonds.
‘Monkey’ Lookouts
Gang activity has expanded in Rosario, including Los Monos, or The Monkeys, which employ youths to climb trees and act as lookouts, said Enrique Font, a criminologist at National University of Rosario.
In March, police uncovered a network of tunnels that appeared to connect to a house used by Claudio “The Bird” Cantero, the former head of Los Monos who was shot dead outside a discotheque in May 2013, according to prosecutors at the scene. The tunnels, which run under an empty lot, had ventilation shafts, humidity-proof brick walls and tiled floors.
“This shows the operational capacity and funds at their disposal,” Carolina Herrera, Rosario’s public prosecutor, said during an inspection as a digger unearthed further tunnels found by sniffer dogs.
Following 80 raids that led to 40 arrests and the seizure of drugs, weapons and money in April, about 2,000 federal officers remain in Rosario to bolster security, said Jorge Capitanich, who heads President Fernandez’s cabinet of ministers.
Deadliest City
Homicides in greater Rosario jumped to 264 last year from 124 in 2010, according to official statistics compiled by the University of Rosario. Chicago had 415 murders last year, making it the deadliest city in the U.S. Rosario’s homicide rate of 22 per 100,000 in 2012 was quadruple the rate in Buenos Aires at 5.5 per 100,000, according to Supreme Court data.
Jofre, the Rosario trucker, said that while security has improved at the spot where he was robbed, the thieves have simply moved to locations nearby.
“I haven’t been robbed again, thank god,” he said. “But I know a guy who did four trips to Rosario and was robbed four times. I don’t know if that’s bad luck or what to call it. He doesn’t go to Rosario anymore.”
13. SOVEREIGN BONDS CHANGED BY ICMA TO HEAD OFF REPEAT OF ARGENTINA (Bloomberg News)
By John Glover
Aug 29, 2014
Sovereign bond contracts are being changed by the International Capital Market Association to prevent a repeat of the wrangling that has marred the restructuring of Argentina’s debt.
The new terms, known as collective action clauses, allow a majority of bondholders to agree changes to bonds that are binding on all investors, ICMA said in a statement. In future, a minority of investors won’t be allowed to undermine a restructuring agreed by 75 percent or more of bondholders.
The proposals are the response to controversies dogging the restructuring of Argentina’s debt, which in July pushed the nation into its second default in 13 years. Zurich-based ICMA represents about 400 of the world’s biggest investment banks, asset managers and debt issuers and sets capital market conventions and standards.
“The potential adverse fallout globally from the default and restructuring of Argentina’s debt demonstrates the importance of having clear, unambiguous contract terms for sovereign bonds,” Leland Goss, ICMA’s general counsel, said in the statement. The new clauses “will make more orderly and efficient sovereign debt restructurings achievable in the future,” he said.
Argentina’s creditors led by billionaire Paul Singer refused to accept terms agreed by the majority of the nation’s bondholders after its 2002 default, which paid investors about a third of the money they had lent. They pursued it through the courts for a decade until the nation was prevented from meeting a July 30 deadline on payments to its restructured bonds.
The new terms would also prevent holdouts using clauses insisting on equal treatment of bondholders being used to obstruct payments that have been agreed during restructurings.
14. DEEPER ARGENTINE DEFAULT PAIN LOOMS AS CASH CONCERNS GROW (Bloomberg News)
By Camila Russo
Aug 28, 2014
When Argentina defaulted last month, it was a long-standing legal dispute that tripped the government up, not a shortage of cash. Now, though, as the nation sinks deeper into recession, Bank of America Corp. and Jefferies Group LLC are warning the money could soon start running out too.
The distinction between the two events is crucial for bondholders. It’s one thing for an issuer to get entangled in a legal squabble that temporarily blocks debt payments. It’s another thing to not have the cash. While Argentina’s benchmark bonds traded yesterday at 79.9 cents on the dollar, four cents above their five-year average, Jefferies estimates they could plunge to 60 cents if the default morphs into a capacity-to-pay problem.
“Once international reserves start to slide or foreign-exchange weakness accelerates, that should negatively impact bonds,” Siobhan Morden, the head of Latin America fixed-income strategy at Jefferies, said yesterday. “Unwillingness to pay may become inability to pay.”
Morden predicts those reserves, which the country in part uses to service foreign debt, may fall to an eight-year low of $22 billion by year-end from $28.6 billion now if the legal standoff preventing bond payments drags on and stirs capital flight from the country. Bank of America predicts they will drop to $25.4 billion by year-end if the default isn’t remedied.
‘Tight Margin’
So-called net liquid reserves, which exclude assets that can’t be readily deployed to pay debt, will fall to about $8.8 billion, less than the roughly $10 billion that will be needed next year for foreign debt payments, Bank of America said. The measure excludes dollar deposits held at local banks and loans from multilateral lending institutions as well as special drawing rights from the International Monetary Fund and gold.
“It’s a very tight margin” between the country’s net liquid reserves and how much debt it has coming due, Marcos Buscaglia, the chief Latin America economist at Bank of America, said in an interview.
Argentina slipped into default last month when a New York court blocked a $539 million interest payment on new bonds because President Cristina Fernandez de Kirchner didn’t simultaneously pay back creditors who held old bonds dating back to its 2001 default. A U.S. appeals court two years ago awarded full repayment to defaulted bondholders led by Elliott Management Corp., who refused to accept terms of the country’s debt restructuring. Argentina refuses to comply with that ruling.
Capital Flight
Argentina has been shut out of international capital markets since the 2001 default, straining reserves that the country has relied on since 2010 to cover debt payments. Fernandez’s plan to circumvent a U.S. judge’s order by paying foreign bonds through local banks is spurring concern that Argentina won’t resolve the default this year. Prolonging it would quicken the drop in reserves by reducing foreign investment and prompting capital flight.
Economy Ministry press official Jesica Rey didn’t respond to an e-mail seeking comment.
In the week after Aug. 19, when the South American nation disclosed the plan to reroute foreign bond payments through local banks, central-bank reserves fell $172 million to $28.7 billion, the biggest decline in a month.
Peso Decline
The peso has slumped this month as some Argentines pulled money out of the country after the default. It’s weakened 2.3 percent to 8.4014 per U.S. dollar in the official market and plunged to a record low 14.38 per dollar in the black market. The peso is down 22 percent this year, the worst performer among emerging-market currencies; policy makers let it plunge over a three-day period in January.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. each have estimated that total reserves will drop to $24 billion by year-end.
“Argentina isn’t looking for a solution in the short term to the holdouts issue,” Mauro Roca, an economist at Goldman Sachs, said Aug. 25. “This means there won’t be external financing, and devaluation expectations will also put pressure on reserves.”
While concern mounts the slide in reserves undermines the country’s debt-payment capacity, bond prices show investors are betting the default will be cured.
The average price for government bonds in the 30 days after a missed payment is about 26 cents, according to Moody’s Investors Service.
Debt Deal
Argentina’s 2033 bonds are trading at more than three times that level partly because investors are speculating that the country will be able to reverse the default, which would allow bond payments to resume, according to Tom Mullen, a partner at TWM Capital in Westport, Connecticut, which owns the restructured bonds. At that point, the country probably would regain its ability to borrow in international markets.
“The bet is a resolution with Elliott” in the first quarter, Mullen said.
Increased dollar inflows from curing the default would alleviate Argentina’s debt burden next year, which will almost double as $5.9 billion on its Boden 2015 bonds come due. An additional drain on central-bank reserves could come from the province and the city of Buenos Aires, which have $1.5 billion of bonds due next year.
The Argentine treasury also uses transfers from the central bank to cover the government’s budget deficit. In June alone, the budget gap was 16.7 billion pesos ($2 billion), quadruple from a year earlier, according to the economy ministry.
“There are no signs that Argentina can return to the market anytime soon, so the decline in reserves and the faster fall in the peso becomes a concern,” said Jorge Mariscal, the chief investment officer for emerging markets at UBS Wealth Management in New York.
15. YPF, PETRONAS SIGN $550 MILLION VACA MUERTA SHALE ACCORD (Bloomberg News)
By Pablo Gonzalez
Aug 28, 2014
YPF SA and Petroliam Nasional Bhd., state-controlled companies from Argentina and Malaysia, signed a $550 million accord to develop shale oil at the world’s fourth-largest deposit in Vaca Muerta.
Miguel Galuccio and Shamsul Azhar Abbas, chief executive officers for YPF and Petronas, respectively, signed a deal to develop a 187-square kilometer area (72 square miles) at Petronas’s Kuala Lumpur headquarters today, the Buenos Aires-based producer said in an e-mailed statement. YPF will invest $75 million and Petronas $475 million to drill more than 30 wells in three years in southwestern Argentina. Depending on the results the program could be expanded to a five-year $1 billion investment, YPF said.
“We are in preliminary talks with others,” Galuccio said on a videoconference from Kuala Lumpur. “We will keep talking. There is no immediate rush for more joint ventures.”
YPF is seeking partners to develop Vaca Muerta, a formation the size of Belgium that contains at least 23 billion barrels of oil. Chevron Corp. (CVX), the third-largest oil company by market value, signed a memorandum of understanding with YPF in August 2012 that 11 months later led to a development accord. Chevron’s initial Vaca Muerta investment in Loma Campana of $1.24 billion was later expanded to $16 billion.
‘Big Opportunity’
“In line with our strategic plan and results obtained in Loma Campana, it appears to us a big opportunity for YPF and for Argentina to add Petronas as a partner,” Galuccio said in the statement. “Petronas has world class standards and will help us develop our vast shale oil and gas resources.”
YPF and Petronas may also develop offshore in the future as well as explore other fields in Latin America, Galuccio said on the videoconference.
The Petronas-YPF area called La Amarga Chica, or little bitter, is in Neuquen province. It is northwest of Loma Campana, the 290-square-kilometer area in the Vaca Muerta shale formation where Chevron is working with YPF.
YPF plans to buy 10 percent of the area from a provincial-owned company, Galuccio said. The venture is pending provincial approval for a 35-year concession, he said.
Galuccio will travel Aug. 30 to Beijing from Kuala Lumpur, a YPF official briefed on the trip said today, asking not to be named in line with company policy. Galuccio will hold meetings Sept. 1-2 with Cnooc Ltd., PetroChina Co. and China Petroleum and Chemical Corp. in a visit organized by China’s government, the official said.
Petronas also is expanding into Canada with the acquisition last year of Progress Energy Canada. Petronas bought Progress Energy for C$5.2 billion ($4.8 billion) after an initial rejection by the Canadian government.
YPF’s American depositary receipts slid 0.8 percent to close at $33.04 in New York. The ADRs have almost doubled in the past year.
16. ARGENTINE WORKERS IN NATIONAL STRIKE AS ECONOMIC WOES MOUNT (Bloomberg News)
By Charlie Devereux
Aug 28, 2014
Argentine labor unions are staging a second national strike in less than five months as July’s bond default threatens to fuel inflation and undermine growth.
Truckers, train conductors, port workers and waiters walked off their jobs today in a 24-hour strike to demand higher wages and in protest at dismissals. While strikers blocked some of the main entrances to Buenos Aires, most bus and metro services worked as normal, according to TV channel TN.
“There’s a great desire to take part and show the government that people are fed up, tired and seeking answers to these demands that haven’t been met,” Hugo Moyano, secretary general of the General Workers Confederation and a former government ally, told reporters yesterday.
President Cristina Fernandez de Kirchner, who has defied a U.S. court order to pay $1.5 billion to holders of defaulted bonds, faces growing social discontent as the economy stumbles. Last month’s default threatens to speed the decline in central bank reserves, increase the fiscal deficit and widen the gap between the official and black market exchange rates, which could trigger a currency crisis, according to Bank of America Corp.
“It’s a reflection of worker discontent,” said Manuel Mora y Araujo, a Buenos Aires-based political analyst. “Prices are rising and wages aren’t.”
Falling Behind
Only about 25 percent of union affiliates joined the strike, Cabinet Chief Jorge Capitanich said today, contradicting claims by Moyano that participation levels exceeded 80 percent. Many international and domestic flights to Buenos Aires’s airports were delayed or canceled.
“There’s no justification for this strike, it’s political in nature,” he said. Union leaders are “supporting the groups that have the most. The government supports those who need work and don’t earn high wages.”
Consumer prices rose 38 percent in mid-August from a year ago, according to Elypsis, a Buenos Aires-based research firm. The government hasn’t issued a figure for annual inflation since February, when it unveiled a new index. Registered salaries rose 29 percent in June from a year earlier, according to the state-run statistics agency.
“You’re going to have a relatively significant strike but I doubt you’ll see substantial changes in the government’s economic policy,” Carlos Germano, a Buenos Aires-based political analyst.
Soccer Matches
After initially saying it would postpone as many as seven soccer matches, the Argentine Football Association said those games would go ahead. The association said fans may not be able to attend since stadium workers are planning to strike.
The government has sought to kick start the economy, which contracted 0.2 percent in the first quarter from a year ago. Spending rose 57 percent in June from a year earlier as the government raised salaries and energy subsidies.
Still, unemployment climbed to 7.5 percent in the second quarter from 7.2 percent in the same period last year. Gross domestic product is forecast to contract 1 percent this year, according to the median estimate of 22 analysts in a Bloomberg survey.
Economy Minister Axel Kicillof said today pessimism about the economy by businessmen and the media is a “self-fulfilling prophecy.”
Weaker Peso
“If everyone becomes convinced that everything is going bad, no one buys cars and businessmen don’t invest,” Kicillof said today during an event hosted by the Council of the Americas in Buenos Aires. “It’s the paradox of psychology of a science like the economy that sometimes seems cold and exact.”
The government in January devalued the peso by 19 percent to 8 per dollar as it sought to boost competitiveness and shore up international reserves that have fallen to near an eight-year low of $28.6 billion.
On the illegal market, the peso weakened to a record 14.38 pesos per dollar yesterday.
The economic situation has deteriorated since the previous strike on April 10, said Pablo Micheli, head of the opposition-aligned branch of the Confederation of Argentine Workers, or CTA.
The government “hasn’t sought any dialog to resolve the issues and the truth is the crisis doesn’t look like it’s going to subside,” Micheli said in a statement. “We don’t want this to fall on the shoulders of workers and the middle class.”
Capitanich said today “concentrated economic groups” are responsible for price increases and denied government spending caused inflation.
Holdout Creditors
Argentina defaulted July 30 when U.S. District Court Judge Thomas Griesa blocked a $539 million interest payment due on restructured bonds after Fernandez refused to comply with an order to also pay holdout creditors, whose bonds date to a 2001 crisis. Paying the holdouts, whom Fernandez calls “vultures,” would have triggered demands of as much as $120 billion, according to the government.
The default is delaying Argentina’s ability to access dollars as borrowing costs rise and legal restrictions increase. That will probably widen the fiscal deficit this year to about 3 percent of GDP, or $19 billion, according to Luciano Cohan, chief economist at Elypsis.
As the economy weakens and prices rise, tension has been mounting in Argentina since late 2013.
Rising prices triggered looting in several cities in December in which at least eight people died. The looters took advantage of strikes by police for higher wages. That prompted demands from other public sector workers, which may force the government to enter into a second round of wage negotiations this year, according to Bank of America.
Tensions probably will mount further as Argentina enters the hot summer months later this year, Germano said.
“What you’re going to find is a lot of social conflict, especially in December,” he said.
17. BNY MELLON FACES OUSTER FROM ARGENTINA DEBT DEAL, LAWSUIT OVER RELATED PAYMENTS (Forbes)
August 28, 2014
Bank of New York Mellon is under fire from the Argentine government as well as investors in the country’s debt offerings for refusing to release $539 million in interest payments it has been holding on to since June in its capacity as financial intermediary. While the country has cancelled the global custodian’s license to operate as trustee for the government bonds, an investor group has filed a lawsuit against the bank for not paying them their share of the interest. Both parties accuse BNY Mellon of failing in its duty as a trustee. For its part, the custody bank is acting in accordance with a U.S. court ruling last month which prevents Argentina from making interest payments to one group of investors without first paying off another group.
Although we don’t expect BNY Mellon to incur any direct financial penalties from the ongoing debt row, the bank’s loss of the Argentine government as a client is bound to have repercussions for its operations in the region in the long run. But the negative impact of this on the world’s largest custody bank does not warrant a revision in our $37 price estimate for BNY Mellon’s stock.
When Argentina defaulted on its debt in 2001, a majority of investors holding the country’s debt agreed to a restructuring agreement conducted in two phases in 2005 and 2010. But some of the investors refused to be a part of any deal, and took the matter against Argentina to court in an attempt to fully recoup their investments. The ‘holdout’ investors, including NML Capital Fund and Aurelius Capital Management, won the lawsuit and a U.S. court concluded in 2012 that the Argentine government owes them $1.3 billion. While the ruling is being reviewed by the supreme court, the U.S. District Court in New York ruled in June that Argentina cannot pay interest to investors in the restructured debt unless the holdout investors are paid first. Complying with this court order, BNY Mellon refused to disburse interest payments of $539 million from Argentina, triggering a bigger issue.
As the move by the custody bank goes against Argentina as well as holders of the restructured debt, both these parties are now trying to wrest the blocked money out of BNY Mellon’s hands. Argentina aims to do this by revoking BNY Mellon’s rights as a trustee and passing a minor law to appoint the state-run Banco De La Nación Argentina as the financial intermediary. The country has also threatened to sue BNY Mellon if the bank does not return its money soon. At the same time, a group of investors who own €1.3 billion ($1.7 billion) of the restructured notes have already dragged BNY Mellon to court over their share of the interest payment claiming that their euro-denominated bonds are outside the jurisdiction of U.S. courts.
The action against BNY Mellon is likely being used to pressure U.S. courts to settle the matter quickly, and may not result in any legal liability for the custody bank itself. However, we do believe that the bank’s revenues from Argentina will be negatively impacted over coming years from the country’s decision to replace it as trustee to all its debt offerings. This directly affects the bank’s treasury fees as of now, and could also hit its asset servicing fees if state-held entities which currently employ the bank’s services as a custodian also pull out from its services.

The US vs Russia confrontation is getting serious –Russia has shut down a fifth McDonald’s, claiming food safety issues.
big mac attack!

ARGENTINE UPDATE – Aug 27, 2014

28 agosto, 2014

Torture, Democracy and Memory in Argentina

by CELILIA GONZÁLEZ
Translator’s Note
This article about the ongoing trauma of Argentina’s dictatorship by Cecilia González won first prize in a contest organized by the former Navy Mechanical School (ESMA), Argentina, which is now the Space for Memory. The purpose of the competition is to contribute to the construction of material that promotes collective memory and the meaning of democracy within society. As González describes, Argentina is the only country in the world that, after some uncertain starts, has systematically tried crimes against humanity of a past regime.  – PT
Carlos Loza didn’t celebrate Christmas in 1976 with a sugarplum.
There was no roast, no cold veal, and no nougat. Not even a fruit salad for pudding. No possibility of celebrating a toast with wine, champagne, or cider. He only swallowed one sugarplum, something he’d hardly been able to hold in his shackled hand, and he couldn’t even see it because the hood covered his eyes. Carlos was being held in the Navy Mechanical School (ESMA), and there he spent the bitterest year’s end of his life.
For Carlos the lonely, tiny piece of candy revealed the depths – in all the word’s meanings – his tormentors could reduce him to at any moment. He was 23 years old and his family did not know what had happened to him. He lived with his mother in Villa Tesei. She spent the holidays searching for him, in desperation. His brother had been stationed in Campo de Mayo, performing his military service. The sugarplums the guards gave to all the prisoners seemed to be a sick joke: after that they did not know if they were going to kill them.
Carlos was taken to the Navy Mechanical School (ESMA) early in the morning on 17 December 1976. The day before, in the afternoon, a gang of youths had kidnapped him from the Communist Party branch offices in Barracas, together with some fellow port workers from Buenos Aires. They bound their hands, covered their heads, and piled them into an ambulance. On arriving at the extermination center, they were given identification numbers. Carlos Loza: 738; Héctor Guelfi: 739; Rodolfo Picheni: 740; and Oscar Repossi: 741. A basement torture session served as their welcome to ESMA. They lost track of time.
Today, almost 37 years after his kidnapping, Carlos is a diligent witness to the hearings in the third court case about the crimes committed in Latin America’s most emblematic of clandestine prisons. Usually he sits in the public hearing room. He listens attentively to every testimony. He weaves together the victims’ stories. Above all else, he is part of the group making sure the guilty face justice.
“I have been able to know in greater detail the stories of the fallen compañeros of the ESMA,” says Carlos one morning with a proud smile that intensifies a heavenly, wide-eyed expression.
***
By the middle of 2013, Argentina had concluded 104 trials for crimes against humanity. Among eleven still ongoing trials, there is one known as ESMA III, a case that involves the largest number of victims (789), torturers (68), and witnesses (930). The first ESMA trial, ESMA I, began in 2007 but was suspended because of the cyanide poisoning of the only person accused, prefect Héctor Febres. By contrast, the second ESMA trial, ESMA II, finished in 2011 with life sentences against twelve torturers, thanks to the testimony of 160 witnesses (Carlos among them). Another four were found guilty and sentenced to prison for 18 to 24 years, with acquittals for two more.
This sixty-year-old man – who always carries a folder or notebook under his arm – testified in the third ESMA trial. Focused, he told the story yet one more time. A story about kidnap and torture that he doesn’t think of as just his own, but of belonging to society.
“Around the 23 December 1976 we managed to figure out what the day was,” he recalled at court – because I knew the dates of the final football championship. When I heard someone say that Boca had one, that’s when I knew what day it was.”
Days in the ESMA revolved around the darkness of the torture chambers, the guards’ unending shouts and threats, the pain from the handcuffs on the wrists and the shackles around the ankles. Resting was impossible. The prisoners sucked on bread because they had been so badly beaten up they could not chew food. For Carlos and his compañeros sleep came from exhaustion, but uncertainty never left them. Sometimes they spoke, when they were transferred to the “Capuchita” where there were fewer prisoners. If the guards caught them whispering among themselves or with other prisoners, they would hit them. In captivity Carlos came to know Hernán Abriata, a member of the Peronist Youth in the Faculty of Architecture. “I am a prisoner like you all, as you’ll find out,” said the young, still disappeared man. He was trying to console them: they wore hoods of a different color to his, a sign they weren’t going to be killed.
“We spoke to each other to find out our names, who we were. There was a tacit agreement: whoever gets out of here has to tell the story. We promised each other because you had to see how it was to not become terrified. That’s what the killers wanted. There’s a place where they can’t win, and it’s called the mind, so you shouldn’t infect others with fear. Not everybody managed it. Some left the ESMA terrified. They even forgot their own names. They quit working, stopped being activists. But we felt we had to tell what we’d seen because it concerned our dignity.”
The kidnapped lived through things that would give them nightmares for the rest of their lives. Carlos once heard a prisoner say, “Nothing’s going to happen to you because you’re pregnant.” Today the port unionist is still investigating who that woman might have been.
From his interrogators he learned of a young priest with a bright future. The priest was told he should collaborate because his father was dying and his family tremendously missed him. That he could go free if he revealed what he knew, giving up his compañeros’ names. Many years later Carlos managed to find out that the priest was Pablo María Gazzarri whose disappearance forms part of the ESMA case.
On 6 January 1977 a guard called Carlos and his compañeros by number. He told them they were going to be set free. He removed their shackles, handcuffs, and hoods. Carlos and Rodolfo were put together in a grey Falcon. Héctor and Oscar went separately, in two other vehicles. The workers from Buenos Aires thought they were being freed but they also feared a trick to kill them. They left them in different parts of Buenos Aires, after telling them they had ended up in ESMA for collaborating with the Montoneros.
Carlos withdrew from activism for a few months. He was afraid. But bit-by-bit he began to meet up with his compañeros from the port. In 1979 they were already calling for strikes and a return to politics. That’s what resistance was like until 1983, when Argentines resurrected their democracy.
***
Democracy brought with it faltering first steps to bring the torturers to justice. Judgments came down against the governing juntas, followed by pardons and decades of impunity. The stalemate continued until 2003 when Congress and the Supreme Court struck down the End Point and Due Obedience Laws, meaning that the judicial processes could restart, now en masse, against many more accomplices, not just against those at the top of the chain of command. Ever since then, Argentina has been the only country in the world to systematically try crimes against humanity.
For each trial to end with a guilty verdict, survivors’ testimony proves crucial. It’s never easy for any of the survivors, even those who are experienced human rights activists. It’s not easy to testify in the presence of torturers and murderers.
“There, sitting in front of us is a new torture. It makes you feel uncomfortable, threatened,” Carlos adds.
When the unionist appeared at hearings for the second ESMA trial, Ricardo Miguel Cavallo, a former marine and director of the clandestine prison, sat just a few steps away. Cavallo was engrossed in his computer screen, bearing the evasive attitude he maintained at every hearing. At the third ESMA trial, Carlos spoke in front of Juan Carlos Rolón, but he only realized it later after he had accused him of being a rapist, an allegation that would weigh against the former lieutenant more than torturer or murderer.
The trials afford relief, an easing for the witnesses.
“They help us mend,” recognizes Carlos, “but in a contradictory way. Justice has come very late and what’s happened cannot be repaired. When they issue rulings, you celebrate, but you also think that it would be better if the murdered or disappeared compañero could be by your side. It’s a pain that nobody can heal.”
The ever-present pain prevents many survivors from even getting close to the Navy Mechanical School (ESMA).
Carlos was one of those. After his kidnapping, he always avoided walking down those streets, especially if it was night. Things changed on 24 March 2004 when Nestor Kirchner offered the state’s apology in front of thousands of people, ordering that the clandestine prison should be turned into a Space for Memory. On that day Carlos braved entering the place where he had been kidnapped and tortured, together with his friends. Overcome by tension, by the memories, but supported by his wife and their two children, he walked about Capucha and Capuchita. He observed a change in the color of a window, the stairs, and the back of the water tank where he spoke to Hernán Abriata, the disappeared man who gave him hope during his captivity. He baptized his only son in honor of Hernán.
Carlos’s tour around ESMA was sufficient. He will never go back. It was too heavy on his spirit. It had been terrifying remembering that in this place neither justice, nor God. Nothing existed there, only the remains of a human being, civilization in retreat.
“It provokes deep thought. The concentration camp diminishes a human being, so one values little things like being able to move your hands around your body. A lot of pain comes with the retreat to primordial times: fighting for food, the loss of dignity, behaving like an animal.”
Carlos recognizes that part of Argentina’s society does not understand the importance of trials for crimes against humanity. There are those who insist that this is past history. Yet all the while the victims, their family members, human rights organizations and other groups have constructed a historical narrative that explains those crimes from the perspective of those who were involved.
That’s why Carlos attends most of three-times a week hearings held in Comodoro Py. He takes note of the testimonies. He looks over the witness lists. He puts together lines of investigation. He discovers the names and numbers of victims whose files can be joined to future processes. He describes operations, dates of kidnappings and names. He uncovers photos of the disappeared. He criticizes the defense witnesses. He proposes measures to speed up the trials, like grouping cases into one procedure, analyzing events according to chronology, to line them up with dates of captivity in the ESMA. Patiently he waits for the judgment to be handed down, by the latest at the end of 2014.
***
Carlos can tell many stories about the twenty-one days he spent in the Navy Mechanical School. But there’s one that scarred him.
One prisoner was delirious. He wouldn’t eat, and he took off his hood, so they hit him. He asked to see his father. “First officer, Montonero, doctor,” he shouted to identify himself. A guard kicked him until he killed him. He covered his corpse with a blanket, leaving it for hours beside Carlos and his friends. Five years ago Carlos got to know a woman named Alejandra Mendé who told him about the disappearance of her bother, Jorge. When they started to piece things together, they discovered that he was the same man that he and his friend had seen die. There hadn’t been many doctors who were first officers in the Montoneros.
Rodolfo Picheni, the port worker freed in the same Falcon as Carlos, never overcame his kidnapping and torture, nor of being an impotent witness to Mendé’s murder. Depression pursued him and worsened every time a new anniversary of his kidnapping came around. On 5 December 2012 a little after the third ESMA hearings began he hanged himself. “Now I am going to be number 30,0001. I’ll be taking care of them,” he wrote in a note.
Since 1976, end of the year celebrations have always been particularly nostalgic for Carlos. But his friend’s suicide last year saddened him. He didn’t let it overcome him. He celebrated Christmas and the New Year with his family, as is his custom. He dined. He toasted. He laughed.
He did all those things. But he’s never tasted a sugarplum again.
 
Cecilia González is a foreign correspondent for NOTIMEX based in Argentina. Her book, “Narcosur: la sombra del narcotráfico mexicano en la Argentina,” was published by Marea in 2013. This prize-winning article first appeared in Spanish under the title, “Sin confites de navidad,” available at: http://www.espaciomemoria.ar/noticia.php?not_ID=378&barra=noticias&titulo=noticia.
Translator Patrick Timmons is a human rights investigator and journalist. He edits the Mexican Journalism Translation Project (MxJTP), a quality selection of Spanish-language journalism about Latin America rendered into English. Follow him on Twitter @patricktimmons.

check out these press reports in English from the Latin American press on HRts violations..  Gripping

http://mexicanjournalismtranslationproject.wordpress.com/

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Wednesday 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. ARGENTINA SAYS US-BASED BNY MELLON NOT WELCOME (The Washington Post)
August 26, 2014
BUENOS AIRES, Argentina — Bank of New York Mellon, which has played a central role in the legal dispute that pushed Argentina into default last month, is no longer authorized to operate in the South American country, the government said Tuesday.
Argentina has revoked the BNY Mellon’s permission to operate because of what Cabinet Chief Jorge Capitanich said was the U.S.-based bank’s failure to comply with its duties as trustee of some of the country’s bonds.
BNY Mellon has no retail operations in Argentina, so the government’s announcement appeared to be part of a plan to remove it as a trustee and work around the U.S. court ruling that triggered a default on July 30.
The bank declined to comment on the announcement.
A U.S. court order prevented Bank of New York Mellon from distributing $539 million in interest payments on Argentina’s behalf on July 30, triggering the country’s second default in 13 years.
The court order stemmed from a long battle between Argentina a group of U.S. investors who have been trying to recover the full value of bonds the country defaulted on in 2001, about $1.5 billion. The government has said it cannot pay those investors without compensating the majority of creditors who accepted lower-valued bonds.
The government sent a bill to Congress last week that would work around the court order by removing BNY Mellon as trustee and replacing it with state-owned Banco de la Nacion, which would not be under the jurisdiction of the U.S. courts.
U.S. District Judge Thomas Griesa, who issued the order requiring Argentina to pay the holdout creditors, has said the government’s plan to evade his order would be illegal.
 
2. GLOBAL FINANCE: BNY MELLON DRAWS FIRE ON ARGENTINA (The Wall Street Journal)
By Nicole Hong and Ken Parks
27 August 2014
Argentina and some of its bondholders have found a common enemy: Bank of New York Mellon Corp.
On Tuesday, Argentina’s central bank revoked the New York company’s authorization to operate an office in the country. Last week, a group of hedge funds holding Argentine government bonds sued the bank in London over interest payments they are owed by the Argentine government, whose payment was blocked by a U.S. court order.
The developments are the latest tit-for-tat in a long-running battle between Argentina and its creditors, including a handful of hedge funds that have been pursuing payment on defaulted bonds for a decade.
But it is a sign of how acrimonious the dispute has become that Argentina and some of its bondholders are now taking action against a bank playing the low-profile role of collecting interest payments and distributing them to investors.
BNY Mellon declined to comment.
“With respect to Argentina, it’s certainly generating a lot of headlines, but we don’t expect a meaningful impact” on BNY Mellon’s profitability, said Jason Goldberg, a senior research analyst for Barclays PLC.
Argentina last month defaulted on $539 million of interest payments due July 30, after U.S. District Judge Thomas Griesa ruled the bank couldn’t pass Argentina’s funds onto investors holding Argentina’s restructured debt until the country pays hedge funds holding out for payment on bonds defaulted on in 2001.
Argentine officials have strenuously objected to the order and tried to circumvent it, actions that the judge has warned could result in their being held in contempt of court. Talks aimed at a settlement have continued on and off for several weeks, but no resolution appears in sight.
With the standoff firmly in place, Argentina and investors holding its restructured debt have turned their sights on BNY Mellon, which finds itself caught between fulfilling its obligations as Argentina’s trustee bank and obeying a U.S. court order.
Argentine President Cristina Kirchner last week asked lawmakers for approval to replace BNY Mellon with state-run bank Banco de la Nacion, provided bondholders agree to the change.
“I think it’s symbolic retaliation,” said Nicolas Dujovne, a former chief economist for Banco Galicia who now runs a consulting firm, referring to Argentina’s actions on Tuesday.
A group of hedge funds with Argentine government bonds, including firms led by Kyle Bass and George Soros, filed suit against BNY Mellon in London last week. They say their bonds fall under U.K. law, not U.S. law, and shouldn’t be affected by Judge Griesa’s ruling.
Other bondholders have sued BNY Mellon in Belgian courts and filed an appeal of Judge Griesa’s ruling to the Second U.S. Circuit Court of Appeals, arguing that the bank should be held liable for retaining the funds.
BNY Mellon had previously raised concerns about potential lawsuits, saying in a letter to the court last month that “nearly every economic stakeholder in this litigation has either sued or threatened to sue.” Eric Schaffer, a lawyer representing the bank, said at a hearing last month that “we are the good guys here.”
Citigroup Inc. could be a future target if Argentina’s dispute with creditors drags on. One of the bank’s subsidiaries, Citibank, makes payments to holders of the country’s bonds governed by Argentine law. Their next interest payment is due Sept. 30.
Judge Griesa allowed a one-time payment on the Argentine law bonds last month but said those payments also would be barred in the future unless Argentina pays the holdouts. Citibank has appealed Judge Griesa’s order to the Second Circuit.
A spokesman for Citi said the litigation against BNY Mellon “does not in any way affect Citi Argentina’s commitment to its activities in the country and toward its customers.”
Matt Wirz contributed to this article.
 
3. LOS ARGENTINA (The Wall Street Journal)
August 26, 2014
L.A.’s city council issues an ultimatum to Wall Street. Default ahead?
Capital markets howled when Detroit declared bankruptcy last year and stiffed creditors. So maybe Los Angeles’s city council is doing investors a favor by flagging the risk of a default and Wall Street shakedown.
Earlier this month L.A.’s city council unanimously approved a labor-backed measure demanding that Bank of New York Mellon BK -0.35% Bank of New York Mellon Corp. U.S.: NYSE $39.33 -0.14 -0.35% Aug. 26, 2014 4:00 pm Volume (Delayed 15m) : 3.19M AFTER HOURS $39.23 -0.10 -0.25% Aug. 26, 2014 7:18 pm Volume (Delayed 15m) : 120,583 P/E Ratio 16.95 Market Cap $44.66 Billion Dividend Yield 1.73% Rev. per Employee $295,108 08/26/14 Living Wills Could Hasten Bank… 08/26/14 Argentina Revokes BNY Mellon’s… 08/26/14 BNY Mellon Draws Fire on Argen… More quote details and news » BK in  Your Value Your Change Short position and Dexia renegotiate or terminate interest-rate swaps tied to $151 million in sewer debt. The council stipulated that this be done at no cost to the city and that the banks “return the unfair profits and termination payments since 2008, estimated to have cost the City up to $65 million.” Labor groups have accused banks of “gouging L.A. taxpayers” with “predatory” deals.
If the banks refuse to pay up, the council has ordered the city attorney “to evaluate potential legal remedies.” One of the first foreshocks of Detroit’s bankruptcy was its demand to renegotiate an interest-rate swap in 2009.
The irony, as L.A. administrator Miguel Santana points out, is that the swap deals are benefitting taxpayers. In 2006 the city refunded sewer bonds at a variable rate hedged by a swap contract tied to a fixed 3.34% rate. If interest rates rose, the banks would pay the city. If rates fell, the city would owe the banks.
Because interest rates plummeted, the city has paid the banks $46.8 million since 2006. Yet according to Mr. Santana, the city has still saved $21.7 million to date in debt service and will save $22.9 more by 2028. In 2012 the city paid $8.1 million to bondholders and $4.8 million on the swaps, which altogether is $2.2 million less than what it would have paid had it locked in a 4.3% rate.
Mr. Santana has warned the council against prematurely terminating the deal, which would cost the city $25 million. Yet government unions seem to think banks should lend to the city free of charge. L.A.’s unions issued a report in March complaining that banks “collected $204 million from the City of Los Angeles” last year. They enjoined officials to “Invest in Our Streets, Not Wall Street.” Never mind that banks are financing L.A.’s public works and salaries.
So councilman Paul Koretz proposed the measure demanding that the banks terminate the swaps at no cost. “We need to hold Wall Street accountable where others have not, and let Wall Street know we’re too big to ignore,” he exhorted.
He’s right on that last point. L.A.’s fiscal problems are too big to ignore. The city’s pension costs have soared to $1.3 billion from $157 million over the last decade and now make up about one-fifth of its operating budget. Its unfunded pension liability is nearly $10 billion. Earlier this year Mr. Santana projected deficits of $165.2 million in 2015 and $186.8 million in 2016, which could balloon if the city doesn’t extract concessions from its labor unions. Many government workers in L.A., as in New York, contribute nothing to their health premiums.
If the banks don’t bend, the city can either tell its unions “sorry, we tried” or refuse to pay on the swaps, which would constitute a default. Maybe creditors should start demanding a higher premium to insure against L.A.’s political credit risk.
 
4. ARGENTINA RETALIATES AGAINST BNY OVER DEBT PAYMENTS (Financial Times)
By Benedict Mander in Buenos Aires and Vivianne Rodrigues in New York
August 26, 2014
Argentina retaliated against Bank of New York Mellon on Monday for refusing to make payments to bondholders in compliance with a US court ruling – a move which has also led a group of hedge funds that includes George Soros’ Quantum Partners to sue the US bank.
The move by Buenos Aires, which cancels the banking licences of two local bank officials, follows a proposal sent to congress last week by President Cristina Fernández that aims to replace BNY Mellon as its trustee with a local state-run bank. BNY Mellon’s refusal to distribute the funds last month triggered Argentina’s second default in 13 years.
BNY Mellon has been caught in the crossfire of an acrimonious dispute between Argentina and so-called holdout creditors, led by US billionaire Paul Singer’s Elliott Management. New York’s Judge Thomas Griesa ruled two years ago that the South American nation could not pay the holders of defaulted debt it restructured in 2005 and 2010 without also paying the holdouts.
BNY Mellon has said it will comply with US court orders, but as a trustee it also has a responsibility to dispense payments from Argentina to investors.
A lawsuit filed in London last week by a group of hedge funds, including George Soros’ Quantum Partners and Hayman Capital Management, said BNY Mellon is “failing” its duties to holders of Argentine bonds by refusing to distribute €226m ($298m) of interest on Argentine debt.
The group of hedge funds holds a combined €1.3bn of debt securities, or 11 per cent of euro-denominated restructured Argentine bonds.
Ron Gruendl, a spokesman for BNY Mellon, said the suit “is without merit,” but declined to comment further on the case.
BNY Mellon has considered stepping down as trustee for the Argentine bonds but can only do so if it is able to find a replacement, people familiar with its thinking said. No other banks have yet offered to take over as trustee for the disputed debt.
Argentina’s government has called on BNY Mellon and Citibank – which is also a custodian for some Argentine bonds – to “distribute payments made by the Argentine Republic to exchange bondholders.”
Analysts said the developments are just the beginning of a flood of legal disputes and complications triggered by Argentina’s default, as creditors seek payment through diverse methods.
As well as the bondholders suing BNY Mellon, other creditors are seeking to appeal New York Judge Thomas Griesa’s ruling that prevents the bank from making the payments.
Meanwhile, the holdouts are seeking to seize Argentine sovereign assets, most recently in Nevada, after the government refused to pay them in full despite Judge Griesa’s order that it must do so.
Argentina is also in danger of being declared in contempt of court by Judge Griesa if the plan being debated in congress goes ahead, since it could lead to a change in the jurisdiction of its debt that would circumvent the judge’s ruling.
 
5. ARGENTINA REVOKES CHARTER FOR BANK OF NEW YORK MELLON (New York Post)
August 26, 2014
Argentina’s banking regulator has revoked the charter for Bank of New York Mellon to operate in the country.
The decision, formalized by the Central Bank resolution was signed Monday by its President Juan Carlos Fábrega and Superintendent Cosme Juan Carlos Belmonte.
The Argentine central bank charged based on BoNY’s “non-fulfilment of the contract” as Argentina’s trustee.
Argentina also says that the bank “does not register active operations since December 2012” and that the BoNY “has not financed the country’s residents since January 2013,” according to local reports.
Bank of New York Mellon had no comment on the action.
6. TODAY’S LINKS: WARREN BUFFETT! ARGENTINA! KNEE DEFENDERS! (USA Today)
By John Waggoner
August 26, 2014
Billionaire investor Warren Buffett, outspoken advocate of the wealthy paying their fair share of taxes, could finance up to 25% of Burger King’s merger with Canadian doughnut chain Tim Hortons. The deal will effectively make Burger King, founded in Miami in 1954, a Canadian company, thereby allowing it to dodge U.S. tax rates.
Amazon buys Twitch, a streaming service popular with gamers, for $970 million in cash.
Massive hedge funds Quantum Partners and Hayman Capital have sued Bank of New York in London, seeking a 226 million euro payment from Argentine bonds that was blocked by New York judge Thomas Griesa last month. Griesa had ruled that BONY couldn’t release a $539 million interest payment until it paid another group of hedge funds, led by Paul Singer, on previously defaulted bonds.
Russia shut down a fifth McDonald’s, claiming food safety issues.
The median home price – half are higher, half lower – was $269,800 in July. The average home price: $339,1000. During the bust, builders had to build smaller and less expensive homes to compete with all the distressed sales. With fewer distressed sales now, it appears the builders have moved to higher price points.
Speaking of housing, the property bubble is a major risk to China. How big a bubble? “In just two years – 2011 and 2012 – China produced more cement than the U.S. did in the entire 20th century.”
From 2000 to 2012, American workers as a whole had a tough time, as population grew much faster than new jobs and many people gave up looking for work. There was one major exception: jobs paying $100,000 to $400,000.
Pictures of California’s drought, taken three years apart.
A United flight from Newark to Denver was diverted because two passengers fought over a lock that keeps a seat from reclining. The dispute escalated to the point that the airline decided to divert to Chicago’s O’Hare International Airport. The lock, called the Knee Defender, keeps inconsiderate people from invading your personal space for hours in cramped conditions, and can be purchased for $21.95 at fine websites, such as this one.
7. ARGENTINA REVOKES AUTHORIZATION FOR OFFICIALS AT BNY MELLON (Bloomberg News)
By Daniel Cancel and Camila Russo
Aug 26, 2014
Argentina stripped authorization for two Bank of New York Mellon Corp. officials after the bank, acting as trustee for the nation’s debt, refused to distribute funds to creditors in compliance with a U.S. court ruling.
The resolution, dated Aug. 25 and signed by Superintendent Cosme Juan Carlos Belmonte and central bank President Juan Carlos Fabrega, says BNY Mellon “isn’t complying with its operational objectives,” according to an e-mailed copy from the central bank. The resolution revokes the authorization given to BNY’s local director, Maria de la Cruz Solares, and another official, Mariel Garcia Sturzenegger, for failing to provide local financing as the bank had “no active operations” since December 2012.
U.S. District Judge Thomas Griesa ordered BNY Mellon to retain a $539 million debt payment that Argentina deposited in June because the nation didn’t also set aside funds to pay a group of holdout creditors at the same time. Argentina defaulted on July 30 and last week President Cristina Fernandez de Kirchner sent a bill to Congress to remove the trustee in order to pay bondholders in local accounts. The resolution doesn’t mention the bank’s role in the blocked debt payment.
Ron Gruendl, a BNY Mellon spokesman, declined to comment when contacted by telephone.
BNY Mellon’s unit in London was sued by a group of Argentina’s euro bondholders including Kyle Bass’s Hayman Capital Management LP and George Soros’s Quantum Partners LP for not distributing the interest payment to creditors outside U.S. jurisdiction.
8. SOROS’S ARGENTINE BOND BET REVEALED IN LAWSUIT IN LONDON (Bloomberg News)
By Katia Porzecanski and Camila Russo
Aug 26, 2014
Less than a month after Argentina defaulted for the second time in 13 years, George Soros has suddenly emerged as a key rival of fellow billionaire Paul Singer in the legal fight over the nation’s debt.
According to court documents filed in London last week, Quantum Partners LP, a fund managed by Soros’s family office, has joined a group of investors suing bond trustee Bank of New York Mellon Corp. for failing to distribute 226 million euros ($298 million) of interest payments on Argentine debt. The group, which also includes Kyle Bass’s Hayman Capital Management LP, owns more than 1.3 billion of euro-denominated bonds, court documents obtained by Bloomberg News show.
At the crux of the dispute is a U.S. court ruling won by Singer’s Elliott Management Corp., which blocked Argentina from paying its overseas bonds until the country compensates him and other holders of debt from its 2001 default. While the ruling prevents BNY Mellon from transferring any money deposited by Argentina until Singer is paid, it shouldn’t apply to bonds governed by jurisdictions outside of the U.S., the group says.
“The trustee isn’t acting in its official capacity as trustee,” Bass said in a telephone interview from New York. “Our interest payment is governed by U.K. law, which hasn’t ruled on this. Until there’s a similar injunction in the U.K., they owe us our interest payments.”
Legal Pursuit
Michael Vachon, a spokesman for Soros, declined to comment. Stephen Spruiell, a spokesman for New York-based Elliott, didn’t return e-mails seeking comment on the lawsuit.
Singer, who also sued the governments of Peru and the Republic of Congo after they reneged on their obligations, bought Argentine bonds before its $95 billion default in 2001.
After a more than decade-long legal pursuit for full repayment, Singer and other creditors who refused to accept losses of 70 percent to provide Argentina debt relief are now owed $1.5 billion as of result of the U.S. court orders.
Soros, meanwhile, has been an investor in the South American country for decades, having joined a group that purchased Argentine real estate company IRSA Inversiones y Representaciones SA in the early 1990s.
On June 26, Argentina deposited $539 million into an account at BNY Mellon for an interest payment on its foreign-currency bonds due four days later — without also depositing the amount owed to the holdout creditors led by Singer.
‘Illegal’ Payment
U.S. District Judge Thomas Griesa called the payment “illegal” and prohibited New York-based BNY Mellon from distributing the funds to bondholders.
A default was triggered on July 30, after Argentina failed to reach a settlement with the holdouts by the end of a grace period for making the interest payments. The money remains at BNY Mellon’s account in Buenos Aires.
Argentina revoked the authorization of two BNY Mellon officials for failing to provide local financing, according to an Aug. 25 resolution. The lender had no operations in the country since December 2012, the document said.
In the U.K. lawsuit, Soros, Bass, Knighthead Capital Management LLC and RGY Investments LLC said that BNY Mellon’s London-based unit acted “consistently to protect its own interests, without reference to the interests of the beneficiaries,” according to the documents.
The bondholder group asked the London court to require BNY Mellon to disburse the money to holders of Argentina’s euro-denominated bonds and prevent the bank from doing anything else with the cash.
‘Without Merit’
“The suit is without merit,” Ron Gruendl, a spokesman for BNY Mellon, said in a statement on Aug. 22. “BNY Mellon has consistently followed the binding court orders that govern its actions as trustee in this matter.”
A separate group of investors in euro-denominated bonds plans on appealing Griesa’s ruling in New York. Last year, that group sued Bank of New York Mellon Brussels and Brussels-based Euroclear SA in Belgian court. The outcome of a Sept. 9 hearing set for that case will be “important” for investors and the holdouts, said Bass.
Euroclear, the world’s biggest settlement system, has said the orders are in violation of Belgian law, which prohibits the obstruction of cash transfers made by settlement agents. The law was established in 2004 after an appeals court in Brussels overturned a lower-court order that had prevented Euroclear from accepting or making any payments on Nicaraguan bonds at the request of holdout creditors.
Distributing Payments
Citigroup Inc.’s Argentina unit is also appealing a decision by the judge that bars the bank from distributing payments on securities issued under Argentine law. Fintech Advisory Inc., a hedge fund run by David Martinez, who has litigated against Singer in other cases, said on Aug. 19 it will also appeal Griesa’s ruling.
“Clearly there’s a process of trying to carve out legal and local law” from the ruling,’’ Siobhan Morden, head of Latin America fixed-income strategy at Jefferies Group LLC, said by phone from New York. “The euro bondholders are aggressively trying to separate U.K. law from this expansive injunction.”
Argentina’s euro-denominated debt has outperformed its dollar bonds since the default, with yields on notes due 2033 rising about 2 percentage points, compared with a 2.7-point increase on same-maturity dollar bonds. The spread between the securities widened 15 basis points today to 45 basis points, the biggest since January.
Soros Investments
Soros, the world’s 23rd wealthiest person, met with Argentina’s President Cristina Fernandez de Kirchner last year to discuss investment in the country, according to local newspaper BAE. Soros Fund Management LLC more than doubled its stake in Argentina’s state-owned oil producer YPF SA (YPF), adding 8.47 million shares in the second quarter, according to an Aug. 14 filing. Soros’s 3.5 percent stake worth $450 million makes him the fourth-biggest private holder.
Soros also owned 25.9 million shares worth about $244.6 million in South American agricultural company Adecoagro SA as of June 30, according to a filing with the U.S. Securities and Exchange Commission. That works out to a 21 percent stake, according to data compiled by Bloomberg.
Economy Minister Axel Kicillof has called on bondholders to demand their money from BNY Mellon, saying the nation fulfilled its obligations and isn’t in default.
“In a broader sense, what’s going on right now is the chickens coming home to roost,” Tim Samples, a professor of legal studies at the University of Georgia, said in a telephone interview. “People have been warning for years about the complexities and burdens for third parties in this case and we’re just seeing that unfold.”
9. BNY MELLON SUCKED INTO CENTER OF ARGENTINE DEBT STORM (Reuters News)
By Jorge A. Otaola and Nate Raymond
August 26, 2014
BUENOS AIRES/NEW YORK (Reuters) – Bank of New York Mellon found itself front and center of Argentina’s debt battle on Tuesday after the South American country stripped its authorization to operate there and bondholders seeking payment filed a lawsuit against the U.S. bank.
BNY Mellon, a financial intermediary between the Argentine government and its bond investors, in June held onto a $539 million interest payment owed to bondholders on the orders of a U.S. court.
The U.S. District Court in New York had ruled that Argentina could not pay creditors who accepted discounted restructured bonds under U.S. legislation unless it also paid the holdout U.S. investment funds that rejected bond swaps in 2005 and 2010.
The frozen coupon payment tipped Latin America’s No.3 economy into its second default in little over a decade. The Argentine government argued it had met its debt obligations and urged holders of exchange debt to pursue BNY Mellon for payment.
A lawsuit filed in London by four hedge funds said that BNY Mellon’s actions “have been consistently designed to protect its own interests.”
If the lawsuit – filed at London’s High Court by hedge funds Knighthead Master Fund, RGY Investments LLC, George Soros’s Quantum Partners and Hayman Capital Master Fund – is successful it may put pressure on U.S. District Judge Thomas Griesa, who has presided over Argentina’s drawn-out debt battle with the holdouts, to exempt bonds that fall under jurisdictions outside the United States.
The plaintiffs, who hold Argentine debt amounting to 1.3 billion euros, argue their euro-denominated bonds fall under English legislation and therefore should not be swept up in Griesa’s rulings.
Griesa has ruled the bonds should because interest payments made on them pass through New York and therefore fall under his jurisdiction.
A MOVE TO RESUME INTEREST PAYMENTS
On Tuesday, BNY Mellon said the lawsuit filed against it was “without merit.”
“We continue to follow the current court order to hold onto the money,” a spokesman for BNY Mellon told Reuters.
Argentina’s Congress is due on Wednesday to discuss a law that would replace BNY Mellon as intermediary for payments on foreign law bonds with state-controlled bank Banco Nacion, as part of a new debt restructuring plan.
The central bank “has revoked BNY’s authorization for representation in Argentina,” Cabinet Chief Jorge Capitanich said in his daily briefing. The authorization applied specifically to two BNY Mellon officials.
If Argentina’s draft legislation is enacted and executed, it would allow it to skirt Griesa’s court orders and resume interest payments on an estimated $29 billion in restructured bonds.
The debt crisis has taken a toll on Argentine assets and the peso, which sank to a record low of 14.20 per dollar on the black market on Tuesday despite the central bank’s lifting interest rates in an apparent bid to ease pressure on the currency.
A central bank source, speaking on condition of anonymity, said that revoking BNY Mellon’s authorization would not prevent it from transferring the frozen $539 million to bondholders if it decided to fulfill the payment.
 
10. ARGENTINA REVOKES BANK OF NEW YORK MELLON’S AUTHORIZATION TO OPERATE (Reuters News)
Aug 26 2014
BUENOS AIRES, Aug 26 (Reuters) – Argentina said on Tuesday it had stripped Bank of New York Mellon’s authorization to operate in the South American country, its latest move against the financial institution which obeyed a U.S. court ruling that tipped it into default.
Argentina’s Congress is due on Wednesday to discuss a law that would replace BONY as intermediary for payments on foreign law bonds with the state-controlled bank Banco Nacion, as part of a new debt restructuring plan.
BONY in June obeyed a U.S. court ruling to block a $539 million interest payment on debt that was restructured following Argentina’s record 2002 debt default, paving the way for the country’s second default in 12 years in July.
The court had ruled Argentina could not pay holders of restructured bonds unless it also paid so-called “holdout” U.S. investment funds, which refused its 2005 and 2010 bond swaps in the wake of the 2002 default on about $100 billion of debt.
The central bank “has revoked BNY’s authorization for representation in Argentina,” Cabinet Chief Jorge Capitanich said in his daily briefing. The authorization applied specifically to two BONY officials.
The central bank said it took the measure because the U.S. bank failed to fulfill technical requirements to operate in the country.
A central bank source said on condition of anonymity that revoking BONY’s authorization would not prevent it from transferring the frozen $539 million on to bondholders if it decided to fulfill the payment.
BONY can appeal the measure and put forward new officials for authorization to operate in the country, but the central bank could refuse to accept them, the source added.
11. ARGENTINA REVOKES BNY MELLON’S OPERATING APPROVAL (Dow Jones Institutional News)
26 August 2014
BUENOS AIRES–Argentina has revoked Bank of New York Mellon’s permission to operate a local representative office after the bank, acting as a trustee of some Argentine bonds, refused to transfer interest payments owed to bondholders last month due to a U.S. court order.
“The Superintendency of Financial and Foreign Exchange Institutions has revoked the authorization for the representation of Bank of New York in Argentina,” Cabinet Chief Jorge Capitanich told reporters Tuesday morning.
In a statement, the central bank justified its decision to revoke BNY Mellon’s authorization to operate a representative office because the U.S.-based bank hadn’t provided credit and other financial services to Argentine residents since the end of 2012.
A spokesman for BNY Mellon declined to comment. A person familiar with the matter said the bank’s representative office is unrelated to its trustee contract with the Argentine government.
Argentine President Cristina Kirchner’s government is already seeking to remove BNY Mellon as the trustee of its bonds governed by U.S. and U.K. law through a bill submitted to Congress last week.
Argentina defaulted last month for the second time in almost 13 years when investors didn’t receive $539 million in interest payments due on July 30.
Argentina deposited the money on time in BNY Mellon’s accounts at the central bank, but U.S. District Judge Thomas Griesa blocked its distribution to bondholders after Argentina ignored his ruling to pay a small group of hedge funds that sued to collect on debt the country repudiated in 2001. The default could eventually affect almost $29 billion in Argentine debt issued overseas.
Investors who own EUR1.3 billion ($1.71 billion) of Argentine government bonds affected by Judge Griesa’s order are suing BNY Mellon in the U.K. to gain access to the interest payments they are owed.
Under legislation sponsored by the Kirchner administration, state-run bank Banco de la Nacion would take over as trustee and future interest payments would be made in Argentina if bondholders approve those measures. The bill would also allow investors to exchange their Argentine bonds issued under the laws of other countries for local law bonds.
Analysts say the bill is an attempt to side step Judge Griesa’s ruling, a potentially risky strategy that could see the judge find Argentina in contempt. With Mrs. Kirchner’s ruling coalition holding majorities in both houses of Congress, the bill is expected to be passed and signed into law before Argentina’s next interest payment is due on Sept. 30.
Argentina’s latest default stems from its decision to repudiate about $100 billion in debt during a deep economic crisis in 2001.
Investors eventually exchanged almost 93% of their defaulted bonds for new securities in heavily discounted restructurings in 2005 and 2010 that gave them around 33 cents on the dollar. But some creditors held out for a better deal and sued for full repayment.
In 2012, Judge Griesa ordered Argentina to treat its creditors equally in a case involving hedge funds led by Elliott Management Corp.’s NML Capital Ltd. and Aurelius Capital Management LP. That ruling was upheld by the Second Circuit Court of Appeals and the U.S. Supreme Court in June declined to hear Argentina’s appeal.
Last week, Mrs. Kirchner offered holdouts another chance to restructure their defaulted bonds on the same terms as the 2010 debt exchange. NML and Aurelius, which have won about $1.6 billion after years of litigation, have said the terms of that debt swap are unacceptable.

Chain of Interventions.: No Victories.

The U.S. has opposed Islamists in all eight of the turbulent lands stretching from Libya to Pakistan, yet has not managed to forge a solution in any of them. Are U.S. policies the problem, or is the region’s upheaval beyond the reach of any outside nation to resolve. These conflicts began with the death of the prophet’s grandchildren. 

ARGENTINE UPDATE – Aug 11 & 12, 2014

12 agosto, 2014

Monday, AUG 11-

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1. ARGENTINA UNDER FIRE FROM JUDGE OVER ADS (The Wall Street Journal)
By Nicole Hong and Daniel Huang
9 August 2014
U.S. District Judge Thomas Griesa directed Argentina to stop making “false and misleading” statements about the country’s debt obligations, threatening to hold the country in contempt of court if the comments continued.
Judge Griesa was referring to a two-page ad from Argentina published in the New York Times and The Wall Street Journal on Thursday. The ad said Argentina hadn’t defaulted on its debt obligations because the country deposited the money necessary for an interest payment due June 30.
The judge said the ad was “false and misleading,” as the statement failed to acknowledge that Argentina hadn’t met its obligations to its holdout creditors, the small group of hedge funds that have sued the country for full payment on bonds it defaulted on in 2001. Judge Griesa has ruled that Argentina can’t pay its restructured bondholders until it pays the holdouts.
Separately, the Obama administration doused Argentina’s hopes of getting its debt dispute before a United Nations court, saying Friday the country should resolve its problems directly with bondholders rather than look for rescue at The Hague.
After losing a string of rulings in U.S. courts, Argentina filed suit Thursday against the U.S. at the International Court of Justice, claiming federal court rulings requiring the payment of debt obligations infringed on its sovereignty.
The suit can’t proceed without U.S. consent, and the Obama administration indicated Friday that was unlikely to be granted.
“We do not view the ICJ as an appropriate venue for addressing Argentina’s debt issues,” a State Department spokeswoman said Friday.
On June 26, Argentina deposited some $539 million with Bank of New York Mellon Corp. to make an interest payment to its restructured bondholders that was due June 30. Judge Griesa barred BNY Mellon from sending the payment to bondholders.
2. MINISTRY PUBLICLY SPARS WITH U.S. JUDGE 125 CLAIMS FILED SO FAR OVER FAILED GM DEVICE (The Washington Post)
9 August 2014
Argentina’s Economy Ministry defiantly asserted again late Friday that the country has made a required debt payment on restructured sovereign bonds, just hours after a federal judge threatened a contempt-of-court order if Argentina did not stop issuing such statements.
U.S. District Judge Thomas Griesa, who has overseen the nation’s long-running debt battle with hedge funds, railed at Argentina’s lawyers at a hearing in New York a day after the publication of another so-called legal notice insisting that the government met its payment requirements and was therefore not in default.
Holding a newspaper copy of the notice, Griesa said that if the false statements did not stop, a contempt-of-court order will become necessary.
Argentina’s Economy Ministry then issued a statement accusing Griesa of “clear partiality in favor of the vulture funds.”
Meanwhile, a State Department spokeswoman said the United States would not permit the International Court of Justice in The Hague to hear Argentina’s claims that U.S. court decisions had violated its sovereignty.
Argentina petitioned the international court Thursday, but the lawsuit could only move forward if the United States submitted voluntarily to the court’s jurisdiction.
Argentina missed a coupon payment after a grace period ended July 30, pushing it into default on restructured debt from a previous default in 2002 on about $100 billion in sovereign bonds.
Sixty-three death claims have been filed so far with the lawyer handling payments for those involved in wrecks caused by faulty ignition switches in General Motors vehicles.
Camille Biros, a spokeswoman for compensation expert Kenneth Feinberg, said he received 125 claims by Friday afternoon. Sixty-two others seek payments for injuries. Feinberg started taking claims Aug. 1.
Biros said Feinberg still has to determine if the claims are eligible for payments.
GM has recalled 2.6 million small cars to replace the switches, and the company hired Feinberg to compensate the injured and the families of people killed.
On Friday, GM issued six more recalls totaling more than 312,000 vehicles. The recalls in North America pushed GM’s total for the year to a record 66, covering just over 29 million cars and trucks. The largest of Friday’s recalls covers 215,243 Saturn Vue SUVs from the 2002 through 2004 model years.
l During the first month of legal marijuana sales in Washington state, stores sold just under $3.8 million, which is expected to bring in more than $1 million in state taxes. A spokesman for the state’s Liquor Control Board said it appears the new industry is off to a strong start. Although licenses have been issued for about 40 stores, only 18 were selling pot in July, and 16 of them have reported sales so far. During the first month of retail marijuana sales in Colorado, the state collected closer to $2 million in excise and sales taxes.
l Google has agreed to create a $250 million internal program to disrupt rogue online pharmacies as part of a deal to end shareholder litigation over accusations that the search company improperly allowed ads from non-U.S. drug sellers. Google said it would make content about prescription drug abuse more visible and work with legitimate pharmacies to counter marketing by rogue sellers, according to documents filed in an Oakland, Calif., federal court Thursday.
l More than two dozen state attorneys general urged federal regulators to impose restrictions on electronic cigarettes with a ban on more than 7,000 flavors now available. In a letter to the Food and Drug Administration, they said limits on advertising and prohibiting flavors besides tobacco and menthol will help protect minors. In April, the federal agency proposed treating e-cigarettes as tobacco products, putting them under its regulatory control.
3. US JUDGE THREATENS TO FIND ARGENTINA IN CONTEMPT (The Washington Post)
August 8, 2014
NEW YORK — A U.S. judge threatened to hold Argentina in contempt of court Friday for continuing to make “false and misleading” statements about its financial crisis, though he quickly added he most desires a peaceful negotiated end to a long-running debt dispute.
Judge Thomas Griesa in Manhattan urged both sides to resume negotiations with help from the special master he assigned to resolve a fight over money owed to U.S. hedge funds. No talks have occurred since Argentina failed to pay bondholders on July 30.
He made the contempt threat as he warned Argentina to stop making public statements “that are false and misleading.”
It came as the State Department indicated Friday that the U.S. was unlikely to agree to grant jurisdiction to the International Court of Justice in the Hague to hear Argentina’s claims that U.S. court rulings amount to “violations of Argentine sovereignty.” Argentina had asked the world court to take up the case.
Griesa issued his warning after reading published statements by the South American republic that he said ignored the nation’s obligations to U.S. bondholders.
The bondholders are owed about $1.5 billion, which must be paid before hundreds of millions of dollars in bond payments can be passed along to about 92 percent of Argentina’s bondholders. They had traded their bonds for lesser-valued bonds in 2005 and 2010 after Argentina’s 2001 default.
Attorney Jonathan Blackman, representing Argentina, told Griesa that his law firm had nothing to do with Argentina’s statements this week.
He cautioned the judge not to overreact to statements made by political leaders in Argentina who do not consult lawyers first, saying the statements were side issues that should not detract from the “main event.”
Blackman said Argentina has “made it clear it does want to engage with all its creditors” and that talks need to continue “in some fashion.”
Griesa said that the “really important thing is to recognize that this matter will not be resolved without a settlement.”
The judge also tried to put to rest Argentina’s claim that it was not in default because it had made a required payment to bondholders on July 30 only to have the funds blocked by his orders.
“Payment must cover what is required under the law and under the rulings of the district court and the (2nd U.S. Circuit) Court of Appeals,” Griesa said. “No such payment has been made.”
He added: “There must be negotiation of issues and there must be a settlement and there can be a settlement.”
After the hearing, Daniel A. Pollack, the special master appointed by Griesa to conduct and preside over settlement negotiations, said he has continued to work to find a resolution in the case and planned to “convene and conduct further negotiations until a solution is reached, however long that may take.”
Last week, Blackman said a negotiated solution covering debt obligations to all bondholders was necessary because Argentina would owe over $20 billion to various bondholders triggered by paying the $1.5 billion owed to U.S. hedge funds. Those hedge funds are led by New York billionaire Paul Singer’s NML Capital Ltd.
4. JUDGE THREATENS ARGENTINA WITH CONTEMPT OVER ITS STATEMENTS (The New York Times)
By Alexandra Stevenson
August 8, 2014
At times the battle between a group of New York hedge funds and the country of Argentina feels more like a game of legal Ping-Pong than a case involving billions of dollars at stake.
On Friday, the presiding judge in the case, Thomas P. Griesa of the Federal District Court in Manhattan, told Argentina to cease making “false and misleading” statements that it did not default on July 30. He added that if Argentina continued to defy his orders, he would have to consider it in contempt of court.
Last week, lawyers for Argentina stood before Judge Griesa to argue that statements made by a court-appointed mediator, Daniel A. Pollack, about the country’s default were “harmful and prejudicial.”
Argentina then published a two-page ad in The New York Times and The Wall Street Journal on Thursday calling Judge Griesa’s legal judgments “erroneous and improper” and calling into question the authority of Mr. Pollack.
The ad, entitled “legal notice,” comes after a suit Argentina that filed this week against the United States in the International Court of Justice, contending that Judge Griesa’s legal judgment violated its sovereignty.
In response, Argentina’s lawyers were issued summons to appear in Mr. Griesa’s court on Friday.
The two sides have been engaged in a war of words since Judge Griesa ruled that Argentina defaulted on July 30 after it failed to make an interest payment to regular bondholders. But the country denies that charge, saying it made the $539 million payment, which was then blocked by a New York court order.
The hearing on Friday is the latest in a multiyear legal battle between Argentina and the New York hedge funds, led by Paul E. Singer’s Elliott Management, which are seeking full payment plus interest on bonds that the country defaulted on in 2001. Years after the default, Argentina offered bondholders new discounted bonds in exchange for a promise of regular payments.
But the group of hedge funds now blocking those payments refused to exchange their bonds. The so-called holdouts sued Argentina and in 2012 and won a significant victory when Judge Griesa ruled that Argentina could no longer make its regular payments to exchange bondholders without paying the more than $1.5 billion that the holdouts are demanding. Argentina now refers to the holdouts as “vultures” and has described their actions as amounting to “extortion.”
Argentina recently sought to vilify not just the hedge funds but also Judge Griesa, resulting in a social media campaign under the name #GrieFault. In Argentina, posters have been mounted around the capital of Buenos Aires with images of Judge Griesa’s head imposed on the body of a vulture.
On Friday, Jonathan Blackman, a lawyer representing Argentina, raised concerns that he and his firm had also been the target of a “malicious” campaign to discredit his work. In a curious twist, he told the court that American Task Force for Argentina — which he asserted was funded by Elliott Management — had published images of his face imposed on the body of a vulture, accusing him of profiting from the entrenched legal battle.
Mr. Blackman also told the court that his firm, Cleary Gottlieb Steen & Hamilton, had nothing to do with the two-page ad and appealed to the judge to consider the fact that Argentina’s default was of “immense public interest” and that as a sovereign country it was entitled to make statements outside of the court. Mr. Blackman called these statements a “side issue” to making progress on an agreement between the country and the holdouts.
But Judge Griesa, who at times took minutes to pause before emphasizing his point, countered that Argentina had to comply with a legal order that required it to honor all of its legal obligations.
“It’s very simple,” he said, pausing for a moment. “Payment of part is not payment of all.”
In a statement on Friday, Mr. Pollack promised to continue to mediate negotiations between the holdouts and Argentina.
5. ARGENTINE DEFAULT COULD HURT THE WORLD (The Providence Journal)
By Andres Oppenheimer
9 August 2014
MIAMI
I hate to agree with Argentina’s government, a host of mostly corrupt pseudo-progressives who have ruined the country despite benefiting from the biggest world commodity price windfall in recent history. But it is mostly right in its dispute with bondholders that led to Argentina’s default.
Without getting into technical details, the ruling by a New York judge in favor of a small group of holders of Argentine bonds sets a dangerous precedent for the world economy by making it almost impossible for debt-ridden countries to try to renegotiate their debts.
Basically, 83-year-old judge Thomas Griesa’s interpretation of the law allowed a small percentage of Argentine bond-holders – who are referred as “holdouts” in Wall Street and as “vulture funds” in Argentina – to prohibit Argentina from paying its debts to the vast majority of its bondholders.
It all started when, after Argentina’s 2001 default amid the country’s worst economic crisis, the country offered twice to pay its creditors a portion of their money. Ninety-three percent of the country’s creditors accepted, but the remainder, the holdouts, sought full repayment.
Problem is, the original bond contract said all bond holders should be treated equally, and the holdouts argued that if they were not paid, nobody should get paid. Griesa narrowly interrupted the law and upheld the holdouts’ version of the contract. Argentina appealed, but lost the case in the U.S. Supreme Court.
Last week, Argentina’s failure to reach a last-minute agreement with the holdouts before a July 31 deadline triggered the country’s default. Although it didn’t bring about a collapse of world markets, it was one of several factors that contributed to Thursday’s 317- point drop in the Dow Jones.
Granted, Argentina has made every mistake in the book during the negotiations. President Cristina Fernandez de Kirchner, disregarding that Argentina had signed a contract submitting itself to U.S. jurisdiction in the event of a dispute over the bonds, allowed years to go by without reaching a deal with the holdouts, treating them as if they were a minor nuisance.
Then, when Argentina started losing legal battles, Fernandez did what she does so often: She wrapped herself in the Argentine flag and blamed the U.S. “vultures” for her country’s economic downfall.
Argentine chief of staff Jorge Capitanich claimed that judge Griesa “is clearly an agent for the vulture funds,” and that the responsibility for the crisis lies with the U.S. government.
Watching this “Argentina vs. U.S. Vultures” populist crusade, it was hard not to draw comparisons with the time when another Argentine government celebrated its invasion of the Falklands/ Malvinas islands assuring its citizens that it would win the war, or when – more recently – Argentina’s Congress declared the country’s 2001 default amid euphoric chants of “Argentina!” “Argentina!” as if the country had just won the World Cup.
Now Argentina will be further isolated from world financial markets. Fernandez will most likely print more money to keep her populist policies alive, which will push the country’s 40 percent inflation rate even higher.
But having said all of this, Argentina and the Obama administration are right in that Griesa’s interpretation of the Argentine bonds’ contracts set a dangerous precedent for the world economy.
Jose Antonio Ocampo, a former Colombian finance minister who now teaches at Columbia University, told me that Griesa’s ruling in effect kills the very idea of voluntary negotiations between debtor countries and private creditors.
From now on, regular bondholders will have no incentive to negotiate, because they know that a small percentage of holdouts can force countries to pay 100 percent of the bonds’ value, he told me.
The Fernandez government has handled this case with typical arrogance and incompetence, but Judge Griesa’s ruling can have negative international consequences that may go far beyond Argentina. Any country should be able to negotiate its debts with a majority of its private creditors, without being held hostage by a small group. A new legal system to handle government debts to private investors must be found. In that, Argentina is right.
 6. IRRESPONSIBLE ARGENTINA (The Providence Journal)
8 August 2014
“Evita,” a 1978 musical about Eva Peron, the first lady of Argentina, is best known for its crowd-pleasing anthem, “Don’t Cry For Me, Argentina.”
Well, Cristina Fernandez de Kirchner, Argentina’s first directly- elected female president, is now trying to do her best Peron impression in front of the TV cameras. Her song could easily be called, “Cry For Me – and Argentina.”
Last week, Fernandez’s government defaulted after being unable to make an interest payment of $539 million. It’s the second major economic crisis this country has faced in recent years. Argentina defaulted on close to $100 billion in loans under then-President Adolfo Rodriguez Saa in December 2001, at a time when the weakened peso was unwisely placed on equal parity with the U.S. dollar.
Fernandez is in the process of placing all the blame for Argentina’s economic woes on (you guessed it) other sources. Her finger has been pointed squarely at the big, bad hedge fund companies that lent Argentina money – or, as she likes to call them, “vultures.”
More than 90 percent of creditors during the first economic crisis had begrudgingly agreed to take 30 cents on the dollar, a way to get at least some of their money back. The hedge funds, on the other hand, refused to comply, thinking they could get a better deal. They went to court to get all of their money back.
New York Judge Thomas Griesa ruled in favor of the hedge funds. The Argentine government appealed to the U.S. Supreme Court, and lost that verdict to boot.
That has thrown world markets into a bit of a tizzy. Loan restructuring deals have long been a way for struggling countries to obtain money without paying it all back.
The rulings will surely put pressure on all world governments (including the United States) to be more responsible economic managers.
Argentina, a large and once prosperous country, created its own financial mess. While it is crying foul, it is essentially being held responsible for its own decisions. Unfortunately, the outlook for the people of Argentina is not particularly pleasant. Raging inflation will sap their savings and destroy the potential for investments as the government prints money to try to keep up with unsustainable spending.
The country will not get healthier until it gets that spending under control and sends a signal to those with money that Argentina is a safe place to get a solid return on investment.
7. EDITORIAL: ARGENTINA’S VULTURES ARE CIRCLING (The Post and Courier (South Carolina))
8 August 2014
Whether out of nationalist pride, populist grandstanding or simply a lack of better options, Argentina is betting it can go it alone.
After months of tense negotiations, the nation defaulted on its debt at the end of July. It’s the country’s second default in 13 years.
In June, the U.S. Supreme Court declined to hear an appeal of a federal district court decision that ordered Argentina to pay in full the bonds held by a small group of individuals and hedge funds who purchased debt after the country’s previous default in 2001. President Cristina Fernandez de Kirchner refused to accept the terms put forth by the court, leaving the nation in technical default and unable to make any payments on its debt.
Most bondholders had agreed to debt restructuring plans in 2005 and 2010.
Far from total economic collapse, Argentina remains relatively stable for the moment. But default is not the end of the fight for Ms. Kirchner or the bond holdouts calling her bluff.
In an interesting twist, President Kirchner’s administration filed a suit on Thursday with the International Court of Justice (ICJ) saying that the U.S. court ruling encroached on Argentina’s national sovereignty.
The United States would have to accept ICJ jurisdiction over the matter in order for the case to proceed. Fat chance.
President Barack Obama could also argue that the district court decision is a violation of his constitutional authority to conduct foreign policy, a tactic with some precedent. This would force the hedge fund firms back to the drawing board and let Argentina off the hook for the time being.
But Mr. Obama has little incentive to wade into this fight, particularly while he faces far more pressing matters.
Ms. Kirchner has dubbed the holdouts as “vulture funds,” and there is justification for her complaint. The companies in question have backed the nation into a corner for their own financial gain. But the hedge fund firms can legitimately argue that Argentina has a responsibility to honor the terms it initially agreed to after the previous debt default, however unrealistic they might have been.
Argentina remains at a troublesome fiscal impasse. While not likely to be as disastrous as some analysts initially predicted, the default prevents the nation from paying down the rest of its debt and pulling itself out of global economic isolation. It also faces a recession and double-digit inflation.
Argentina’s plight is a sobering reminder of how a big country can slide into economic chaos by ignoring national debt.
8. ARGENTINA WARNED OF CONTEMPT IN U.S. OVER ADVERTISEMENTS (Bloomberg News)
By Erik Larson and Katia Porzecanski
Aug 9, 2014
Argentina may be held in contempt of court if the country’s officials don’t stop issuing false and misleading statements about a dispute between two groups of bondholders, said the U.S. judge overseeing the case.
The nation’s lawyers were called into Manhattan federal court yesterday for an emergency hearing after Argentina published full-page ads in the New York Times and the Wall Street Journal the previous day challenging the court’s jurisdiction.
The ads, which said Argentina wants to keep paying its debt but has been prevented by U.S. District Judge Thomas Griesa, misled the public, the judge said. Argentina’s obligations are the same to holders of restructured debt from a 2001 default and investors who rejected the new terms, Griesa said. The judge said he had warned against such false statements just a week ago.
“Surely there will be a cessation of false and misleading statements by the republic,” said Griesa, who has overseen the dispute for more than a decade. “If there is not, it will be necessary to consider contempt of court.”
A series of rulings by Griesa bar Argentina from making interest payments to holders of its restructured debt unless it also pays more than $1.5 billion to a group of hedge funds, led by billionaire Paul Singer’s Elliott Management Corp., that hold the country’s defaulted bonds and filed the lawsuit. Griesa’s order — and the failure of the two sides to reach a settlement — led to a second default for the country last month.
No Doubt
Argentina “without a doubt” has obligations to the exchange debt holders, Griesa said. “But it also has obligations to people who did not exchange.”
A group of Italian investors who didn’t exchange asked the judge in a filing in a separate case on Aug. 7 to force Bank of New York Mellon Corp. to repay them from $579 million that’s being held in a frozen account.
Argentina deposited the money in June to make an interest payment to holders of the exchanged debt. Griesa froze the money until the country pays holders of the defaulted debt.
“There’s a good number of the holdouts who paid 100 cents on the dollar for their bonds,” said Rudolph Di Massa, an attorney for the bondholders who aren’t included in the group led by Singer. “Many of the Italians I represent, this was part of their retirement fund and they’ve been waiting now for 15 years.”
BNY Mellon
Lawyers for Singer’s NML Capital Ltd. said yesterday in a letter to Griesa that Argentina had threatened BNY Mellon with litigation for obeying an order by the judge. NML Capital’s lawyers said Argentina, in a separate letter also dated Aug. 6, told Citibank N.A. that it intended to defy a court order when the next interest payment was due.
Griesa, at yesterday’s hearing, urged the parties to keep negotiating a settlement, saying that’s the only way the case will be resolved.
Argentina’s lawyer, Jonathan Blackman of Cleary Gottlieb Steen & Hamilton LLP in New York, told Griesa that Argentina still wants to cooperate and that his firm had no role in drafting the ad. The country published it on its own, he said.
The law firm’s lack of a role in drafting or publishing the ad “is highly important,” Griesa said.
Malicious and Evil
Blackman also said that an affiliate of Elliott Management has a website accusing the lawyer personally, as well as his firm, of causing Argentina’s default in a bid to ramp up legal fees. Blackman called the claims “malicious and evil.”
The website includes an image of Blackman riding on a vulture and claims that he personally told Argentina’s president, Cristina Fernandez de Kirchner, to default. The lawyer handed the judge printed pages from the website.
“My family has to read this sort of stuff,” Blackman said.
Griesa said that while he “deeply regrets” the contents of the website, the Elliott entity may have been driven to “behavior that is wrong” by years of frustration.
Argentina defaulted on a record $95 billion in debt in 2001. Holders of about 92 percent the debt agreed to exchange their bonds for new ones at a discount of about 70 percent in debt restructurings in 2005 and 2010. Holdouts including Singer’s NML Capital sued, seeking full payment.
Standard & Poor’s declared Argentina again in default July 30 after the government missed the deadline to pay interest on $13 billion of restructured bonds.
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).
9. ARGENTINA’S CHEAPEST BONDS ARE MOST RESILIENT IN DEFAULT (Bloomberg News)
By Camila Russo
Aug 10, 2014
Argentina’s lowest-priced bonds are holding up the best following the country’s default last month.
The South American nation’s notes maturing in 2038, known as Par bonds, have lost 6.5 percent to 52.88 cents on the dollar since the government was blocked from making a payment on its debt last month. That compares with a 11.6 percent plunge on its notes due in 2033 and an 8.3 percent rout on securities that mature in 2017.
While the best-case scenario for investors would be for the government to reach a deal that would allow it to resume paying the bonds, the lower-priced notes would offer better returns if that effort fails and investors instead demand that Argentina immediately repay them, according to Torino Capital LLC and Bulltick Capital Markets. In that situation, called acceleration, investors would demand 100 cents on the dollar for their securities plus past-due interest.
“All Argentine bonds are holding up well, considering the country just defaulted, as everyone expects a deal,” said Jorge Piedrahita, the chief financial officer of Torino Capital in New York. “But in the case of the Pars they have their own dynamic linked to the fact that investors would also make a good profit if they negotiated a restructuring with the government.”
Argentina was blocked from making a $539 million interest payment by a U.S. court order that stems from a lawsuit brought by holders of debt it defaulted on in 2001. Those so-called holdout creditors, led by hedge-fund operator Elliott Management Corp., refused to accept new bonds worth about 30 cents on the dollar in restructurings in 2005 and 2010 and instead sued for full repayment and won. Until Argentina pays them or reaches a settlement, the nation can’t pay interest on any of its overseas debt.
Private Talks
The South American nation has so far refused to pay the $1.5 billion that the holdouts are owed and says it can’t settle with them without exposing itself to an additional $120 billion in claims from investors who would want a better deal after agreeing to the earlier swaps.
While direct talks between Argentina and the hedge funds that sued have stalled, international banks including Citigroup Inc. and JPMorgan Chase & Co. are looking to put together a group of investors to buy the defaulted debt and resolve the U.S. lawsuit blocking it from paying bondholders.
The banks may provide financing for a part of the debt purchases, according to a banker familiar with the talks, who asked not to be identified because the discussions are fluid and subject to change. The deal has been difficult to complete because the buyers don’t know how much Argentina will eventually pay for the debt, the person said.
Foreign Reserves
The country would be on the hook for $29 billion if all of its foreign currency debt is accelerated. That amount, equal to the nation’s foreign reserves, could force a restructuring into bonds covered by local law and outside the jurisdiction of U.S. courts, which would carry a recovery value of about 70 cents on the dollar, according to Piedrahita.
Argentina’s 2038 bonds are also attractive for investors who want to deliver the bonds in exchange for payment on the country’s credit-defaults swaps, according to Barclays Plc. A committee at the International Swaps and Derivatives Association ruled on Aug. 1 that a credit event had occurred in Argentina, triggering $1 billion of swaps.
Outperformance on the Par bonds “shows there may be a strategy to accelerate,” Joaquin Almeyra a fixed-income trader at Bulltick Capital Markets in Miami, said in a telephone interview. “In that case, the government should be under even more pressure to find a solution quickly.”
10. ARGENTINA’S ITALIAN INVESTORS SEEK ACCESS TO FROZEN U.S. ACCOUNT (Bloomberg News)
By Erik Larson and Katia Porzecanski
Aug 8, 2014
About 100 Italian investors holding Argentina’s defaulted debt from 2001 asked a U.S. judge to force Bank of New York Mellon Corp. to repay them using $539 million being held in a frozen account for the South American country.
Argentina deposited the money in June to make an interest payment to creditors who accepted new terms for its restructured debt. The Italians didn’t accept the new terms and seek to collect on court judgments in their favor, they said in a filing yesterday in Manhattan federal court.
“There’s a good number of the holdouts who paid 100 cents on the dollar for their bonds,” Rudolph Di Massa, an attorney for the bondholders, said by phone. “Many of the Italians I represent, this was part of their retirement fund and they’ve been waiting now for 15 years.”
U.S. District Judge Thomas Griesa, who is overseeing a lawsuit by a group of U.S. hedge funds that also refused the new terms, barred Argentina from making the interest payment and froze the money until the nation pays the funds $1.5 billion — an order Argentina has refused to comply with.
“The Republic has steadfastly frustrated any attempt made by the Italian judgment creditors to collect on these judgments, choosing instead to lump” them together with “so-called ’vulture funds’ despite the dissimilarities between the two groups,” another lawyer, Anthony Costantini, said in the filing yesterday.
Interest Payment
Griesa, whose order blocking the interest payment, and the failure of the two sides to reach a settlement, led to a second default, has ordered the nation and the holdout creditors in the case to keep talking in a bid to resolve the crisis. The judge also ordered lawyers for the parties into court today to discuss Argentina’s full-page advertisement printed in in U.S. newspapers yesterday questioning the court’s jurisdiction.
The Italian investors “declined to accept the exchange offers in 2005 and 2010, as was their right, since those offers would have yielded only a small percentage of their actual investments,” Costantini said in the filing.
The U.S. hedge funds leading the case against Argentina are being led by billionaire Paul Singer’s NML Capital.
The group seeks about $210 million, Di Massa said.
“There’s a good number of the holdouts who paid 100 cents on the dollar for their bonds,” he said.
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).
 11. BANKS SAID TO BE ARRANGING ARGENTINE DEBT BUYER GROUP (Bloomberg News)
By Erik Schatzker, Katia Porzecanski and Dakin Campbell
Aug 8, 2014
International banks are looking to put together a group of investors to buy disputed Argentine debt and resolve a U.S. lawsuit that is blocking the country from servicing any of its foreign bonds.
The banks are seeking investors willing to purchase bonds left over from the nation’s 2001 default held by firms led by Elliott Management Corp., said Eduardo Eurnekian, an Argentine billionaire who has been approached by bankers. While Elliott has a court order for full repayment, a banker familiar with the talks speculated the New York-based hedge fund would accept a settlement worth about 80 cents to 85 cents on the dollar.
At stake for the banks, which include Citigroup Inc. (C), is an opportunity to help Argentina resume payment on its bonds and regain access to overseas markets, bolstering the value of the debt and earning good will that could lead to underwriting business when the country starts issuing notes again. For now, Argentina finds itself back in default, having been forced to miss a $539 million interest payment last month on restructured bonds when a U.S. court ruled it couldn’t service those notes without also making good on its $1.5 billion debt with Elliott and other holdouts.
“The banks are working to try to bring people closer,” Eurnekian, who runs Corporacion America holding group, which manages businesses ranging from airports to energy, said in an interview on Radio Mitre. “It’s very complex. I don’t know how it gets resolved. It’s an issue for lawyers and financiers. But there’s no doubt that we want to fix this.”
JPMorgan, HSBC
In addition to Citigroup, JPMorgan Chase & Co. (JPM), HSBC Holdings Plc and Deutsche Bank AG (DBK) have also been in discussions with investors to resolve the dispute, according to a person familiar with the meetings who asked not to be identified because the talks are private. The banks are the four biggest underwriters of Latin American bonds in international markets this year, according to data compiled by Bloomberg.
Among the incentives for banks and outside investors to take part in a deal is the impact a resolution could have on the country’s restructured bonds. Those securities, which were issued in 2005 and 2010 to creditors holding 93 percent of the defaulted debt, would rally. Not only would a settlement allow the government to make the blocked interest payment, but it would clear the way for the country to begin issuing in international markets for the first time since 2001, giving it access to financing to shore up the government’s finances.
Billionaire’s Money
The banks may provide financing for a part of the debt purchases, according to the banker, who asked not to be identified because the discussions are fluid and subject to change. The deal has been difficult to complete because the buyers don’t know how much Argentina will eventually pay for the debt, the person said.
Danielle Romero-Apsilos, a Citigroup spokeswoman, and Robert Sherman, a spokesman at HSBC, declined to comment on the talks as did Veronica Espinosa, a spokeswoman for JPMorgan, and Ari Cohen at Deutsche Bank. Stephen Spruiell, a spokesman for Elliott, also declined to comment.
Eurnekian said in the radio interview that he’s willing to put up money to reach a deal. He also said other Argentine companies are willing to help fund the effort in a bid to keep their businesses from suffering the fallout from an extended default.
“It seems like everybody is trying to come up with an idea to resolve this problem,” said Tom Mullen, a partner at TWM Capital in Westport, Connecticut, which owns Argentine restructured bonds. “There is clearly an interest in getting a solution done but there’s so many different twists that it’s going to be difficult.”
‘Vulture’ Funds
Argentine benchmark bonds due 2033 had rallied 3.19 cents on the dollar in the three days through yesterday to 86.18 cents, paring their losses since the July 30 default, on speculation the banks will manage to pull off a deal. The notes slipped to 86.17 cents today as of 1:05 p.m. in New York. They traded at 95.57 cents the day before the default.
Peso forwards showing traders’ expectations for the currency in three months are headed for their biggest weekly increase since March, climbing 2.3 percent to 8.945 per dollar this week. The official peso was little changed at 8.2712 today.
President Cristina Fernandez de Kirchner, Economy Minister Axel Kicillof and other government officials call the hedge funds “vultures,” saying they prey on countries in distress and seek massive profits by squeezing governments through embargo attempts and lengthy litigation.
RUFO Clause
The South American nation says it can’t pay the holdout creditors more than the 30 cents on the dollar it gave to investors who agreed to the two restructurings. Still, Kicillof said as recently as Aug. 6 that the government wouldn’t oppose a third-party solution to its dispute.
One potential advantage for Argentina of a fix that doesn’t directly involve the government is avoiding having to improve terms for investors who restructured in 2005 and 2010. A rights upon future offers clause, known as RUFO, that was included as part of the debt restructurings bars the nation from making a better offer to the holdouts without also improving terms for those who accepted the original deals.
Violating the clause may trigger claims of more than $120 billion, according to Kicillof.
Munib Islam, a partner at Third Point LLC, said he’s bullish on Argentina’s prospects beginning next year as Fernandez leaves office because of term limits and as the government reaches a resolution in the Elliott case.
“We do remain bullish,” Islam, whose firm owns Argentine restructured debt, said on a conference call held by Third Point Reinsurance Ltd. “There are legal reasons why Argentina is unable to pay right now, but will happily pay post-New Year.”
12. ARGENTINA THREATENED WITH CONTEMPT ORDER BY U.S. JUDGE (Reuters News)
By Joseph Ax and Andrew Chung
8 August 2014
NEW YORK/BUENOS AIRES, Aug 8 (Reuters) – Argentina’s economy ministry once again defiantly asserted the country has made a required debt payment on restructured sovereign bonds on Friday night, just hours after a U.S. judge threatened a contempt-of-court order if Argentina did not stop issuing such statements.
U.S. District Judge Thomas Griesa, who has overseen the nation’s long-running debt battle with hedge funds, railed at Argentina’s lawyers at a hearing in New York a day after the publication of another so-called legal notice insisting the government has met its payment requirements and was therefore not in default.
Holding a newspaper copy of the notice, Griesa said if the false statements did not stop, a contempt of court order will become necessary.
Later on Friday, however, Argentina’s economy ministry issued a statement accusing Griesa of “clear partiality in favor of the vulture funds.”
“Judge Griesa continues contradicting himself and the facts by saying that Argentina did not pay,” the statement said.
Meanwhile, a spokeswoman for the U.S. State Department said the United States would not permit the International Justice Court in The Hague to hear Argentina’s claims that U.S. court decisions had violated its sovereignty.
“We do not view the ICJ as an appropriate venue for addressing Argentina’s debt issues, and we continue to urge Argentina to engage with its creditors to resolve remaining issues with bondholders,” the spokeswoman said in an email.
Argentina petitioned the International Court of Justice on Thursday, but the lawsuit could only move forward if the United States submitted voluntarily to the court’s jurisdiction.
CONTEMPT WARNING
At the hearing, Griesa said he was not going to go further than a warning for now. He repeated that the two sides must continue negotiating with the aid of mediator Daniel Pollack.
Griesa did not specify whether he might seek to sanction Argentina or its lawyers, though he said he was “glad” to hear Jonathan Blackman, Argentina’s lead lawyer, say his firm Cleary Gottlieb Steen & Hamilton did not aid in preparing the government’s latest legal notices.
In rare circumstances, U.S. judges have held foreign governments in contempt and imposed monetary penalties. But such sanctions can be difficult to enforce, and federal appeals courts have split on whether foreign governments can be held in contempt at all.
Federal law largely protects the assets of foreign governments held in the United States, said Michael Ramsey, a professor of international law at the University of San Diego.
“You can’t put Argentina in jail, so I’m not sure what he’d have in mind besides monetary sanctions,” Ramsey said. “Argentina has refused to pay a valid judgment and I don’t see why it wouldn’t also refuse to pay a valid contempt order.”
Blackman also complained of being attacked and lampooned by the lobby group American Task Force Argentina, which is partly funded by holdout investors.
Shortly after the hearing, Economy Minister Axel Kicillof said on public television in Argentina, “We will continue to work tirelessly to defend the rights of Argentina,” and added that “Judge Griesa did not resolve anything” in court.
“He created this confusing and extraordinary situation,” said Kicillof, who also played down concerns the case would cripple investment in Argentina.
NO SETTLEMENT IN SIGHT
Argentina missed a coupon payment after a grace period ended on July 30, pushing it into default on restructured debt from a previous default in 2002 on roughly $100 billion in sovereign bonds.
The government settled with nearly 93 percent of its bondholders in two restructurings but two deep-pocketed distressed debt investors held out and did not participate in the exchanges in 2005 and 2010. They are by far not the only holdouts, but have been the most prominent in their fight for full repayment on debt they bought at pennies on the dollar in a case that essentially comes down to a contract dispute.
In 2012, Griesa ruled in favor of the holdout investors, led by NML Capital Ltd, an affiliate of the $24.8 billion hedge fund Elliott Management Corp, and Aurelius Capital Management, who won a $1.33 billion judgement.
Argentina insists it is not in default because it deposited a $539 million coupon payment on exchanged bonds before a June 30 deadline. Griesa has called the deposit with trustee Bank of New York Mellon illegal and reiterated on Friday that “there has been no payment.”
Payments to exchange bondholders have not been made because of Greisa’s order, which stipulated the nation must concurrently pay the holdouts their award plus accrued interest.
Argentina has published legal notices in recent weeks disparaging Griesa and Pollack, who succeeded in getting the two sides to meet face-to-face for the first time in nearly 13 years but could not get them to an agreement by July 30.
Pollack issued a statement after the hearing saying it was his intention to “convene and conduct further negotiations until a solution is reached, however long that may take.”
Argentina insists it cannot meet the demands of the court order, nor make a deal with the holdouts that is better than the terms offered in its two restructurings based upon a clause in its agreement known as the Rights Upon Future Offers (RUFO).
The RUFO clause expires on Dec. 31, 2014.
Reuters IFR has reported that private banks are trying to reach an agreement with the holdouts that would pay them 80 cents on the dollar for their Argentine bonds in hopes of getting the frozen coupon payment sitting at BNY Mellon released as soon as possible.
13. MARKETS SCRAMBLE TO FIND ANSWER TO ARGENTINA DEFAULT (HedgeWorld News)
By Davide Scigliuzzo and Christopher Spink
8 August 2014
NEW YORK (IFR)—Investors, bankers and legal experts are scrambling to find ways to end Argentina’s decade-long legal dispute with holdouts before acceleration complicates the situation for all parties involved.
An all-inclusive debt exchange, a buyback of debt held by holdouts and a waiver of the controversial RUFO clause are all ideas being pushed forward.
Hopes that international banks would cut a deal to buy a portion of the $1.66 billion in holdout claims lifted debt prices last week as investors bet that such a solution would ultimately cure the country’s default
However, the threat of “me-too” claims and growing skepticism over the government’s ability to guarantee full payment next year left strong doubts in many observers’ minds whether such negotiations would prove fruitful.
The best option on the table, say some observers, involves recent efforts to collect signatures among creditors to waiver the RUFO clause that requires Argentina to offer the same terms to both litigants and holders of restructured debt.
The elimination of the RUFO clause would lift what the government has often cited as a major stumbling block in its ability to cut a deal with holdouts.
“The only more or less viable sign of progress is the initiative by a substantial group of exchange bondholders to solicit a RUFO waiver,” said Carlos Abadi, CEO of ACGM, a boutique investment bank.
In some observers’ eyes, such a move would call the government’s bluff and prove whether or not it is genuine in its gestures to negotiate with hedge funds led by Aurelius Capital and NML Capital.
“It is true that a violation of RUFO could have severe consequences for Argentina,” said a lawyer working with holders of Argentine debt. “But are they serious about the negotiations? What is preventing [Argentina] from asking for a waiver?”
The initiative has been left in investors’ court, where creditors are already organizing a consent solicitation to that effect.
Tall Order?
A waiver may seem like a tall order. After all there is some $56 billion in restructured debt outstanding and a favorable majority of creditors would be required.
But investors may find it in their best interest to agree. Not only do they heighten their chances of getting paid, but there would probably be considerable upside in secondary prices on any good news about the waiver.
“I have always thought that it would be possible to get a waiver for the RUFO clause,” said the lawyer. “Exchange bondholders have a serious interest in getting RUFO out of the way and they may well be able to do this on their own.”
The prospect of a waiver would also probably be welcomed by US Court Judge Thomas Griesa, who has encouraged a settlement.
Should holdout negotiations or waiver attempts fail, creditors may start accelerating bond payments, leaving Argentina little choice but to offer an exchange to all creditors.
This would at least put all creditors on an even playing field and allow Argentina to start anew.
“At that point, Argentina would be able to enter into negotiation with all holdout investors instead of just the plaintiffs, thus potentially increasing its relative bargaining power,” said Jan Dehn, head of research at Ashmore.
Implementing an exchange may prove tricky as banks with US links could be unwilling to risk breaching the court ruling of Griesa that prevents third parties from helping Argentina get around his judgment.
14. AFTER 36 YEARS, ARGENTINE ACTIVIST FINDS STOLEN GRANDSON (CNN Wire)
By Mariano Castillo
10 August 2014
Editors: Updates story originally published on Aug. 6 to reflect that grandmother and grandson finally were united.
(CNN) — Estela Carlotto’s wish was to hug her grandson before she died — a dream not easily granted to those like her who had a family member snatched at birth during Argentina’s military dictatorship.
During her nearly four-decade journey, she became the leader of the Grandmothers of the Plaza de Mayo, a famous group of Argentine activists dedicated to reuniting kidnapped babies with their birth families.
And this week, she learned her wish will come true, when the Abuelas, as the group is known, announced that Carlotto’s own grandson has been identified through a DNA test.
More than 100 people have been reunited thanks to the efforts of the Abuelas, but the news that the search for the group’s leader is fulfilled struck a strong chord in Argentina.
“He searched for me,” Carlotto told reporters. “What the grandmothers say came to be: ‘They will come search for us just as we continue to search for them.'”
The kidnappings of children by government forces during Argentina’s 1976 to 1983 military dictatorship is among the darkest chapters in a period commonly called the Dirty War.
Carlotto’s daughter, Laura, belonged to an urban guerrilla group called Montoneros, according to the Abuelas. She was in her young 20s when she was arrested — kidnapped, the activist group says — and imprisoned in 1977. Laura was 2½ months pregnant when she was detained.
On June 26, 1978, she gave birth at a military hospital to a son she named Guido. But afterward she was returned to her cell without her baby. Two months later, she was executed, according to the Abuelas. Her remains were exhumed and identified in 1985.
The dictatorship left Estela Carlotto without a daughter, and in the dark about what happened to her grandson. But she has said in interviews that she never lost hope that he was alive.
“He’s beautiful,” she told a reporter, her voice filled with the same tenderness of a grandmother doting a newborn’s photo.
But for the moment, details about her grandson’s life remain few to protect his privacy.
The 36-year-old man identified as Guido Montoya Carlotto is Ignacio Hurban, director of a music school in the city of Olavarria, about 220 miles southwest of Buenos Aires.
According to the Grandmothers, Hurban had some doubts about his life story and in June initiated contact with the Abuelas with his suspicions. He submitted to interviews with the group as well as a DNA test that confirmed the match.
A crowd of supporters burst into cheers when Carlotto retold the moment when she got the call that “this is your grandson with 99.99% certainty.”
It isn’t clear when the man first had doubts about his origins, but the group mentioned that in the past he had participated in events for the Grandmothers.
Among the first to call Carlotto after the news was revealed was Argentine President Cristina Fernandez de Kirchner. Both women cried as they celebrated the outcome.
And as for that long-awaited hug, Argentina’s state-run Telam news agency reported that grandmother and grandson met for the first time Wednesday evening.
15. YPF HAS ENOUGH CASH, FUNDING TO WEATHER ARGENTINA DEFAULT – EXECUTIVE (Dow Jones Top Energy Stories)
By Ken Parks
8 August 2014
BUENOS AIRES–Argentina’s biggest oil producer, state-run YPF SA, has enough cash and local funding sources to weather a sovereign default that has blocked it and other companies from international debt markets, according to a senior executive.
Argentina defaulted on some of its debt July 30 when a U.S. judge blocked interest payments from being deposited with bondholders in a lawsuit brought by a small group of hedge funds trying to collect on bonds the country stopped paying in 2001. Analysts say that until the default is resolved Argentine corporations and provincial governments won’t be able to borrow abroad.
“We are fully funded for the next 12 months and we have other sources of funding that we haven’t tapped,” Chief Financial Officer Daniel Gonzalez said in a conference call Friday. “We don’t have any plans for accessing international markets for now.”
YPF had 11.4 billion pesos ($1.4 billion) in cash on its balance sheet at the end of June as part of the company’s strategy to fund projects with its own resources rather than relying on sometimes fickle capital markets.
In addition to its cash cushion, YPF can also lean on its credit lines with local banks, tap a $1 billion credit line with the federal government and, in a pinch, adjust its capital spending, Mr. Gonzalez said.
“We are optimistic regarding issuance in the markets. If the sovereign [default] situation gets resolved at some point, you shouldn’t be surprised if we go back to the market to rebuild our cash cushion,” he said.
YPF’s shares trading in New York were up 1.2% at $33.84 late Friday morning.
YPF said Thursday that its second-quarter net profit rose 40% on the year to ARS1.53 billion thanks to higher production and prices. Oil production rose almost 6% and natural gas output jumped 32% from a year earlier.
Argentina ranks second in the world, behind China, in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to a study last month by the U.S. Energy Information Administration. Argentina also ranks fourth in shale oil with an estimated 27 billion barrels.
YPF said its production of shale oil and gas reached 23,200 barrels a day thanks to the drilling of 50 wells in the massive Vaca Muerta shale formation.
YPF plans to drill another 100 wells in the second half of the year, Mr. Gonzalez said.
16. ARGENTINA’S YPF NOT SEEKING FURTHER SHALE PARTNERS AS OUTPUT GROWS: CFO (Platts Commodity News)
By Charles Newbery
8 August 2014
Buenos Aires (Platts)–8Aug2014/1202 pm EDT/1602 GMT   State-owned Argentinian firm YPF is pushing ahead with a drilling program to boost hydrocarbon production and does not expect to seek new partners in the near term, chief financial officer Daniel Gonzalez said Friday.
“We don’t need further shale partnerships at this stage,” he said in a conference call with investors.
Gonzalez said talks are continuing with state-owned Malaysian oil company Petronas on a partnership for developing oil and natural gas resources in the giant Vaca Muerta shale play in southwest Argentina.
But he added: “We are not in conversations for other shale partnerships.”
Gonzalez said this is part of a strategy to farm out areas in the development stage and not sell acreage too early in the exploration process.
YPF has already entered a $16 billion partnership with Chevron to develop shale resources in Vaca Muerta, where they produced an average of 23,200 b/d of oil equivalent in the second quarter of 2014. Of that, 13,600 b/d was crude, 4,900 b/d was natural gas liquids and 800,000 cu m/d natural gas.
Smaller shale and tight play development joint ventures are under way with Dow Chemical and Argentina’s Pampa Petrolera and Pluspetrol.
Concerns have swelled in recent weeks that a weakening economy could hurt investment in the oil sector and make it harder for YPF to meet targets of increasing its oil and gas production by 5% and 18%, respectively, this year compared with 2013.
Argentina failed to complete a $539 million interest payment on bonds by the July 30 expiration of a 30-day grace period, pushing it into its second default in 13 years.
The government could not complete the payment because a US court ordered it to pay plaintiff creditors at the same time. These plaintiffs won a lawsuit to be paid $1.5 billion on bonds left over from the 2001 default on $100 billion of debt, and the judge hearing the case said that if they are not paid then payments on Argentinian US-law bonds cannot be made.
Analysts warn that a dragged-out default could depress the investment environment and push the country deeper into recession. The economy is expected to contract by between 1.5% and 2% in 2014, and if the default is not resolved by the next bond payment due date of September 30, 2014, then it could shrink by another one percentage point or more.
However, Gonzalez said YPF is sticking to its production growth targets for 2014 and may surpass the objective for gas.
“We feel extremely comfortable that we will easily top the gas production estimates for the year,” he said.
Gonzalez said that so far there has been no sense of an impact on oil investment from the economic slowdown and sovereign default. “We believe that the sovereign debt situation is a temporary thing,” he said.
While a solution to the debt crisis “is difficult to predict,” he said that investment in the oil sector, in particular in shale development, is for much longer terms of 35 years, so short-term economic concerns do not weigh so heavily on plans.
The government is working on a reform of the national hydrocarbon law to make it easier to invest in Argentina, he added.
“The reform will have a positive effect on much-needed investments in the sector,” he said.
Argentina’s oil and gas output has dropped by about 20% over the past decade, leading to a rise in imports that are chipping away at its trade surplus, draining foreign reserves and pushing fiscal accounts deeper into deficit.
While the government could pursue more populist economic measures including low-interest loans, job-training programs and tougher price controls to limit the economic contraction, Gonzalez does not expect this to sour investment in the energy sector.
“We are working to reduce the energy deficit and that is directly related to increased investment that will lead to increased production,” he said. “We need to maintain prices for that investment to come.”
The economic slowdown has “softened” domestic fuel demand and may stem increases in energy prices, but that will not hurt the company’s “pricing power in real terms,” he added.
Crude and gas prices were 5.8% and 9.8% higher, respectively, in the second quarter compared with the year-ago period, while gasoline prices rose 4.6% and diesel 1.1% year on year, YPF said.
Gonzalez was speaking a day after YPF released its second-quarter earnings results showing that its hydrocarbon production surged 15.5% in the second quarter of 2014 this year compared with the year-earlier period, led by a 5.6% rise in oil and 31.8% in gas.
Gonzalez said that the company has raised financing for the next year, meaning it can continue at its current investment pace even though the sovereign default has closed doors to international debt issuance.
“We have other sources of financing that we have not tapped,” he added, saying these include lines of credit for local banks and a $1 billion line of credit from the government.
17. Q2 OIL: CHILE, ARGENTINA LOOK TO WEST AFRICA LIGHTER CRUDES (Platts Commodity News)
By Richard Capuchino
8 August 2014
* Argentina buys first WAF crudes for two decades
* End of Chilean tax opens up imports from Angola
Houston (Platts)–8Aug2014/647 pm EDT/2247 GMT  The second quarter of 2014 saw rare imports of West African grades of crude into the two most southern countries in the Western Hemisphere.
Argentina purchased its first West African grade of crudes in two decades. Argentina’s YPF purchased a 1 million-barrel cargo of Nigerian Bonny Light from trader Vitol in late April for delivery in the second half of May. The cargo was sold on a Brent-related basis, but no additional details were disclosed.
YPF bought on behalf of Enarsa, the state company that handles much of the country’s fuel oil and natural gas imports, said market sources. Enarsa has the responsibility for supplying the crude to the country’s refiners, which include YPF, Shell, Petrobras, Oil Combustibles and Axion.
The cargo was delivered into the port of Bahia Blanca, Argentina, where it was moved by pipeline to Buenos Aires-area refineries, said a market source.
The Argentinian government said in mid-January that it would begin to import up to 56,610 b/d of light crudes supplies over the next year to produce more volumes of diesel, fuel oil and gasoline and thus reduce costlier imports of those products.
In early April, Chile’s state refiner ENAP purchased a 1-million barrel cargo of crude from West Africa for the first time since 2009. ENAP loaded the Suezmax-sized vessel Dilong Spirit with Angolan Nemba on May 4 for delivery to Chile, market sources said.
Platts was unable to confirm the deal with ENAP officials, and a source close to the South American refiner had “no comment” at the time.
ENAP had not been importing West African crudes because they incurred a 6% import tax. But Chile this year has ended the tax on most goods from certain less developed countries, including Angola, hence additional volumes of crudes from that West African country could be imported in the future, another source close to ENAP said.
Latin American crude market sources also attributed the rare import to weaker prices for West African grades such as Nemba and lower freight rates.
According to market sources, the voyage from Angola to Chile is approximately 21 days.
Nemba crude is produced offshore Angola, has a gravity of 38.6 API and 0.22% sulfur and loads from the terminal of Malongo.
Peru and Brazil have imported volumes of crude from West Africa through contracts for years, while Uruguay started to import primarily Nigerian grades of crude through tenders two years ago.
18. INFLATION SQUEEZES ARGENTINA’S WINE (The Wall Street Journal)
By Sara Schaefer Munoz
9 August 2014
MENDOZA, Argentina — For years, Jose Manuel Ortega exported a type of Malbec wine from his vineyard beneath the snowy Andes that U.S. reviewers called “broodingly inky,” with a “monumental flavor.”
But he recently halted production of the fruity, garnet-colored Massimo line. Amid Argentina’s escalating inflation, labor costs were soaring, and he could no longer make a profit on the lowest-priced bottles selling at retail for $9 to $12. A national economic downturn that is battering everything from auto makers to the real-estate market hasn’t spared the niche industry in western Argentina.
Mr. Ortega, who founded the O.Fournier vineyard here 14 years ago, still sells his higher-end Alfa Crux. But “we were forced to stop supplying” wines in the lower price range, Mr. Ortega says. “When the situation clears up, we can go back to these projects.”
The 46-year-old former investment banker came to Argentina from Spain after seeing the potential for great wines in the fine-grained soil and clear skies of the Uco Valley. But he is now among the successful growers stung by an inflation rate that some economists say is close to 40%, affecting everything from milk to movie-ticket prices.
Demand abroad for its good-quality but inexpensive Malbecs drove robust growth for nearly a decade, making Argentina the fifth-largest wine producer in 2011, according to the International Organization of Vine and Wine. But sales from exports fell 5% to $877 million last year, according to the trade group Bodegas de Argentina.
This year has also been grim. According to Bodegas, exports of bottled, boxed and other individually packaged wine fell 5.5%, to 77 million liters, in the first five months of 2014. The trade group says the value of wine exports fell 3.6% in the period, to $301 million, and export volume to the U.S., Argentina’s biggest market, slipped nearly 8%, Bodegas says.
“It’s not because of the wine or how they managed their brands,” says Stephen Rannekleiv, a wine and spirit analyst at Rabobank Group. “The inflation issue is really out of their hands.”
Wine has been hit harder than agricultural products like soy because picking the grapes is so labor intensive. Analysts say producers’ costs have risen at least 100% in the past four years.
That means fewer bottles of cheap Argentine wine are making it to the shelves of restaurants and liquor stores in the U.S. and Europe.
“People want something for the evening that is affordable,” says Victor Marquez, a manager at Beverage Depot in Dallas. He adds that $8.99 bottles of Malbec were a popular choice for years, “but right now, we don’t have any on the shelf.”
One of the earliest vineyards in Argentina was established by Jesuit priests in the 1500s to make wine for Mass, according to Ian Mount, the author of a book about the Argentine wine sector, “The Vineyard at the End of the World.” Later, an agronomist introduced the Malbec vines, and producers soon discovered grapes grown in dry western Argentina had less risk of fungal diseases, permitting production to flourish.
In the years following Argentina’s 2001 default and the devaluation of its currency, bold investors flocked into the wine region. Many growers saw an advantage in exporting wine to the U.S. and being paid in dollars while covering their costs with weak Argentine pesos. While there are many higher-priced, higher-quality Argentine wines available, exporters edged their way into the U.S. market by promoting Malbecs and blends as superior products at low prices.
But now that strategy makes it tricky to charge consumers more. “They’ve painted themselves into a corner because people expect most Malbecs to be under $20,” says Kathleen Smith, a buyer for Castle Wine & Spirits in Westport, Conn.
Mendoza, a city of 1.8 million people, thrives on the viniculture industry. Scores of hotels and restaurants cater to vineyard tourists. Twenty-foot-high wine bottles encircle a park on the outskirts of town in an ode to the region’s lifeblood.
Michael Evans, co-founder of Vines of Mendoza, a vineyard that sells parcels to people who want to give wine production a try, says he recently cut back wine exports, including his $18-a-bottle Malbecs, because of rising labor costs.
“We just gave a 15% salary raise to our workers, and it only helps them break even after the inflation this year,” says Mr. Evans, who will hang on to the bottles and await a more profitable moment to export.
Some have been investing more in the tourism side of the business. O. Fournier has an upscale restaurant on the vineyard. Mr. Ortega also sells parcels of the vineyard for up to $170,000, giving buyers the chance to produce their own wine or build a vacation home.
“I hope a more coherent economic policy will benefit our sector,” he says. “With wine exports, you are really creating a brand for the country abroad.”

Tuesday, AUG 12

 
 
 
 
 
 
 
 

 

1. US PRINTING COMPANY SHUTS DOWN ARGENTINA OPERATION (The Washington Post)
August 11, 2014
BUENOS AIRES, Argentina — A global printing company based in the U.S. shuttered its plant Monday in Argentina amid tough economic times in the South American country.
Employees of the R.R. Donnelley & Sons plant on the outskirts of Buenos Aires showed up to find the gates locked and a note on the door informing them the operation is now closed.
“We profoundly regret to inform you that, confronted by an insurmountable crisis and having considered all the viable alternatives, we are closing our operations in Argentina,” the note read in part.
Some workers staged an impromptu protest, setting tires on fire outside the gate and beating on drums. Union leaders said they would meet with Ministry of Labor officials in an attempt to reverse the layoff of about 400 workers at the plant who produced a number of leading magazines.
The company’s statement did not disclose details about what prompted the closure. A spokeswoman at the company’s headquarters in Chicago did not respond to a phone message or email requesting comment.
The closure comes as Argentina is in recession, with an unemployment rate of about 11 percent.
2. ARGENTINA ASKS OBAMA TO REIN IN JUDGE (The New York Times)
By Michelle Celarier
August 11, 2014
The war of words between Argentina and the US courts continues.
A top Argentina official on Monday asked President Obama to rein in the judge overseeing its long-running battle with hedge-fund billionaire Paul Singer.
Cabinet chief Jorge Capitanich called on Obama to stop Manhattan Judge Thomas Griesa from interfering with its sovereign rights.
On Friday, Griesa threatened Argentina with a contempt citation if it didn’t quit making false statements in a series of newspaper ads about its recent debt default.
The ads claimed that Argentina is trying to pay its bondholders but that Griesa is stopping it from doing so. Argentina sent $539 million to pay bondholders who agreed to a debt swap, but bond trustee Bank of Mellon New York held on to it.
Griesa ordered the bank not to pay the bondholders until Argentina also paid Singer and other holdout bondholders in full.
Argentina refused to pay the holdouts, which it calls “vultures”.
3. ARGENTINA: US JUDGE CANNOT HOLD COUNTRY IN CONTEMPT OF COURT  (Voice of America)
By VOA News
August 11, 2014
Argentina on Monday asked the Obama administration to stop a federal judge from ordering the country to cease “false and misleading” statements about its recent debt default.
Judge Thomas Griesa in New York on Friday said he would hold the South American country in contempt of court if it continued to say it did not default on its debt July 30.
Argentina’s cabinet chief Jorge Capitanich argued Monday that the judge would violate Argentina’s sovereign immunity if he held the South American country in contempt.
Judge Griesa prevented last month’s payment to bondholders after Argentina threatened to pay only those who had accepted its restructured debt.
Argentina last week filed a lawsuit against the United States in The Hague at the International Court of Justice. The lawsuit contends the U.S. violated Argentina’s sovereignty by allowing a federal judge to interfere with its payment to bondholders.
4. ARGENTINA CALLS FOR U.S. INTERVENTION IN ITS DEBT BATTLE (Reuters News)
By Hugh Bronstein
August 11, 2014
(Reuters) – Argentina on Monday called on Washington to intervene in a court case over the country’s defaulted debt after a U.S. district judge threatened the South American country with contempt for making what he called false statements.
U.S. Judge Thomas Griesa, overseeing Argentina’s long-running battle with hedge funds over defaulted debt, said on Friday he would issue a contempt of court order unless the government stopped publicly claiming it had met its obligations and was not in default.
Cabinet chief Jorge Capitanich countered on Monday that a contempt order would violate Argentina’s sovereign immunity and he called on the Obama administration to rein in Griesa.
“When it comes to a bilateral relationship with a sovereign country and the violation of its immunities, it is necessary for the executive branch to intervene,” Capitanich said. “The executive has a monopoly on relations with other countries.”
“The United States is responsible for the actions of its branches of power, in this case the judicial branch, regardless of the independence of the functioning of those branches,” he said.
The U.S. Department of Justice declined to comment. A senior U.S. State Department official said Washington continued to urge the Buenos Aires government to engage with its creditors to break the deadlock.
“With respect to the U.S. court, we cannot speculate on any possible developments or actions in the litigation,” said the official who requested anonymity.
In 2002 Argentina defaulted on about $100 billion in sovereign bonds. It restructured most of that debt in a deal that gave holders less than 30 cents on the dollar while a group of hedge funds went to court for full repayment.
In 2012 Griesa ruled that Argentina could not repay holders of restructured debt without also paying hedge funds their court-award of $1.33 billion plus interest at the same time.
DISPUTED PAYMENT
Argentina says it met its obligation to the holders of restructured bonds when it deposited $539 million into the account of intermediary Bank of New York Mellon in June. Griesa called the deposit illegal and ordered the money frozen.
As a result, Argentina effectively missed the coupon payment after a grace period ended on July 30, pushing it into default on its restructured debt. Griesa reiterated on Friday that “there has been no payment.”
Argentina has long accused the judge of overstepping his bounds and being partial toward the funds, which bought Argentine bonds at steep discounts and are characterized by President Cristina Fernandez as “vultures” out to wreck her country’s finances in their pursuit of huge profits.
The U.S. Government filed an amicus curiae or friend-of-the-court brief in 2012 that asked the 2nd Circuit Court of Appeals to reverse Griesa’s decision, arguing that his ruling could undermine future sovereign restructuring mechanisms.
However, Washington did not in writing favor Argentina, or “condone or excuse a foreign state’s failure to comply with the judgment of a U.S. court imposing liability on the state.” ( here )
Argentina has published paid advertisements in newspapers in Europe and the U.S. in recent weeks disparaging Judge Griesa and court-appointed mediator Daniel Pollack, who succeeded in getting the two sides to meet face-to-face for the first time in nearly 13 years but could not get them to an agreement by July 30. Those negotiations are to continue.
But Argentina says it cannot make a deal with the holdouts that is better than the terms offered in its two restructurings based upon a clause in its agreement known as the Rights Upon Future Offers (RUFO). The RUFO clause expires on Dec. 31, 2014.
In June the U.S. Supreme Court declined to hear Argentina’s appeal of the case, effectively exhausting Buenos Aires’ recourse in the U.S. legal system.
5. ARGENTINA ECONOMY: QUICK VIEW – ARGENTINA FILES ANTI-US LAWSUIT AT THE ICJ (Economist Intelligence Unit – ViewsWire)
11 August 2014
Event
The government has brought a case against the US at the International Court of Justice (ICJ) in The Hague in protest at a ruling by a New York-based court that requires Argentina to pay holdout creditors at the same time as those who participated in debt swaps in 2005 and 2010.
Analysis
The ruling by a US judge, Thomas Griesa, caused Argentina to enter into technical default on July 30th after failing to reach an agreement with litigant holdouts, despite its willingness to pay current creditors. The government argues that paying the litigant holdouts would trigger the Rights Upon Future Offers (RUFO) clause included in the 2005 debt swap, which stipulates that any improved offer on defaulted bonds before end-2014 must also be made to the holders of restructured debt.
The decision to bring the case before the ICJ was advanced by the economy minister, Axel Kicillof, when Mr Griesa refused to grant a stay on July 30th. In the lawsuit, the government claims that the judge’s ruling violated its sovereignty by forcing it to adhere to decisions in US courts that prevent it from dealing with its sovereign debt.
However, the US government would have to agree to have the case heard before the ICJ. This is highly unlikely, given that it withdrew from ICJ jurisdiction in 1986 and that it has already stated that the ICJ is not the appropriate forum. Argentina may be attempting to push the US towards seeking a diplomatic solution to the disagreement, a tactic that the US has used previously in such situations. Both Mr Kicillof and the cabinet chief, Jorge Capitanich, have asked for US government intervention.
The government has used increasingly harsh language against the holdouts and Mr Griesa, which caused the judge on August 8th to threaten to hold Argentina in contempt of court. This aggressive strategy may be designed to distract Argentinians from the effects of the fallout and to bolster government support, which has been low.
6. MORE THAN 100 GRAINS CARGO SHIPS HELD UP IN ARGENTINA BY STRIKE (Reuters News)
11 August 2014
BUENOS AIRES, Aug 11 (Reuters) – A wage strike by Argentine tugboat captains forced more than 100 grains ships to drop anchor along the Parana River on Monday, preventing the loading of freshly harvested corn and soy, a local industry official said.
The work stoppage affected grains terminals in Timbues, Puerto General San Martín and San Lorenzo, all just north of Argentina’s main port of Rosario, said Guillermo Wade, president of the country’s Port and Maritime Activities Chamber.
“We are very concerned,” Wade told Reuters, referring to the backup of cargo ships waiting to take on corn, soy and related products at the end of harvesting for the 2013/14 crop year.
Argentina is a major exporter of corn and the No. 1 supplier of soymeal livestock feed used around the world.
Tug captains, needed to guide cargo ships into port, walked off the job on Saturday to press for a hike in wages that would offset the South American country’s high inflation rate.
Private economists say the rate may exceed 30 percent in 2014, compared with about 25 percent last year.
Official data released last month showed inflation slowed for a fifth consecutive month in June, but still stood at 15 percent since the start of the year, one of the highest rates in the world.
Farmers on the Argentine Pampas ere expected to harvest 54 million tonnes of soybean this year and 26 million tonnes of corn, according to the U.S. Department of Agriculture.
The Argentine government sees a soy take of 53 million tonnes this year and a 33-million-tonne corn harvest.
7. LEAR OUTPUT DISRUPTED BY UNION CONFLICTS (IHS Global Insight Daily Analysis)
By Stephanie Brinley
11 August 2014
Lear intends to close its facility in the General Pacheco facility (Argentina) for 15 days over issues with unionised workers, according to reports by local media. There are concerns that unionised workers have been harassing other workers. Employees will continue to be paid during the shutdown. On 31 July 2014, a court order was meant to guarantee the reinstatement of five union leaders who were re-elected in 2013 but then removed through an assembly organised by SMATA, a union with “close links” to the government. The reports suggest that Lear could close the factory permanently or move production to Cordoba. Other reports cite demonstrations in front of Lear’s factory, as well as protests against the judge presiding over Argentina’s debt dispute with two American hedge funds and the successful staging of a roadblock on the highway for 30 minutes.
Reports indicate Lear cited failure to be able to provide security for its 545 workers as the reason for the layoffs, but yesterday (10 August 2014) had reinstated 61 of the 200 it was accused of dismissing illegally, while 123 agreed to quit and 66 were fired for low performance.
Significance: Ford is the largest customer of this Lear facility, and has not been impacted by the disruption. Economic conditions remain difficult in Argentina, with an ongoing dispute with the US over whether it can service its debt. Several bondholders have contested a debt-restructuring agreement, and the country’s payments are not being accepted until an accord is struck with bondholders, which are still holding out. Meanwhile, vehicle sales, production, and exports continue to decline (see Argentina: 7 August 2014: ).

ARGENTINE UPDATE – Jul 31, 2014

1 agosto, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. ARGENTINA HEADS INTO DEFAULT AS DEBT TALKS FAIL (The Washington Post)
By Almudena Calatrava, Ben Fox and Debora Rey in Buenos Aires, Argentina, and Luis Andres Henao in Santiago, Chile, contributed to this report.
July 30, 2014
NEW YORK — Talks aimed at averting Argentina’s second default in 13 years ended with bitter recriminations Wednesday as the South American country said it could not accept a deal with U.S. hedge fund creditors it dismisses as “vultures.”
Court-appointed mediator Daniel Pollack said the failure triggered an imminent default that, among other things, would hurt the Argentine economy as well as bondholders who were not part of the dispute.
“The full consequences of default are not predictable, but they are certainly not positive,” Pollack said.
A U.S. court ruling previously blocked Argentina from making $539 million in interest payments due by midnight Wednesday to other bondholders who separately agreed to restructuring plans with the country in 2005 and 2010.
Argentine Economy Minister Axel Kicillof emerged from the meeting with creditors and the mediator with an air of defiance, saying his government could find no middle ground.
“We’re not going to sign an agreement that jeopardizes the future of all Argentines,” Kicillof said. “Argentines can remain calm because tomorrow will just be another day and the world will keep on spinning.”
There was no immediate comment from the hedge funds, which refused to participate in the debt restructurings and won a U.S. court judgment that they be paid the full value of their bonds plus interest — now estimated at roughly $1.5 billion.
Kicillof said the funds refused a compromise offer to settle their claim, although he gave no details of that proposal.
He said the funds also would not agree to a stay of the court order to allow Argentina to make the interest payments by Wednesday night’s deadline and avert economic uncertainty for investors and citizens of the South American country, which is struggling with recession, a shortage of dollars and one of the world’s highest inflation rates.
Kicillof dismissed a decision by ratings agency Standard & Poor’s to downgrade Argentina’s foreign currency credit rating to “selective default” because of the missed interest payments.
“Who believes in the ratings agencies? Who thinks they are impartial referees of the financial system?” he said.
Argentine President Cristina Fernandez had long refused to negotiate with the hedge fund creditors, often calling them “vultures” for picking on the carcass of the country’s record $100 billion default in 2001.
The holdouts, led by New York billionaire Paul Singer’s NML Capital Ltd., spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief. They also sent lawyers around the globe trying to force Argentina to pay its defaulted debts and were able to get a court in Ghana to temporarily seize an Argentine naval training ship. The threat of seizures forced Fernandez to stop using her presidential plane and instead fly on private jets.
Restoring Argentina’s sense of pride and sovereignty after the 2001-2002 economic collapse has been a central goal of Fernandez and her predecessor and late husband, Nestor Kirchner. The couple nationalized the pension system, kept energy cheap through subsidies and dug deep into the treasury to redirect revenue to the poor through handouts.
Argentina has also made efforts to return to global credit markets that have shunned it since the default. The government paid its debt to the International Monetary Fund and agreed in May with the Paris Club of creditor nations on a plan to begin repaying $9.7 billion in debts unpaid since 2001. It also agreed to a $5 billion settlement with Grupo Repsol after seizing the Spanish company’s controlling stake in Argentina’s YPF oil company.
Analysts say a new default would undermine all of these efforts.
“This is unexpected; an agreement seemed imminent,” said Ramiro Castineira of Buenos Aires-based consultancy Econometrica.
“Argentina would have benefited more from complying with the court order in order to get financing for Vaca Muerta,” he added, referring to an Argentine region that has one of the world’s largest deposits of shale oil and gas.
Only a few international companies have made commitments to help develop the fields as many fear the government’s interventionist energy policies. The government has also struggled to get investors because it can’t borrow on the global credit market.
Prices for Argentine bonds had surged to their highest level in more than three years on the possibility that Argentina would reach a deal with the holdout creditors. Argentina’s Merval stock index also climbed more than 6.5 percent in midday trade on a likely deal.
Optimism had been buoyed by reports Wednesday that representatives of Argentina’s private banks association, ADEBA, were set to offer to buy out the debt owed to the hedge funds. In return, the reports said, the U.S. court would let Argentina make the interest payments due before midnight Wednesday and avoid default.
The deal failed to materialize.
“It is an unfortunate situation which is pushing the country into another default. As defaults go, we all know when we get into one but it is very unclear when and how to get out of it,” said Alberto Ramos, Latin America analyst at Goldman Sachs.
“We just added another layer of risk and uncertainty to a macro economy that was already struggling. This puts us on a path of unpredictable economic and financial consequences,” Ramos said. “But nothing will last forever. At some point the parts involved will hopefully sort this out.”
2. ARGENTINES SHRUG OFF RISK OF DEFAULT (The Washington Post)
By Joshua Goodman
July 30, 2014
BUENOS AIRES, Argentina — In 2001, it was ground zero for Argentina’s financial earthquake. A neo-colonial architectural gem built long ago by the Bank of Boston, it became the focal point for angry mobs of protesters who stared down riot police to demand the return of their savings, which the government confiscated in a last-ditch, and ultimately failed, attempt to stay current on its debt.
Thirteen years later, as a midnight deadline to avert another default approached Wednesday, the mood on this iconic downtown street corner was one of resignation not panic. There were no protesters banging pots and pans on the bank’s impenetrable cast-iron doors. Instead, office workers used their lunch break to tend to financial transactions at what is now a branch of the Industrial and Commercial Bank of China.
While Argentine negotiators worked feverishly for days in New York to keep their country from falling behind on its debts, Daniel Gurof, a 50-year-old businessman, said he was more concerned about tangible problems such as the country’s soaring crime rate. It was no matter that Gurof lost his life savings in 2001, when Argentina stopped payment on more than $90 billion in bonds. This time, nobody expects such drastic, unpopular action.
“I’ve got bigger problems than the vulture funds,” he said, using the epithet preferred by President Cristina Fernandez to describe the hedge funds that brought Argentina to the edge of default.
The standoff stemmed from the refusal by a small group of creditors to accept a 70-percent write down of Argentina’s defaulted debt. Rather than accept a deal that was signed by more than 90 percent of creditors in 2005, the holdouts took Argentina before U.S. courts to demand full payment. A federal judge in New York sided with the creditors, awarding them more than $1.3 billion — a decision upheld by the Supreme Court in June.
Even as it negotiated with the holdout creditors, the government risked falling behind on debts owed to existing bondholders because the federal court blocked a $539 million interest payment intended for them. A one-month grace period on that payment was set to expire Wednesday.
While a default would let loose the sharks of Wall Street, exacerbate a cash crunch caused by draining reserves and rock the final 15 months of Fernandez’s rule, nobody predicted a repeat of the full-blown crisis seen in 2001, when unemployment skyrocketed and the presidency changed hands five times in little more than a week of deadly protests.
One reason for the relative calm was that Argentina never fully recovered from that comeuppance.
Unlike the 1990s, when the country loaded up on foreign debt as investors sung the praises of its then-dollarized economy, the country has been all but shut out of international capital markets for the past decade. That’s forced it to become an involuntary paradigm of frugality in an era when the United States and much of Europe are struggling to tighten their belts. Debt to gross domestic product, a widely-used measure of a nation’s financial health, has fallen from 127 percent a decade ago to less than half that amount.
The government’s argument that it already has paid bondholders and that an activist judge is to blame for any ensuing fallout appears to have struck a chord — at least for now. Polls show that most Argentines approve the government’s tough negotiating stance.
“They’re trying to scare us and say that if we don’t do what they say, we’ll suffer the 10 plagues of Egypt,” Fernandez argued Tuesday at a summit in Venezuela, where she won the backing of regional leaders. “Well, look, the 10 plagues of Egypt we already suffered in 2001, when another government exactly followed orders coming from abroad.”
That’s not to say a default would be cost-free. While Argentina is living within its means, it’s mired in a recession, facing a severe dollar shortage and struggling to tame inflation estimated at around 40 percent.
A default would batter investor and consumer sentiment even further and wipe out much of the progress Fernandez has made over the past year climbing back into Wall Street’s good graces. That includes striking a $5 billion deal to repay Spain’s Repsol for the expropriation of its oil business, settling with the Paris Club of government lenders and even renewing contact with the organization Fernandez and her Peronist party blame for the country’s 2001 collapse: the International Monetary Fund.
“There won’t be a catastrophe if there’s no deal, nor will the economy automatically improve just because there is one,” Jorge Remes Lenicov, who was economy minister in the chaotic days following the 2001 default, told La Red radio recently.
But the government may be gambling that any debt moratorium will be short-lived, at the most stretching just beyond Dec. 31, when a clause in its previous restructuring deals will expire, no longer obligating Argentina to pay bondholders amounts equivalent to what it pays the holdout creditors.
In the meantime, residents of Buenos Aires continued their daily business, showing few signs of alarm even as the political and economic outlook grew more uncertain.
“We know what a crisis is like, and one of this characteristic doesn’t scare us,” said Alejandro Caballero, a 31-year-old film student and music teacher. “But being calm doesn’t mean we’re relaxed. I’m watching closely what happens.”
3. ARGENTINA BLAMES ‘VULTURES’ AS IT SLIPS INTO DEFAULT; LIMITED FALLOUT EXPECTED  (Washington Post.com)
By Mariana Marcaletti; Fred Barbash
31 July 2014
The nation slipped into default last night after failing to reach agreement with a group of unpaid bondholders.
Argentina slipped into default status last night after failing to reach agreement with a group of unpaid bondholders.
While the news was bad for Argentina and its economy, most analysts expected the global fallout to be limited, in part because Argentina has been locked out of the world’s credit markets since its $100 billion default in 2002. There was little worry about  “contagion” and no air of  “crisis” either globally or in Argentina itself, where the story was competing for attention in news outlets with the surprise death of the long-time president of the national soccer association, the AFA, and a video of Orlando Bloom punching Justin Bieber.
Ratings agency Standard & Poor’s classed it as a “selective” default, meaning that the government has elected not to pay some of its debt but not all. It can pay but won’t. Specifically, the government doesn’t want to pay hedge funds — which it describes as “vultures”— the full value of bonds they hold and had gone all the way to the U.S. Supreme Court in an unsuccessful attempt avoid doing so. Other creditors had agreed to take reduced payments, but not the hedge funds.
It wasn’t that Argentines don’t care. Default has the potential to do considerable damage to the domestic economy. But they appeared to be resigned to it, with little expectation that negotiations with aggrieved bond holders would produce anything, which they didn’t. Social media was filled with jokes about why the government of President Cristina Fernández de Kirchner wouldn’t actually admit to being in default even after it actually happened.
“This is not a default,” declared Axel Kiciloff, Argentina’s Economy Minister, noting that the government had paid 93 percent of its bondholders. “Tomorrow will be a new day and we need to carry on,” he told reporters. “Don’t have any doubts, we are open to dialogue with everyone as long as conditions are reasonable.”
In fact, the president and her party (FPV) had staked considerable political capital on not paying the hedge funds, papering the country with images of vultures and characterizing the hedge funds as predatory beasts.
Graphic artists imagined the Argentine president Fernández de Kirchner as an Argentine heroine fighting back the vultures, with her late husband and former president Nestor watching over her from the sky.
Here’s some of the vulture art:
La pelea con los #FondosBuitre #DecileNoALosBuitres #SeTrataDeNuestroFuturo #PatriaOBuitres pic.twitter.com/5P2Bepka6b
 
— Encuentro Comuna 5 (@EDEComuna5) junio 23, 2014
 
La pelea con los #FondosBuitre #DecileNoALosBuitres #SeTrataDeNuestroFuturo #PatriaOBuitres pic.twitter.com/5P2Bepka6b
 
Cómo opera el lobby de los #FondosBuitre que se enfrentan a Argentinahttp://t.co/AGydvjhJ61
 
4. ARGENTINA TEETERS ON DEFAULT AS TALKS COLLAPSE (The Wall Street Journal)
By Nicole Hong, Taos Turner and Matt Day
31 July 2014
Argentina teetered on the brink of its second default in 13 years after talks with bondholders collapsed late Wednesday.
The setback, after glimmers of hope in recent days that a last-minute agreement could be reached, immediately sent Argentine stocks plunging in after-hours trading.
Still, there remained the possibility that talks could resume and a deal could eventually be reached.
At a press conference after talks with a court-appointed mediator ended Wednesday, Argentine Economy Minister Axel Kicillof, who had led the country’s delegation to New York, said “we won’t sign an agreement that would compromise Argentina’s future.” A spokeswoman later said negotiations would continue, without giving a timetable.
“Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people,” said Daniel Pollack, the mediator, in a statement late Wednesday. He added, “The full consequences of default are not predictable, but they certainly are not positive.”
The development is the latest turn in a yearslong battle between Argentina and a small group of hedge funds that have demanded full payment for bonds the country defaulted on in 2001. Argentina has refused to pay, despite an order by a U.S. District Court judge requiring it to pay the hedge funds. The issue came to a head Wednesday as Argentina missed a deadline to make a payment it owed to other bondholders, because the court order had prevented such a move.
Mr. Pollack, who had been trying to broker a deal between the two sides, said the country would “imminently” be in default. Standard & Poor’s Ratings Services had earlier Wednesday declared Argentina in default on some of its bonds.
A default would pressure an economy already mired in recession, potentially leading to higher inflation and a weaker currency. The breakdown of negotiations also complicates President Cristina Kirchner’s efforts to stabilize the economy ahead of elections next year.
Wednesday marked the end of a 30-day grace period for Argentina to make a $539 million interest payment to the holders of $29 billion of the country’s restructured bonds that was due on June 30. A ruling by U.S. District Judge Thomas Griesa prevents Argentina from paying its restructured bondholders until the hedge funds, also known as the holdout creditors, are compensated. The holdout creditors are owed about $1.5 billion.
Mr. Kicillof hinted on Wednesday that a private-sector solution was a possibility, apparently referring to a proposal by a group of Argentine banks to offer a $250 million guarantee to the holdouts. The idea would be to give the hedge funds a financial incentive to ask Judge Griesa to suspend his ruling until the end of the year and allow payment of holders of the other bonds.
A default could shave as much as one percentage point off growth this year, said Martin Redrado, former governor of Argentina’s central bank. Analysts said it would also fuel inflation, which some economists already estimate to be close to 40%. It could roil the country’s financial markets, ending a period of relative calm in the peso’s exchange rate and Argentine bond prices.
The economic damage from a prolonged default could prove politically costly for Mrs. Kirchner, who is trying to stabilize a shaky economy and win influence for her party ahead of presidential and congressional elections in October 2015.
Even if Argentina reaches a deal with holdouts, it likely won’t be enough on its own to right the country’s finances, said Roberto Sifon-Arevalo, head of the Latin America sovereign group at S&P.
A deal “would definitely be a good thing. I don’t think that it would automatically be a solution, or a dramatic game-changer,” he said. “The macroeconomic environment in the country has deteriorated significantly. It’s weak and getting weaker. This situation certainly does not help.”
The immediate impact to debt markets outside Argentina is expected to be limited. Argentina has been relatively isolated from global financial markets since its default in 2001, and the country’s legal battles with its creditors are unprecedented and have dragged on in U.S. courts for years. In 2001, the country’s bonds made up 20% of J.P. Morgan Chase & Co.’s widely followed emerging-market debt index. Now, they are only 1.3% of the index, signaling little chance that another default would rattle the global economy.
“I don’t think this is going to have much repercussion outside of Argentina,” said Clyde Wardle, a senior currency strategist with HSBC Holdings PLC.
However, the case has raised questions about the power of U.S. courts to adjudicate cases involving sovereign nations and their creditors.
The concerns stem from the controversial 2012 ruling made by Judge Griesa, who has presided over disputes between Argentina and its creditors for more than a decade. He ruled that Argentina isn’t allowed to pay the bondholders who accepted the country’s restructuring offers since its 2001 default, unless it also pays the holdouts, who have refused those offers.
Analysts say Wednesday’s developments will likely rock Argentine markets on Thursday, as the country’s stocks and bonds had rallied this week on hopes that the two sides would reach a deal and avert default.
5. WORLD WEIGHS FALLOUT OF ARGENTINE BOND CASE ON OTHER INDEBTED NATIONS (The Wall Street Journal Online)
By Ian Talley and Nicole Hong
30 July 2014
At Issue: Whether Holdout Creditors’ Legal Victories Will Trip Up Other Countries’ Attempts to Restructure Sovereign Bonds
WASHINGTON—Argentina is poised to tumble into default Wednesday after a long battle with holdout creditors, a prospect that stirs varied levels of alarm about the fallout for other indebted countries.
The International Monetary Fund and others are warning that the legal rulings that forced Buenos Aires’ hand could imperil future debt restructurings. Already, they say, the case is driving bond issuers to rewrite their contracts to ensure that a small group of creditors wouldn’t be able to hold bond deals hostage.
Other observers say fears are overblown.
Standard & Poor’s on Wednesday downgraded Argentina’s foreign currency credit rating to selective default as Argentine banking and government officials scrambled to craft a deal with creditors by the end of the day, when the grace period runs out for the country to make its latest bond payment. U.S. courts have barred Argentina from making payments on any of its restructured bonds unless it also pays hedge funds that have sued to collect on debt the country defaulted on 13 years ago.
IMF Managing Director Christine Lagarde said Tuesday that an Argentine default itself wouldn’t be likely to shake regional or international markets. Of much broader significance, she said, are the rulings by a New York court requiring Argentina to choose between paying holdout creditors or defaulting.
The IMF and some bond experts say the case sets a precedent that gives holdouts outsize power over nations struggling to pay back their debts. After Argentina defaulted in December 2001, the country managed to restructure about 93% of that debt through heavily discounted bond exchanges in 2005 and 2010. But a small group of investors refused to tender their defaulted bonds for new securities, and are seeking full repayment.
The court decisions could undermine investors’ willingness to participate in sovereign-debt restructurings around the globe, the world’s premier financial counselor warns—even if such emergency debt cuts are needed to prevent the collapse of entire economies.
“There is a cost to the world,” said IMF Chief Economist Olivier Blanchard last week, noting that the rulings create enough uncertainty to potentially disrupt other debt restructurings.
Some countries are revising the contracts of bond offerings to prevent holdout creditors from having the type of leverage seen in the Argentina case. In the Ivory Coast’s bond sale last week, the country removed some bondholder-friendly provisions such as the so-called “creditor engagement clause,” which says the country will commit to engage with creditors in the event of a default. Creditors say that in almost every debt sale from a Latin American country in the past 18 months, contract provisions that potentially give holdouts more leverage have been tweaked.
If a country is unable to restructure its debt because a minority of creditors wants to hold out for a better deal, it can exacerbate an economic crisis, some economists fear. Beyond potentially forcing an economic collapse, that could also require much tougher and sharper budget government budget belt-tightening, measures that can have wide-ranging social, political and economic implications for more than a generation.
Scores of human rights, debt-relief and other nongovernmental organizations such as the European Network on Debt and Development on Tuesday warned in an open letter that the Argentina case could many disrupt many similar existing claims against highly indebted countries.
The case “must not be understood as an isolated case, but rather as the expression of a global problem that impacts the effective implementation of human rights,” the letter said.
Others are skeptical. A.J. Mediratta, co-president of Greylock Capital Management LLC, whose firm has been involved in more than 40 debt restructurings, said investors still have few incentives to hold out because of the time and legal fees required.
“Holding out is not for the faint of heart,” Mr. Mediratta said. “It’s painful. It costs a lot of money. Most people are just not set up to act that way.” In the Argentine case, the dispute has played out in courts for close to a decade.
Hung Tran, executive managing director of the Institute of International Finance, argued that the Argentina case was a legally unique ruling that wouldn’t set a precedent. “It will not and should not be generalized into other sovereign borrowing,” Mr. Tran said.
He pointed to another case in which the Taiwan Export-Import bank tried to use the Argentina ruling as legal leverage in its own pursuit of bond repayments from Grenada. The U.S. court, he says, ruled that the Argentina case was tailor-made for the country and not applicable.
Still, Mr. Tran’s organization, which represents nearly 500 of the world’s largest private financial institutions, is working with the International Capital Markets Association to draft new sovereign-bond contracts designed to ensure that holdouts can’t block restructuring deals sought by a majority of bondholders.
So far, Argentina’s debt troubles don’t appear to have raised borrowing costs for other developing countries. On June 17, the day after the Supreme Court rejected an appeal by Argentina, Ecuador sold $2 billion worth of 10-year bonds for a yield of 7.95%, in line with previous premiums. Ecuador’s return to markets surprised many analysts because the country has defaulted several times, most recently in 2008.
On the same day, Kenya sold $2 billion in five- and 10-year bonds, with yields of 5.875% and 6.875%, respectively. Senegal and the Ivory Coast have also issued debt this month at terms investors say were favorable for the countries.
“The market is pretty darn forgiving,” said Sara Zervos, head of global debt at OppenheimerFunds. “Either memories are short, or money’s money. In this world of zero interest rates, yields are a powerful motivator.”
Some experts say it is too early to gauge the fallout.
Mark Weidemaier, a law professor at the University of North Carolina and a sovereign-bond expert, said that besides triggering an overhaul of bond contracts, the Argentina case indicates that holdout investors can potentially block payments across the world.
Although the U.S. court ruling applies specifically to bonds issued by Argentina under U.S. law, it could hit the nation’s bonds issued under U.K., Argentine and Japanese law as well. Financial intermediaries such as Bank of New York Mellon, which sends Argentina’s bond payments to holders of its restructured bonds, are at risk of violating U.S. court order if they process any deposits Argentina makes in an attempt to pay creditors, even for bonds subject to the laws of other nations.
“It may take other restructurings to get a better picture” of the broader implications, Mr. Weidemaier said.
6. IN HEDGE FUND, ARGENTINA FINDS RELENTLESS FOE (The New York Times)
By Peter Eavis And Alexandra Stevenson
July 30, 2014
The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender.
Argentina on Wednesday failed to make scheduled payments on its government bonds. The country has the money to pay the bonds. But a federal court in Manhattan has ruled that unless Argentina settles its debt dispute with Mr. Singer’s firm, Elliott Management, it is barred from paying its main bondholders.
After more than five hours of meetings on Wednesday, the sides failed to reach an agreement and the court-appointed mediator said that Argentina would “imminently be in default.” Because a $539 million interest payment was not made, the ratings agency Standard & Poor’s said that Argentina was in default on those bonds.
The government of Argentina now faces a stark choice: Try to restart negotiations with investors it has repeatedly called “vultures,” who have for years refused to accept anything other than full repayment. Or it can remain ensnared in a default that could weigh on the country’s fragile economy and unsettle global markets.
After the talks collapsed, the economy minister of Argentina, Axel Kicillof, characterized the negotiations as extortion.
“We’re not going to sign any deal which compromises the future of Argentines,” he said at a news conference in Manhattan.
The campaign against Argentina shows how driven and deep-pocketed hedge funds can sometimes wield influence outside of the markets they bet in. George Soros’s successful wager against the pound in 1992 affected Britain’s relationship with Europe for years.
While Mr. Singer’s firm has yet to collect any money from Argentina, some debt market experts say that the battle may already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap to fund their deficits. Countries in crisis may now find it harder to gain relief from creditors after defaulting on their debt, they assert.
“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” said Joseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”
As a hedge fund, Elliott’s pursuit of Argentina is motivated by a desire to make money. Having bought its Argentine bonds for well below their original value, the firm stands to make a killing if Argentina pays the bonds in full. Legal filings indicate that the face value of its Argentine government bonds was around $170 million, but the firm most likely acquired many of them for much less than that. Elliott and other investors are now seeking more than $1.5 billion, which includes years of unpaid interest.
Still, there is also something of a crusade about the battle that reveals the worldview of Mr. Singer, who is 69. A Republican donor with libertarian leanings, he has spoken out when he thinks that governments and companies have damaged the rights of creditors.
“He doesn’t get into fights for the sake of fighting. He believes deeply in the rule of law and that free markets and free societies depend on enforcing it,” said a fellow hedge fund manager, Daniel S. Loeb.
That conviction has helped drive the creative legal assaults that have scored big financial gains for Elliott, which has nearly $25 billion of assets under management. Since the firm’s founding in 1977, it has on average posted a return of almost 14 percent a year. At one point in the Argentina dispute, Elliott persuaded a court in Ghana to seize an Argentine naval vessel that was docking in the country. The boat was later released.
The origins of the Argentine dispute trace back to 2001, when Argentina, overwhelmed by its sovereign debt load, decided to default on its obligations. The country later offered to exchange their defaulted securities for new “exchange bonds,” that were worth much less the original bonds. Most investors participated in these swaps, but some decided instead to fight the government for full repayment. These so-called holdouts included many individual investors as well as a unit of Elliott called NML Capital and other hedge funds including Aurelius Capital Management.
It is legally challenging for American investors to sue foreign governments in United States courts. But in 2012, Elliott achieved a stunning breakthrough in the Federal District Court in Manhattan. Judge Thomas P. Griesa ruled that whenever Argentina paid the exchange bonds, it also had to pay the holdouts. Argentina could not ignore the ruling and pay the exchange bondholders because Judge Griesa also ruled that any financial firm that distributed payments to the bondholders would be in contempt. Argentina placed $539 million with the Bank of New York Mellon in June to pay its bondholders, but the bank did not transfer it.
Last month, the United States Supreme Court rejected Argentina’s appeal, setting the stage for Wednesday’s default.
“Default cannot be allowed to lapse into a permanent condition,” said Daniel A. Pollack, the lawyer that Judge Griesa appointed to oversee negotiations between Argentina and the holdouts. “Or the Republic of Argentina and the bondholders, both exchange and holdouts, will suffer increasingly grievous harm, and the ordinary Argentine citizen will be the real and ultimate victim.”
Others saw less of an impact from a default.
“Argentina has been living in a default reality for over 10 years,” said Estanislao Malic, an economist at the Center for Economic and Social Studies of Scalabrini Ortiz in Buenos Aires, referring to a lack of access to international borrowing markets after the country’s 2001 financial crisis. “This default is not a drastic change. Nothing much will change.”
It is not clear whether Elliott expected Argentina to meet its demands by now. The firm managed to obtain payments from Peru and Congo-Brazzaville in somewhat similar cases. Elliott’s supporters assert that the bets that rely on suing governments and state-owned entities make up only a small proportion of its portfolio, and they add that the firm does not pursue countries that are clearly unable to pay their debts. Argentina, they say, is a particularly recalcitrant debtor that clearly has the wherewithal to pay the holdouts.
Mr. Singer, however, thinks that there are broader reasons to protect creditor rights. In particular, he has argued, doing so will help bolster a country’s economy. “Imagine how much capital a country like Argentina might attract,” Mr. Singer wrote in a 2005 article he wrote with Jay Newman, another Elliott employee. “If instead of defaulting seriatim and affecting a pose of anger toward creditors, it borrowed responsibly and honored its obligations.”
The big question, however, is whether Argentina will ever pay Elliott what it wants. If the firm fails to collect, that would underscore the limits of its legal strategy. There is no international bankruptcy court for sovereign debt that can help resolve the matter. Argentina may use the next few months to try to devise ways to evade the New York court. Debt market experts, however, do not see how any such schemes could avoid using global firms that would not want to fall afoul of Judge Griesa’s ruling.
But some debt market experts say that credit market idealists are going too far when applying their worldview to sovereign bond markets. In dire economic crises, they say, countries need to be able to slash their debt loads. The legal victories of the holdouts may embolden creditors to drive harder bargains after future defaults, these people say.
Professor Stiglitz says that this could prolong or postpone debt restructurings and extend the economic misery of over-indebted countries. “Singer and Elliott have already done a lot of damage,” he said.
In Buenos Aires, some were resigned to the consequence.
“It doesn’t matter if it is a judge in New York City or a president in Argentina, I feel that neither cares about people, and about the future of this country,” said Sol Bodnar, 31, a film producer. “It’s as if these people who have power were laughing in the face of us common citizens.”
Simon Romero, Irene Caselli and William Alden contributed reporting.
7. EXPLORING WHAT’S BEHIND THE BATTLE OVER ARGENTINA’S DEBT (The New York Times)
By Peter Eavis, Alexandra Stevenson
31 July 2014
Argentina is on the verge of defaulting on billions of dollars of government debt. It has reached this point after years of battling a group of New York hedge funds that have been demanding full payment on bonds that defaulted in 2001. The battle has already rocked international debts markets and may affect the economies of other countries in the future. Below are answers to questions about the fight, which has taken complicated twists and turns over the years.
Q. Is Argentina out of money?
A. No.
Q. So if Argentina has enough money to stay current on its government bonds, why is it on the verge of defaulting for the second time in 13 years?
A. Argentina would like to keep paying its main class of government bonds, but a Federal District Court ruling says it cannot pay those creditors if it does not also make payments on a small amount of defaulted bonds that are held by a group of hedge funds that are suing the country.
Q. How does an American court have any power over Argentina’s bonds and its government?
A. Argentina issued bonds under New York law. The country defaulted on them in 2001, when its debt burden became unsustainable. Some years later, Argentina allowed holders of the bonds to enter two exchanges, in which they got new bonds that were worth as little as a fourth of the value of the original securities. Argentina has since consistently made contractual payments on these ”exchange” bonds. But 7 percent of the bondholders did not agree to exchange their bonds, and the country has vehemently refused to make payments on them. These so-called holdout bondholders — mainly hedge funds — sued the Argentine government to be repaid in full. Argentina has fought these holdouts at every step.
Q. But why doesn’t Argentina just go ahead and pay the exchange bondholders and ignore the New York court? Don’t sovereign nations have additional legal rights and immunities that companies and individuals don’t have?
A. Judge Thomas P. Griesa of Federal District Court in Manhattan ruled that any financial institution that passes the money from Argentina to its exchange bondholders would be in contempt of his order. Banks and payment processors that want to conduct any business in America cannot risk falling afoul of an American court order. Argentina, for instance, deposited $539 million at the Bank of New York Mellon to make a June 30 payment to its exchange bondholders, but the bank has not passed it on. The bonds have a 30-day grace period, which ends on Wednesday.
Q. Does Argentina have a get-out-of-jail free card it can use?
A. Argentina could, in theory, attempt to bypass the ruling by swapping the exchange bonds for new securities issued under Argentine law and pay them out of Buenos Aires. But it needs to have the official list of exactly who holds it bonds, which is kept by a foreign financial firm. That firm may not want to do anything that is seen to go against Judge Griesa’s order.
Q. So, why doesn’t Argentina just pay the holdouts and put its troubles behind it? After all, the leading hedge funds are only looking for about $1.5 billion.
A. This dispute has weighed on the country’s economy. It has most likely pushed up borrowing costs for Argentine companies and depleted economic confidence in a country that is already facing high inflation and sagging growth. Still, settling with the holdouts may have its own costs.
Paying off the holdouts after years of defying them could undermine the standing of Argentina’s president, Cristina Fernández de Kirchner, in the eyes of the Argentine people. Many Argentines believe that the 2001 default was necessary to relieve the country of the burdens placed on it by previous governments. It is also possible that paying $1.5 billion to the leading holdouts could create even greater obligations.
There are other holdouts as well, most of whom have not been participating in the lawsuits. Settling with all the holdouts might cost about $13 billion, according to calculations by JPMorgan Chase.
The Argentine government also asserts that doing a deal could activate a clause in the exchange bonds that might allow their holders to demand the same terms as the holdouts. According to some estimates, this clause could lead to new obligations for Argentina that exceed $200 billion, an overwhelming amount, according to various Wall Street estimates. The holdouts, however, strongly dispute whether this clause would lead to such an outcome.
Argentina’s benchmark exchange bond has been trading higher in recent days, suggesting that investors do not believe they face big losses. As a result, the view in the market seems to be that a resolution is in sight, even if the country technically defaults on Wednesday.
Q. So what’s next?
A. It looks as if Argentina will miss its payment on Wednesday. It may be calculating, however, that a default will strengthen its hand if it continues to negotiate with the holdouts over the next few weeks. The clause affecting the exchange bondholders expires at the end of this year, so Argentina may wait until then to forge a settlement.
Even so, any kind of a default also carries the risk of unleashing unpredictable reactions that may undermine any future attempts to reach a deal.
Q. Why should anyone outside of Argentina and its debt markets care about this dispute?
A. A victory for the holdouts could, in theory, strengthen creditors’ rights in other markets. This could make governments think twice before taking on debt that may turn out to be unsustainable. The holdouts also assert that they do not go after countries that cannot afford to pay their debts and that governments that renege on their obligations are also often corrupt. Some debt market specialists also note that clauses added to recent sovereign bonds make it harder for investors to hold out.
The opponents of the holdouts, however, contend that the Argentine dispute will make it much harder for indebted countries to cut their obligations to manageable levels. Now, after Judge Griesa’s ruling, investors will have a greater incentive to demand stiffer terms from a sovereign that wants to lessen its debt load. In other words, a small group of litigious hedge funds may have ushered in a new more stringent era in debt markets that could frustrate a country’s efforts to get back on its feet after an economic crisis.
This is a more complete version of the story than the one that appeared in print.
8. S.&P. SAYS ARGENTINA HAS DEFAULTED (The New York Times)
By Alexandra Stevenson
July 30, 2014
The ratings agency Standard & Poor’s has  found that Argentina has defaulted after it failed to make a $539 million interest payment due on its discount bonds.
The action came Wednesday afternoon as representatives for the country and New York hedge funds sought to reach a last-minute agreement on Argentina’s debt. Yet after more than five hours of mediated talks on Wednesday, neither side appeared closer to a deal.
Late Wednesday, the court-appointed mediator to the talks, Daniel A. Pollack, said, “Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default.”
Mr. Pollack added:
Default is not a mere “technical” condition, but rather a real and painful event that will hurt real people: these include all ordinary Argentine citizens, the exchange bondholders  (who will not receive their interest ) and the holdouts ( who will not receive payment of the judgments they obtained in court). The full consequences of default are not predictable, but they certainly are not positive.
Earlier, Standard & Poor’s lowered its rating on the country’s debt to “selective default, ” noting that Argentina had a 30-day grace period following the June 30 scheduled interest payment date to make payment.
It is the latest development in a multiyear battle that stems from 2001, when Argentina defaulted on tens of billions of dollars of bonds. It later exchanged those bonds for discounted ones with most of its bondholders. But a small group of investors –including Paul Singer’s Elliott Management — refused to take the new bonds.
Those investors, led by  NML Capital, an Elliott affiliate, sued the government, seeking full payment and interest.
The case wound its way through the United States courts until 2012, when a federal judge in Manhattan issued a ruling that said Argentina could not make payments  to exchange bondholders without paying the holdouts.
Argentina appealed and took its case to the United States Supreme Court which rejected the appeal last month. Argentina had until the end of the day to pay the holdouts or risk defaulting for a second time in 13 years.
An NML spokesman said it was unfortunate that the talks did not lead to a resolution.
“During this process, the Special Master proposed numerous creative solutions, many of which were acceptable to us,” the firm said. “Argentina refused to seriously consider any of them, and instead chose to default.”
For much of the day on Wednesday a makeshift stage with eleven cameras was set up in front of the building where the talks were taking place in midtown Manhattan in anticipation of an announcement.
At one point in the afternoon, an older man named Francisco Sobrero from Argentina, showed up to protest against the hedge funds, which have been vilified as vultures by the government in Argentina,  holding up two signs.
One read: “Vultures! Don’t take our pound of flesh.”
9. ARGENTINA FALLS INTO DEFAULT AFTER TALKS FAIL (USA Today)
By Matt Krantz
July 31, 2014
A breakdown in talks between Argentina and U.S. creditors late Wednesday has sent the country tumbling into its second default in 13 years and shifted focus to what effect that default could have on global financial markets.
Investors had already been bracing for bad news. And any remaining hopes for a last-minute deal were crushed when Argentina and the hedge funds holding its debt, including billionaire Paul Singer’s Elliott Management, couldn’t strike a deal with a court-appointed mediator in talks in New York, Bloomberg News reported.
Argentine Economy Minister Axel Kicillof said the country wouldn’t swallow the demands of investors led by U.S. hedge funds. The Argentine government has a confrontational stance toward the investors who have been hoping for a payout, with Kicillof calling them “vulture funds.” He also said paying the $1.5 billion owed to U.S. hedge funds would force Argentina to make similar payments to other bondholders, Bloomberg News says.
The breakdown wasn’t a complete surprise. Debt rating agency Standard & Poor’s already pronounced the South American country to be in technical default earlier Wednesday after it missed a $539 million interest payment on $13 billion in restructured bonds, Bloomberg reported. Argentina has about $200 billion in foreign-currency debt, a figure that includes $30 billion in restructured bonds, Bloomberg said.
The drama could hurt holdings in the debt of other emerging market countries, says Alan Skrainka, strategist at Cornerstone Wealth Management. He says Argentina and Venezuela together hold roughly a third of all emerging markets debt.
But few expect the situation in Argentina to spill over and hurt global financial markets, considering how little long-term effect other regional crises have had. “Greece wasn’t a reason to sell U.S. stocks, and Argentina isn’t either,” Skrainka says. Most of the significant financial institutions have long known that Argentina debt wasn’t worth the risk. “Most responsible investors got out of Argentina (debt) a long time ago,” he says.
The iShares J.P. Morgan USD Emerging Markets Bond Exchange-traded Fund, which has a 1% weighting in Argentine bonds, fell 0.04% Wednesday, but is up 9.3% this year, says BlackRock. Argentina’s Merval stock index closed 7% higher Wednesday ahead of the news.
Global investors will take the Argentina issue in stride because the default isn’t about the ability to pay the interest, but rather, the willingness to do so, says Jack Ablin of BMO Private Bank. Investors get more unnerved when a country is in serious financial straits. It’s really just the “hedge fund holdouts,” who have been betting Argentine would pay off, Ablin says. “This seems more of a legal battle than a financial crisis,” he says.
10. ARGENTINA DEBT DEFAULT 101: WHAT’S AT STAKE? (The Christian Science Monitor)
By Whitney Eulich
30 July 2014
Argentina is on the brink of its second default this century after losing a long court battle with a group of US bondholders. How did it end up here and what’s at stake?
What’s going on?Back in 2001, Argentina defaulted on $100 billion in debt during an economic crisis. The default resulted in chaos in Argentina, with widespread looting and violence in the capital. The nation was effectively locked out of global financial markets since it had stopped paying lenders.
It reached agreements with 93 percent of its creditors in 2005 and 2010 to repay them over several years at a heavily discounted rate. But a minority of bondholders refused the deal. These so- called “holdouts” have taken legal steps to pressure Argentina to cough up the $1.5 billion (including interest) they say they’re still owed.
President Cristina Fernandez de Kirchner decries these bondholders as “vulture funds” that profit from risky investments, such as distressed government debt.
Who are these holdouts?NML Capital, part of American billionaire Paul Singer’s Elliott Management, is leading the group of creditors demanding full repayment of Argentine bonds.
In 2012, the group sued Argentina for nonpayment in New York. They won the case, and the South American nation was ordered to pay $1.33 billion into a court-controlled escrow account, while also making ongoing payments to the creditors who initially signed on to the restructured debt agreement.
In 2012, NML Capital seized an Argentine boat docked in Ghana, one of nearly 30 assets apprehended by these groups awaiting payment from Argentina.
Why is July 30 an important date?The legal battle has been long and drawn out. Argentina appealed the initial 2012 ruling, and a year later, a federal appeals court in New York upheld the lower court’s decision.
Argentina argues it can’t manage to pay both its restructured debt and court-ordered payments to holdouts, saying it would be putting the nation “at imminent risk of default.”
The case was appealed once again, and in June this year, the US Supreme Court deferred to the federal court ruling requiring Argentina to pay out.
July 30 is the deadline for Argentina to either negotiate a settlement with holdouts or default on all bond payments. On June 30, it missed a payment to creditors who did restructure their debts. Under the US court ruling, Argentina is prevented from paying one group of creditors without paying the holdouts.
On top of all this, there’s an added complication. Written into the restructured bonds is a clause, which expires Dec. 31, saying that if Argentina offers the holdouts a better deal, it has to match that offer to all bondholders. Argentina says this could add up to an additional obligation of $120 billion.
What happens if Argentina defaults?It’s bad, for sure. But not as bad as the fallout from the 2001-02 economic crisis. A default would hurt the government’s ability to borrow overseas, but unlike in its previous default, the government does have money in its coffers and can keep its economy afloat.
“The situation is very different,” says Jose Luis Espert, an economist with the Espert & Asociados consultancy in Buenos Aires. The potential default would be equivalent to about 7 percent of Argentina’s GDP, compared with 40 percent in 2001, he says. Citizens aren’t at risk of losing their savings like they did at the turn of the century, and the economy is far less dependent on the dollar today. When Argentina defaulted in 2001, the currency was pegged to the dollar, which meant a catastrophic devaluation of the peso.
That’s not to say the economy is doing well: Inflation is high, there’s little economic growth, and these issues will remain whether Argentina brokers a deal or defaults, Mr. Espert says.
Despite reassurances from economists, many citizens are still anxious.
“I worry about a default, because I remember what 2001 was like,” says Valeria Mangieri, who works at a children’s museum. She remembers looting in her neighborhood 13 years ago and violence in the streets.
“If there is a default [today] maybe something similar could happen,” Ms. Mangieri says. She acknowledges the environment is different, but “even if the context changes, people are still suffering when it comes to the economy.”
Jorge Pereyra, a hotel administrator, places the blame on both the government’s policy decisions and the holdout creditors. “Everyone believes that we can be affected by a default…. We as Argentines are the victims,” Mr. Pereyra says.
Will all investors steer clear of Argentina if it defaults?Argentina has given investors plenty of reasons to stay away over the past decade: Aside from refusing to pay holdout creditors, President Kirchner renationalized a Spanish energy firm, and repeatedly claims the British-controlled Falkland islands actually belong to Argentina.
However, Argentina is also home to the Vaca Muerta oil field, which holds an estimated 16 billion barrels of shale oil and 308 trillion cubic feet of shale gas. Already, investors – from China to Russia to private companies in the US – are lining up to get involved.
11. ARGENTINA DEFAULTS AS LAST-MINUTE TALKS FAIL (Financial Times)
By Benedict Mander in Buenos Aires and Luc Cohen in New York
July 31, 2014
Argentina defaulted on its sovereign debt for the second time in 13 years on Wednesday, after frantic last-minute talks between the country’s government and holdout creditors failed to strike a deal.
Economy minister Axel Kicillof said “vulture funds” had rejected a renewed offer from the government that had also been made to bondholders who accepted debt restructurings after the 2001 default, but that it was “impossible” to pay them any more.
Shortly before Mr Kicillof’s declarations, Standard & Poor’s placed Argentina’s credit rating on “selective default”, after it failed to make a $539m interest payment on its debt by a Wednesday deadline.
Although Argentina has been locked out of the international capital markets since its previous default in 2001, borrowing costs are now likely to rise to punishing levels for state institutions and the private sector. Economists expect a default to worsen a recession, trigger higher inflation and put pressure on foreign exchange reserves, possibly leading to Argentina’s second devaluation this year.
The default can trigger bondholder claims of as much as $15bn to $20bn because of cross-default clauses.
“We are not going to sign any agreement that compromises the future of the Argentine people,” said Mr Kicillof at a press conference at Argentina’s consulate in New York after the talks collapsed.
He said Argentina would take all measures available to put an end to “unprecedented and unjust situation”, adding the country remained open to a dialogue with creditors.
NML, the fund leading the holdouts, said in a statement that the court-appointed mediator in the talks, Daniel Pollack, “proposed numerous creative solutions, many of which were acceptable to us. Argentina refused to seriously consider any of them, and instead chose to default.”
Separate behind-the-scenes negotiations between the holdouts and a group of Argentine banks also fell through on Wednesday, according to local press reports, although hopes remained that a deal can yet be reached in the coming days.
Nevertheless, with official negotiations having reached an impasse, Marcelo Etchebarne, an Argentine lawyer, speculated that Argentina may now attempt to restructure its US and UK bonds under local law, although he doubted this would be feasible.
Although the government had already deposited the $539m with Bank of New York Mellon, the bondholders’ trustee, New York Judge Thomas Griesa, has forbidden the bank from transferring the funds to the bondholders. He said that was because it would violate his ruling, upheld on June 16 by the US Supreme Court, that Argentina must pay the holdouts in full at the same time as holders of its performing debt.
“Default cannot be allowed to lapse into a permanent condition or the Republic of Argentina and the bondholders, both exchange and holdouts, will suffer increasingly grievous harm, and the ordinary Argentine citizen will be the real and ultimate victim,” said Mr Pollack.
Mr Kicillof maintained a defiant attitude before the default. “Who believes in the rating agencies? Why didn’t they warn the owners of mortgages in 2008 if they know so much about risk?” he asked.
Argentina defaulted on $100bn of debt in 2001-02, at the time the largest sovereign default in history.
12. Q&A: ARGENTINA ON THE BRINK OF DEFAULT (Financial Times)
By Benedict Mander in Buenos Aires and Elaine Moore in London
July 30, 2014
Argentina will default by the end of Wednesday unless it makes a $539m interest payment on its performing bonds. The Argentine government has deposited the money with Bank of New York Mellon, the bondholders’ trustee, but New York judge Thomas Griesa has forbidden the bank from transferring the funds to the bondholders. Doing so would violate his ruling, upheld on June 16 by the US Supreme Court, that Argentina must pay its so-called “holdout” creditors in full at the same time as holders of its performing debt.
Why have the two sides failed to reach an agreement?
The holdout creditors refused debt restructurings after Argentina’s 2001 default, instead suing Argentina for full payment. Although Judge Griesa ruled in their favour in November 2012, Argentina has persistently refused to pay up, most recently on the grounds that payment would violate the so-called RUFO (Rights Upon Future Offers) clause in the restructured debt. This clause, which expires at the end of this year, forbids the country from paying the holdouts any more than the rest of its creditors. Buenos Aires says that, if the RUFO clause was triggered, it might have to pay its exchange bondholders anything from $120bn to $500bn.
There had been little progress in talks between Argentina and the holdouts since the Supreme Court rejected Argentina’s appeal in June, with the government refusing face-to-face meetings. But that changed when Axel Kicillof, the economy minister, unexpectedly turned up at the negotiations yesterday evening, raising hopes that a deal could be reached.
What are the chances of a last-minute deal?
Analysts have long argued that, if there was going to be a deal, it would come at the last minute, with both sides waiting for the other to blink in a high-stakes game.
Argentina was hoping that the holdouts would ask the court to issue a new “stay” that would suspend Judge Griesa’s ruling, staving off default and allowing the negotiations to continue. But the holdouts say they will only do so if Argentina shows good faith in negotiations, something which has been lacking.
Analysts have been coming to the conclusion that the government’s stated concerns about the RUFO clause are no bluff, and that it genuinely fears the consequences of triggering it more than it does a default.
The Argentine banking association is attempting to stage a rescue operation. According to the local press, Argentine bankers flew into New York last night with a proposal either to provide a guarantee to the holdouts in exchange for a new stay, or to buy their defaulted debt outright.
How have markets reacted?
Since the US Supreme Court ruling in June, investors have demanded more in return for the risks involved in holding Argentine debt.
The yield on Argentina’s government bond due in 2033 rose above 12 per cent in the aftermath of the court’s decision. The cost of protecting the debt against default climbed to its highest level since February.
However analysts pointed out that the bond yields remain low compared to the 16 per cent plus rate reached last year.
As the deadline for default drew nearer on Wednesday, investors were hopeful of a possible deal, pushing down the 2033 bond yield to 8.83 per cent.
What would be the consequences of a default?
A default would benefit no one. For the holdouts, it would simply mean not being paid – and they have already been waiting for more than a decade. But they would also lose their most powerful bargaining tool: the threat of a default.
For Argentina, the potential consequences range from “not much” (according to pro-government commentators) to quite serious, although not as serious as the country’s previous default in 2001, when the economy had a been in a deep crisis for years.
Still, most economists predict a deepening of the existing recession, higher inflation (already among the highest in the world), and pressure on foreign exchange reserves (which are dangerously low) probably causing a second devaluation this year.
Although Argentina’s government has been unable to borrow abroad since 2001, borrowing costs will rise to punishing levels for Argentine companies and institutions. These include indebted provinces and YPF, the state oil company, which has grand plans for the development of Argentina’s vast Vaca Muerta shale formation.
The immediate effect will be that Argentina could be placed on selective default by rating agencies perhaps by the end of today, while investors in credit default swaps would quickly seek payment.
It is unclear whether or not holders of the newly defaulted debt will “accelerate” their bonds and demand full payment immediately. With almost $30bn in foreign debt that could enter into default, this could become a serious headache for the government. However, analysts say that the majority of bondholders are unlikely to accelerate their bonds and may prefer to wait until a possible deal next year.
What about the rest of the world?
Any fall in Argentine bonds is unlikely to be mirrored elsewhere and few expect any contagion in emerging markets. In spite of the turbulence hitting Argentine bonds over the past two months, emerging market debt has not experienced the sort of sell off seen last year when the US Federal Reserve said it was set to taper its bond buying programme. In fact, investor appetite for sovereign debt issued by countries with low credit ratings has remained strong and is likely to remain as such even in case of an Argentine default.
There may, however, be significant implications for future sovereign debt restructurings , which many fear may now become harder, since Judge Griesa’s ruling has provided a potentially dangerous precedent. Ironically, however, the default could actually provide impetus for plans that have been in the works for years to make it more difficult for recalcitrant creditors to hold out against countries that need to restructure their debt.
13. ARGENTINA’S UNFOLDING DRAMA AS A TOURIST ATTRACTION (Financial Times)
Jul 30, 2014
They may have left their country for vacation, but a number of Argentine tourists in midtown Manhattan nonetheless found themselves at the centre of the most significant news event facing their country on Wednesday: last-minute negotiations to try to avert a default, Luc Cohen reports.
For the second straight day, Economy Minister Axel Kicillof and his delegation met in New York with court-appointed mediator Daniel Pollack to try to strike a deal with a group of hedge funds led by NML Capital who refused to accept bond restructuring after Argentina’s last default.
The meetings took place at Pollack’s law firm’s offices, located in the Société Générale building on 46th street and Park Avenue in Manhattan. During negotiations over the past weeks, a growing number of American and international journalists have staked out the building to try to interview delegates on their way in and out, their cameras and microphones often attracting the curiosity of passersby.
The building is in walking distance from a number of popular New York tourist sites, including Times Square and Grand Central station. But for one Argentine family of six, the negotiations and the surrounding gaggle of press proved the biggest attraction.
“It was a coincidence,” said Rudolfo, the father, who preferred not to give his last name. The family had been staying at a nearby hotel on 1st Avenue during a New York trip to celebrate the 17th birthday of their four children, quadruplets. When they learned the debt negotiations were taking place so close by, they decided to come watch, and managed to catch a glimpse of Kicillof on his way in shortly after 11 a.m.
Alejandro Ginerva, a real estate developer in Buenos Aires, had been on vacation in Miami with his children, who are students. When they learned a significant event in the country’s future would be decided in New York on Wednesday, they made their way up the East Coast.
“It’s a very important day for our country,” said Ginerva, whose family is staying at a hotel in Manhattan’s Meatpacking district and enjoyed a walk along the High Line before journeying up to midtown.
He said he hopes the country does not default because it could spur inflation and harm the investment climate.
But for another set of tourists, a retired couple, the motivation was more practical.
“We came here precisely to hear the conference,” said the woman. The couple asked for their names not to be printed for fear of government reprisals.
They added that they did not trust the Argentine media to report the events accurately and wanted to witness it for themselves. They said they are very concerned that a default would weaken the economy, and are concerned about erosion of property rights under the current administration.
They will also be traveling to Boston, San Francisco, and Dallas on their trip.
The Société Générale building is no stranger to crowds of media and interested onlookers. Major League Baseball has its offices here, and building employees remember intense crowds and paparazzi during Alex Rodriguez’s steroid hearing last fall.
Many passersby have stopped and asked which baseball player will be coming, only to be disappointed to learn that the gaggle of journalists is staking out for updates on a financial – rather than a sports – story, yet one that’s no less dramatic.
Observer
Argentinean people very engaged in their country affairs. You can talk to anyone about economy, politics, culture. They’re a sophisticated population.
But unfortunately Argentina is in a death spiral and I can’t see them reconnecting to the international financial world any time soon as it seems that this financial world is punishing the country (read government) for being reckless. Anyways, the entire economy is dollarized and common people won’t get any borrowing power as usual. I’m afraid the basic welfare will be affected as government won’t be able to borrow. Sad repeat of Latin America’s 80s and 90s story…
14. ARGENTINA’S DEFAULT CLOCK RUNS OUT AS DEBT TALKS COLLAPSE (Bloomberg News)
By Katia Porzecanski, Camila Russo and Daniel Cancel
July 31, 2014
With Standard & Poor’s saying Argentina is in default and last-minute plans to remedy the situation falling through, investor focus is turning to whether holders of $29 billion of bonds will demand immediate repayment.
The nation missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.
As Economy Minister Axel Kicillof returns to Buenos Aires with no set plans for further discussions with the hedge funds he described as “vultures,” other creditors must decide whether to invoke a clause that entitles them to demand their money back. While an 11th-hour attempt last night by a group of Argentine banks to avert a crisis by purchasing the securities from Elliott fell through, bondholders probably will give the parties more time to reach a settlement, according to Bank of America Corp.
“It’s in their best interest to delay acceleration and not introduce more difficulties,” Jane Brauer, a strategist at Bank of America, said by phone from New York. “The best thing for Argentina to do is to continue seeking a solution.”
Previous Swaps
Argentina has about $29 billion of bonds sold in international markets and denominated in foreign currencies with so-called cross-default provisions. Under their terms, Argentina would have to pay back the entire balance — plus unpaid interest — if at least 25 percent of holders demand that their money be returned. The potential liabilities are equal to the country’s foreign reserves, which are already hovering close to an eight-year low.
S&P’s declaration came after the expiration yesterday of a 30-day grace period on the original June 30 payment deadline. If Argentina is able to figure out a way to make its debt payments, the ratings could be revised “depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets and its overall credit profile,” S&P said.
“If there is a hint of a potential deal, bondholders will not be incentivized to accelerate,” Patrick Esteruelas, senior analyst at Emso Partners Ltd., a money-management firm specializing in emerging markets, said in an e-mail.
Bond Rally
The price of Argentina’s $4.3 billion of bonds due in December 2033 soared yesterday by 11.8 percent to 95.57 cents on the dollar, the highest level since 2010. The bonds were quoted at 95.89 cents today, according to prices on Bloomberg at 11:08 a.m. in London.
“The price action suggests the market thought the deal with Argentine banks was possible, or that there would be an 11th-hour breakthrough with holdouts,” Kevin Daly, who helps oversee $13 billion of emerging-market debt at Aberdeen Asset Management Plc in London, said by e-mail today. “This looks like it could now drag out until 2015. The risk is that it gets pushed out further, or you get an acceleration demand by an exchange bondholder that adds a new wrinkle to the holdout quandary.”
Argentina’s bonds in the U.S. are likely to erase yesterday’s gains, according to Morten Groth, who helps manage about $1.5 billion in debt at Jyske Bank A/S in Silkeborg, Denmark.
“While the market is optimistic that a solution will be found in the next few days, execution risk is higher than that during the pre-default situation,” Emiliano Surballe, a fixed-income analyst at Bank Julius Baer in Zurich, said in e-mailed comments. “Now, Argentina might not only have to negotiate with holdouts, it might have to reach an agreement with the holders of sovereign debt” that have just been defaulted on, he said.
Real Suffering
Kicillof, speaking late yesterday at the Argentine consulate in New York, told reporters that the holdouts rebuffed all offers and wouldn’t endorse a stay of the court ruling that would have allowed more time for talks.
Elliott’s NML unit said in an e-mailed statement that Argentina refused to seriously consider a court-appointed mediator’s “numerous creative solutions” for resolving the dispute. NML said it found many of those options acceptable.
Daniel Pollack, the mediator, wrote in his own e-mailed statement that “real people” are likely to suffer because of Argentina’s default.
“The full consequences of default are not predictable, but they certainly are not positive,” Pollack wrote.
The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, will suffer in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Hernan Yellati, the head of research at Banctrust & Co.
Default Swaps
The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago. Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world yesterday, according to data compiled by CMA. The five-year contracts were quoted at a cost of $3.1 million plus $500,000 a year to insure $10 million of debt, CMA reported at 11 p.m. in London yesterday.
About $1 billion of Argentine sovereign debt is covered by the contracts, compared with $10 billion of Russian government obligations and $16 billion of Brazilian debt. The International Swaps & Derivatives Association is responsible for determining if a credit event has taken place to trigger payment to the holders. That decision would be taken by the association’s Determinations Committee, a group of 15 dealers and investors, only after a ruling has been requested by a trader.
RUFO Clause
Kicillof told reporters that the judge in the case was unfair and criticized ratings companies, saying it didn’t make sense that the country was declared in default since it posted money to make the interest payment.
“Argentina paid, Argentina has money, and we’re going to keep making our future debt payments because we want to,” Kicillof said.
He said Argentina couldn’t pay the $1.5 billion verdict to the hedge funds because doing so would require the country to similarly sweeten terms for investors who went along with the country’s debt restructurings in 2005 and 2010 and got 30 cents on the dollar. That stipulation, known as the RUFO clause, could trigger claims of more than $120 billion, the country has said.
The government will probably wait until the RUFO clause expires before striking a deal with the hedge funds at the beginning of next year, according to Bulltick Capital Markets.
“In the worst-case scenario, this probably will be fixed in the next six months,” said Alberto Bernal, head of research at Bulltick. “Argentines need the money, they need to come back to the market, and the holdouts want to get paid.”
Bank Proposal
Sebastian Palla, head of investment banking at Banco Macro SA in Buenos Aires, yesterday presented a proposal from members of the local banking association Adeba to buy the holdouts’ defaulted bonds, according to a bank official who asked not to be identified because she isn’t authorized to speak publicly about the plans.
Those talks also ended without an agreement because the banks were unable to devise a solution for a wider group of holdout creditors, according to the official. Ambito Financiero, a Buenos Aires-based daily, said discussions with officials from other Argentine banks and private companies would continue in New York today in a bid to reach a deal.
Kicillof, who estimated total holdout claims at $15 billion to $20 billion, said it wouldn’t surprise him if such a private solution arose since many investors have an interest in resolving the battle.
Step Backward
In the past year, Argentina has taken steps to restore its standing with international creditors. Those include paying $5 billion in government bonds to the Spanish oil company Repsol SA to compensate it for the seizure of a local unit, as well as reaching an agreement with the Paris Club of creditors to settle $9.7 billion of debt. The country also changed its methodology for calculating inflation statistics after being faulted by the International Monetary Fund for flawed reporting.
Missing the debt payments represent a step backward in those efforts, according to Marco Santamaria, a New York-based money manager at AllianceBernstein, which oversees $25 billion of emerging-market debt. Argentina hasn’t issued global bonds since the default in 2001.
“A lot of the goodwill and positive signals that had come out of Buenos Aires are going to be diluted,” he said.
15. ARGENTINE BANKER SAID TO PROPOSE ACCORD TO AVERT DEFAULT (Bloomberg News)
By Camila Russo and Katia Porzecanski
July 30, 2014
A top Argentine banker and former Economy Ministry official arrived in New York today to make a last-minute proposal aimed at averting the country’s second default in 13 years.
Sebastian Palla, head of investment banking at Banco Macro SA in Buenos Aires, will present a proposal from members of the Adeba local banking association to buy defaulted bonds from investors who won a lawsuit for full repayment, said a bank official who asked not to be identified because she isn’t authorized to speak publicly about the plans. An agreement would allow Argentina to continue paying interest on its restructured bonds as a deadline to avoid default expires today.
Argentine bonds surged the most on record to a three-year high on speculation that government officials and holdout creditors will reach an agreement today. The Merval stock index rallied and the peso gained in the unofficial market investors use to skirt currency controls.
Related:
•Argentina Defaults According to S&P as Meetings Continue
•How Argentina’s Default May Trigger $29 Billion in Claims
•Argentines Shrug Off Default Prospect
“The expectation is that Argentina will reach a resolution today,” Patrick Esteruelas, a senior analyst at Emso Partners Ltd., said in a telephone interview. “Kicillof wouldn’t have traveled to New York, taking the unprecedented step to meet face-to-face with the holdouts, and spend all that political capital, to go back to Buenos Aires empty-handed.”
Palla was head of Argentina’s private pension funds before they were nationalized in 2008 and worked at the Economy Ministry from 2003 to 2005 as undersecretary of finance, where he took part in the nation’s first debt restructuring after its 2001 default. Other members of the banking group making the proposal to creditors include Grupo Financiero Galicia SA, Banco Hipotecario SA and Banco Mariva, according to the Banco Macro official.
12 Hours
“This shows goodwill from the banking community to avert default, but looks like it’s only at an early phase or almost discovery phase of potential options, as opposed to a concrete proposal,” Siobhan Morden, head of Latin America Fixed Income Strategy at Jefferies Group LLC, said in an e-mail. “They’re going to need at least a temporary delay to fine-tune the proposal.”
Economy Minister Axel Kicillof entered a Manhattan office building this morning to continue meetings after 12 hours of talks yesterday. After weeks of avoiding direct negotiations with hedge funds that successfully sued the country for full repayment of $1.5 billion on defaulted debt from 2001, officials met face-to-face with representatives for the holdouts for the first time last night, court-appointed mediator Daniel Pollack said in an e-mailed statement.
Default Scenario
Any default by Argentina, which was blocked by a judge from making payments on performing debt unless holdouts also get their money, could trigger bondholder claims of as much as $29 billion, equal to the nation’s foreign-currency reserves. The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, may shrink by an additional 5 percent in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Bank of America Corp.
Bonds maturing in 2033 surged 10 cents on the dollar, the most since they were issued in the 2005 restructuring, to 95.5 cents at 2:00 p.m. in New York, reaching the highest price since November 2010. The Merval (MERVAL) stock index jumped 6.4 percent to a record high.
Deadline Today
To avoid another default before today’s deadline for an interest payment, President Cristina Fernandez de Kirchner must reach a deal to settle the suit, compensate the hedge funds in full or obtain a delay on the U.S. court ruling.
Today, the holdouts urged U.S. District Court Judge Thomas Griesa to deny a bid from owners of euro-denominated bonds who had asked him to halt his ruling for 90 days in hopes of “opening up a path to settlement.” The holdouts, led by Elliott Management Corp., argued that the bondholders’ request shouldn’t be granted because they’re not involved in the lawsuit, and Argentina would use a delay to try to violate orders.
The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago, and foreign reserves used to pay debt are at an almost eight-year low. Argentina devalued its peso in January.
Blocked Payment
Cabinet Chief Jorge Capitanich earlier today declined to comment on the banks’ proposal, telling reporters in Buenos Aires that he wouldn’t discuss talks between private parties.
“Argentina is just one step away from resolving all its debt issues derived from 2001’s default,” he said.
The extra yield investors demand to own Argentine bonds over U.S. Treasuries plunged 1.21 percentage points, the most in emerging markets, to 5.59 percentage points points, according to JPMorgan Chase & Co. index data.
The cost to protect against an Argentine default in five years with credit default swaps fell 403 basis points to 1,481 basis points at 2 p.m. New York time, according to CMA prices.
Standard & Poor’s would place Argentina under selective default as soon as tonight if bondholders don’t receive their interest payment, analyst Delfina Cavanagh said yesterday in a telephone interview from Buenos Aires.
“If by the end of the 30th, Argentina doesn’t pay the interest due on its discount bonds, we’d place it in selective default right away,” Cavanagh said. “We’re looking at whether creditors have received their payments, regardless of legal impediments.”
Even if ratings companies move Argentina to default, investors will likely focus on the progress made in talks before rushing to ask for an acceleration of payments or sell their positions, Emso’s Esteruelas said.
“Even in the event of acceleration, which I very much doubt would happen with a deal close to completion, Argentina would have 60 days to kill the default,” he said. “The rating agencies may downgrade Argentina to selective default but frankly who cares.”
16. ARGENTINA DECLARED IN DEFAULT BY S&P AS TALKS FAIL (Bloomberg News)
By Camila Russo and Katia Porzecanski
July 30, 2014
Standard & Poor’s declared Argentina in default after the government missed a deadline for paying interest on $13 billion of restructured bonds.
The South American country failed to get the $539 million payment to bondholders after a U.S. judge ruled that the money couldn’t be distributed unless a group of hedge funds holding defaulted debt also got paid. Argentina, in default for the second time in 13 years, has about $200 billion in foreign-currency debt, including $30 billion of restructured bonds, according to S&P.
Related:
•Argentine Banker Said to Propose Accord to Avert Default
•Opinion: Today’s the Day for Argentina and Its Debt Vultures
Argentina and the hedge funds, led by billionaire Paul Singer’s Elliott Management Corp., failed to reach agreement in talks today in New York, according to the court-appointed mediator in the case, Daniel Pollack. In a press conference after the talks ended, Argentine Economy Minister Axel Kicillof described the group of creditors as “vulture funds” and said the country wouldn’t sign an accord under “extortion.”
“The full consequences of default are not predictable, but they certainly are not positive,” Pollack wrote in an e-mailed statement. “Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people.”
Kicillof, speaking at the Argentine consulate in New York, told reporters that the holdouts rebuffed all settlement offers and refused requests for a stay of the court ruling. He said Argentina couldn’t pay the $1.5 billion owed to the hedge funds because doing so would trigger clauses requiring the country to offer similar terms to other bondholders. He also criticized the judge in the case and ratings agencies.
Fruitless Effort
Prices for Argentina’s restructured bonds had soared today on speculation an agreement would be reached, with notes due 2033 jumping 10.1 cents to 95.57 cents on the dollar, the highest in three years. The rally was fueled partly by speculation that a group of Argentine banks would provide an alternate plan to appease the holdouts.
Sebastian Palla, head of investment banking at Banco Macro SA (BMA) in Buenos Aires, presented a proposal from members of the Adeba local banking association to buy the holdouts’ defaulted bonds, said a bank official who asked not to be identified because she isn’t authorized to speak publicly about the plans.
Talks ended today without an agreement because the banks were unable to come up with a solution for a wider group of holdouts, according to the official. Ambito Financiero, a Buenos Aires-based daily, said discussions with officials from other Argentine banks and private companies would continue in New York tomorrow to try and reach a deal and cure the default.
Kicillof said today that all holdout claims would total $15 billion to $20 billion.
Cross-Default
The S&P announcement ends months of speculation on whether the country would be able to cut a deal with the holdouts in time to avoid a default on the country’s bonds due in 2033. As much as $29 billion of securities are subject to so-called cross-default clauses, allowing holders to demand immediate repayment. The amount is equal to the country’s foreign-currency reserves.
Argentina’s rating was cut from CCC- because “the grace period expired with bondholders not receiving their payment,” according to a statement from S&P.
If the country is able to undo the default, “we could revise our ratings on Argentina depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets and its overall credit profile,” S&P said.
Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world, according to data compiled by CMA.
Default Swaps
The net notional outstanding amount of Argentine credit-default swaps was $1.04 billion as of July 25, data compiled by Depository Trust & Clearing Corporation show.
The occurrence of a credit-default event, its date and the date on which the derivatives are triggered would be determined by the International Swaps and Derivatives Association’s committee should holders of the contracts ask for a ruling.
Argentina may be able to undo the default in the next few days if an accord is reached over the missed $1.5 billion interest payment, Goldman Sachs Group Inc. said before the default was declared.
“An Argentina default is expected to be short-lived at this point and shouldn’t have any major implication for the country,” said Mauro Roca, a senior Latin America economist at Goldman Sachs in New York.
Argentine President Cristina Fernandez de Kirchner said in a televised speech last week in Buenos Aires that the country wouldn’t be in default on its obligations if the deadline passed, because her government had duly sent the $539 million payment to a trustee bank before they were blocked by the judge.
“People have created all kinds of euphemisms to describe this situation,” Kicillof said today. “But it can’t be a default if we’ve deposited the funds. We’ll continue to pay our debt.”
17. ARGENTINA’S DEFAULT DANCERS TRIP AS MUSIC STOPPED: OPENING LINE (Bloomberg News)
By C. Thompson
July 31, 2014
Great, so everybody loses.
What’s hard to understand is how everyone yesterday seemed so confident that there would be a solution before Argentina defaulted again.
Except for those holding credit-default swaps, we pretty much got the worst-case scenario. The hedge funds that forced this (as was their right), Elliott Management’s NML Capital, Aurelius Capital Management and other holders of the defaulted debt who refused the restructured bonds, get more of nothing. The holders of the restructured bonds don’t get their interest payments.
And Argentinians, well, they’re already in bad place, struggling with recession and 40 percent inflation and running out of money fast. Things don’t exactly change for them, but they don’t get better.
There had been optimism after talks that broke off Tuesday night because they were going to resume yesterday, and Sebastian Palla was flying in to save the day. The former Economy Ministry official and current head of investment banking at Banco Macro had a plan to buy the defaulted bonds from their holders. The 2033 bonds were rallying.
So what happened?
After the mediator, Daniel Pollack, emerged to say it was over, that there was no deal and default had occurred, Economy Minister Axel Kicillof “told reporters that the holdouts rebuffed all settlement offers and refused requests for a stay of the court ruling,” according to our crew, Katia Porzecanski, Camila Russo and Daniel Cancel. “He said Argentina couldn’t pay the $1.5 billion owed to the hedge funds because doing so would trigger bond clauses requiring the country to offer similar terms to other bondholders.”
There was supposed to have been willingness on the part of some of the exchange bondholders — those who agreed to accept 30 cents on the dollar, only to see Paul Singer lead NML to a revolt and to demand it all, now — to forgo terms mandating they get the same terms the holdouts get, Bloomberg View’s Matt Levine wrote, citing the Financial Times.
For its part, NML said Argentina refused to consider “numerous creative solutions” from Pollack that it found acceptable.
While the damage inflicted seems to be confined to the parties in the case, these kinds of things in finance can spill over in some unexpected ways and places.
And yet there’s still optimism.
“There’s the expectation that a deal with holdouts will be worked out soon,” Mauro Roca, a senior Latin America economist at Goldman Sachs in New York, told Bloomberg.
What we know about all this stuff could fit in a thimble, frankly — who says what to whom in these meetings, what it’s really all about, so please pardon the wide-eyed wonder at all this. Perhaps, because the holdouts have been living without the money they’re owed for 10 years now, and Argentina’s already excluded from international bond markets, there wasn’t much for either side to lose right away in the nuclear option, but it all still comes across as surprising and uncivil.
Mistakes were surely made.
***
U.S. economic indicators today include initial jobless claims at 8:30 a.m. EDT, and the Chicago purchasing managers’ index and Bloomberg consumer comfort at 9:45 a.m.
Big earnings day, with more than 70 U.S. companies scheduled to report, including Colgate, McKesson, CME Group, MasterCard, Fortress, ConocoPhillips, T-Mobile, Oaktree, Cigna, Time Warner Cable, Legg Mason, Exxon Mobil, Kellogg, LinkedIn, Tesla, Trulia, Valeant, DirecTV and GoPro, its first report since going public.
Not long ago, the EU said euro-area inflation unexpectedly slowed to 0.4 percent in July, the weakest since October 2009.
***
– Banco Espirito Santo’s first-half net loss was $4.8 billion, and it will need to raise money, the Bank of Portugal says. The shares have plummeted as much as 51 percent in Lisbon, and U.S. stock futures were lower. – Today’s deadline for payment involves bank lines of credit extended to the Puerto Rico Electric Power Authority. – The EU added eight people close to Putin to its sanctions blacklist. – The big investment banks are going to cut costs. – Bank of America’s true cost for Countrywide is closing in on $70 billion. – The House voted yesterday to authorize Boehner’s lawsuit against Obama over his use of executive orders. – MetLife (MET) may be declared systemically important to the U.S. financial system as soon as today by the Financial Stability Oversight Council. – What advantage the biggest U.S. banks’ reap from being considered too big to fail will be the subject of a GAO report today, followed by a Senate Banking Committee hearing on the report at 2 p.m. EDT. – Eric Cantor steps down as majority leader of the U.S. House of Representatives. – The House votes again on its version of legislation to cope with surge of immigrants at border. – Liberia is closing schools and quarantining communities, and Sierra Leone has declared a state of emergency in the fight against Ebola. – Edward Snowden’s Russian asylum expires. – Christie speaks at a Republican fundraiser in New Hampshire at 6 p.m. – Tor, the Internet privacy system, isn’t so private now. – De Blasio (GS) is scheduled to meet Blankfein. – A section of the Eastbourne Pier, a seaside landmark in southeast England since 1870, was consumed in a fire yesterday. – A Greek court acquitted two farmers implicated in the shooting of 28 Bangladeshi strawberry pickers who asked for their back wages. – A rogue band of six Philadelphia narcotics cops were charged yesterday with robbery, extortion, kidnapping and drug-dealing. Or as we call it in Philly, Wednesday.
***
Really all we have to do is skim the fact set laid out in Renee Dudley’s examination of the relationship between a U.S. Representative James Clyburn, the South Carolina Democrat and third-ranking House Democrat, and Randall Broz of Angerholzer Broz Consulting, a most-favored fundraising shop for Democrats, to find the tension in this story.
– Clyburn’s campaign and political action committees have paid Broz’s firms $1.9 million.
– Broz and a predecessor firm have been paid more than $8 million by House Democratic incumbents and challengers in roughly the past 10 years.
– Broz co-owns property with Clyburn’s chief of staff.
– Clyburn’s brother John, treasurer of his political action committee, sometimes works out of the Angerholzer Broz offices.
– Broz says he works with more House Democrats than any other fundraiser.
– Clyburn’s campaign and a PAC have paid Broz’s current and former shops three times as much as any other member of Congress has paid them in a set period.
– Alex Zwerdling, former campaign manager for U.S. Representative Andre Carson, says Broz was “highly recommended” by Clyburn.
– Clyburn denies personally recommending any member of Congress to Broz.
Wait, what?
***
If there’s a defect in a certain model of automobile, chances are it’s going to emerge in a fleet of rental cars first. A former director of Dollar Thrifty Automotive and now auto-industry consultant, Maryann Keller, equated rental-car companies to a canary in a coal mine for today’s investigation by Jeff Plungis and Tim Higgins into missed signals of defects in General Motors (GM)’ cars.
Using documents obtained with the Freedom of Information Act, Plungis and Higgins found Enterprise Holdings, Avis and Hertz, among others, contacted GM about air bags failing to deploy in wrecks involving Chevy Cobalts going back as far as 2005.
The information was contained in files exchanged between GM and the National Highway Traffic Safety Administration, which itself is under examination by the U.S. Department of Transportation, and all track back to the faulty ignition switches that are being blamed for shutting off engines and interrupting power to the air bags.
The documents add to evidence that GM either ignored or failed to act on complaints from consumers and dealers about abnormal crashes that have since been linked to the faulty ignition switch, the reporters found.
***
Without getting into the religion of it all, you’d think the debates and initiatives surrounding legislation in the U.S. over lifestyle choices would come to their senses, and by senses we mean money.
Trying to get enough of it in cities and states has never been more difficult in these times of globalization and inversions and emerging-market labor centers. The factories are gone, the tax base has withered, and it would make the most sense to realize that putting people off with your social strictures makes for bad business.
Which is why Houston’s struggle with an ordinance over who gets to use what bathroom sounds so low-bore. Even though the law has been gutted of the part that opponents found most offensive — allowing people to choose which toilet they use based on what gender they see in themselves — tens of thousands of Houstonians are pushing for a ballot measure in November to repeal the city’s equal-rights ordinance.
Could it be because the mayor is gay?
Business leaders say the repeal effort threatens Houston’s $15.5 billion travel industry, including $350 million that could come from hosting the 2017 Super Bowl, Darrell Preston and Bradley Olson report.
Even Arizona pulled back from the brink when Governor Jan Brewer channeled the sound of cash registers at the 2015 Super Bowl over the din of those who wanted to let businesses refuse service based on religious beliefs.
***
Houstonians might just look east at the folks in Tokyo (East or west? Which was is it from there?). They’ve got the right idea. They’re not going to let a clock, or a family or life at all come between them and making more money.
OK, not everyone’s thrilled at the idea of a night session on the Tokyo Stock Exchange, but they’ll get over it.
It is a surprisingly short trading day, in fact — five hours. That’s more like commodities trading. Understandably, the all-electronic shops are all for it and the conventional brokers are not all for it.
Maybe just one continuous, perpetual, virtual trading village that swallows up every country and every time zone would answer everyone’s needs, like “The Sims.” Drop in when you want, do your thing, make your own hours. The trading never ends.
***
Guys love gadgets, and weekend hobbyists with too much money will marry the two passions until they go broke, or die, or until someone stages an intervention. The time for the latter has arrived in recreational fishing.
If you’re a professional bass fisherman, the expense of tens or hundreds of thousands of dollars on speedboats with wine cellars and fishing rods with electric winches instead of reels is perhaps justifiable, although professional fishing isn’t. But, with apologies to Jeff Foxworthy, you might be a redneck if you’re out on a boat that costs as much as your doublewide wearing a shirt you’d also find at a Nascar race.
In 30 years of fishing, the most expensive, technologically advanced piece of equipment we’ve acquired in pursuit of fish is our car.
On the front line of fishing technology, which we can’t believe we just wrote, are the sonar systems that provide a view beneath the water, and, like the litigation smartphone makers have lobbed at one another, the patent wars are coming to fishfinders.
Ace patent reporter Sue Decker takes us through the free-for-all between Flir Systems (FLIR) and Garmin (GRMN) and a handful of other companies. There’s plenty to fight about. In 2011, the most recent figures that are available, sales of these devices totaled almost $470 million. The latest models can run $5,000, offering a 12-inch LCD screen with echo sounder, radar and an engine-performance monitor.
“It’s all about the toys,” said one angler Decker spoke to, who has lost his way.
***
Today’s the baseball trading deadline, and there aren’t many teams who are in sorrier shape, and with more to trade away, than the Philadelphia Phillies.
It was all so good there for a while.
Then came the night of Oct. 7, 2011, when the Big Piece, aka the Phillies’ Ryan Howard, went down swinging, literally. He crumpled to the dirt trying to leg out his ground out to second base, his left Achilles tendon torn, the final out of the game and National League division series, the second year in a row he was the last out in the playoffs.
Been downhill ever since.
He’s available, and just sold his house outside Philly, but at 34 years old and batting .222 with 16 home runs and an on-base percentage of .305, and with a contract that would interest LeBron James — he’s due $25 million in 2015, what’s more likely is his outright release. Unless the Yankees want him.
Lefthanders Cole Hamels (6-5, ERA of 2.55), and Cliff Lee (4-5, 3.78), and righthander A.J. Burnett (6-10, 4.15) are pretty much there for the taking. In fact, you could have the entire starting rotation if you want, and if you do, please take Kyle Kendrick (5-10, .4.87). Nice guy. Not a major leaguer.
Elsewhere in the field, teams might be able to make use of Marlon Byrd and whoever’s playing third base this week. Shortstop Jimmy Rollins just qualified for his option year in 2015 and, at 35, is likely to finish his career where it began.
But the one player whose departure is probably more likely to cause heartache, if not value as well, for the Phillies and their fans is Chase Utley.
Aside from the dropping the f-bomb on live television during the team’s victory celebration after winning the World Series in 2008, or perhaps because of it, the 35-year-old second baseman is the moral heart and soul of the team, a quiet, dignified gamer who might have had hall of fame credentials had he not lost the better part of two seasons to chronic knee injuries.
Most of these guys came up at the same time — Utley, Howard, Hamels, Rollins — and it’s hard to watch your boys recede into the cornfield for the last time.
18. ARGENTINE SHARES SLUMP AS HOLDOUT TALKS COLLAPSE, DEFAULT ‘IMMINENT’ (Dow Jones Institutional News)
By Matt Day
30 July 2014
Shares of some Argentine firms traded in the U.S. slumped late Wednesday as the country appeared poised for its second default in 13 years.
The U.S.-traded shares of prominent Argentine financial services and energy firms were hit after the mediator supervising talks between the country and its holdout creditors said discussions had broken off without a deal. Grupo Financiero Galicia SA was recently down 22% in after-hours trading, while Banco Macro SA fell 13%. Electricity firm Pampa Energia SA fell 18%, and oil and gas producer YPF SA’s shares fell 7.7%.
Argentina’s stock and bond markets had rallied in recent days in anticipation of an imminent deal to end its long-running dispute with holdout creditors. Argentine officials and representatives of hedge funds–led by Elliott Management Corp. affiliate NML Capital Ltd.–met with the mediator, Daniel Pollack, in sessions on Tuesday and Wednesday. But Mr. Pollack said late Wednesday that there was no deal, and Argentina would default “imminently.”
The development is the latest twist in a 13-year battle between Argentina and a small group of hedge funds demanding full payment for bonds the country defaulted on in 2001. Argentina has exhausted its legal options after the U.S. Supreme Court declined last month to hear its appeal of a ruling requiring the holdouts get paid.
Earlier Wednesday, Standard & Poor’s said Argentina had defaulted on some of its bonds after payments weren’t made to a slate of bondholders.
19. ARGENTINA’S LONG HISTORY OF ECONOMIC BOOMS AND BUSTS (WSJ Blog)
By Shane Roming
30 July 2014
BUENOS AIRES –Argentina has defaulted on its external debt seven times and on its domestic debt five times since independence almost 200 years ago, putting it somewhere in the middle of the historical ranks of the world’s serial defaulters. However, a long history of economic booms and busts have scarred the national psyche and left external creditors wary as the country hovers on the edge of its second default of the 21 century.
Argentina first defaulted on its sovereign debt in 1827, just 11 years after declaring independence from Spain. The agricultural backwater of the Spanish empire had long survived on smuggling contraband to skirt the tight royal restrictions on trade and tax. The lush farmlands across the Pampas provided a steady stream of exports and income for the fledgling nation, but the first economic credit crises was soon to flare.
Argentina and a host of other Latin American countries sold a slew of bonds in London to finance their transition to independence, but it all came tumbling down in 1825 when the Bank of England raised interest rates while stock markets crashed and recession swept Europe. Argentina didn’t resume payments on its defaulted bonds until 1857.
In 1890, panic swept global credit markets again when Baring Brothers teetered on the edge of collapse after lending hefty sums to Argentina. The country borrowed heavily to build trains and modernize the capital Buenos Aires to transform it to the so-called “Paris of South America.” A commodities boom fueled a speculative financial bubble that burst in a spectacular default on 48 million pounds, leading to the collapse of some of the country’s leading banks and the resignation of president Miguel Juárez Celman. It would be four years until the country emerged from default and resumed payments on the bonds.
In 1915 and again in 1930 Argentine provinces defaulted, although the federal government continued to pay its debts.
Populist strongman Jaun Domingo Perón led Argentina into a wave of nationalizations, protectionism, wealth redistribution and government intervention in the economy, which stoked growth and saw the middle class swell. But Perón was ousted in a coup in 1955 and the economy faced another wave of turmoil. In 1956, Argentina reached a deal with the Paris Club of lending nations to avoid a new default. Some of that debt is still owed and was defaulted on in 2001. It wasn’t until earlier this year that the government reached a deal to pay back the last money owed to the Paris Club.
In the 1980s, a new debt crisis swept the globe, sending dozens of countries in Latin America and Africa into default. Argentina stopped making payments on its external debt in 1982 and defaulted on internal debt in 1989. It would take 10 years before the country emerged from default by issuing dollar-denominated Brady bonds named after U.S. Treasury Secretary Nicholas Brady.
In 2001, Argentine defaulted on close to $100 billion, the largest sovereign default ever at the time. Argentina went heavily into debt throughout the 1990’s under then-President Carlos Menem. As the country slid from recession to financial collapse at the turn of the century, Argentina was again unable to make its debt payments. Unemployment soared to 20%, bank deposits were seized and U.S. dollar savings converted to sharply devalued pesos. A pair of swap offers in 2005 and 2010 lured in about 93% of the defaulted bonds for about 33 cents on the dollar, but a group of determined hedge funds who had snapped up the bonds on the cheap have held out for full payment and pursued legal actions against Argentina across the globe to collect.
The economy grew by leaps and bounds over the past decade, but spiraling inflation and heavy government intervention in the economy began to take a toll last year. The economy is mired in recession and foreign reserves dwindling as the government again faces a new default.
20. ARGENTINE BANKS TO PITCH DEAL TO HEDGE FUNDS AS DEFAULT LOOMS (The Wall Street Journal Online)
By Ken Parks and Taos Turner
30 July 2014
Argentina Bank Association President Backs a Proposal that Would at Least Temporarily Satisfy Hedge Fund Demands
BUENOS AIRES—A group of Argentine banks has sent a representative to New York to broker a last-minute deal with hedge funds to keep Argentina from defaulting Wednesday on its debt for the second time in 13 years, according to people familiar with the matter.
Argentina finds itself on the verge of default after a U.S. District Court Judge Thomas Griesa said it can’t pay bonds it issued in debt restructurings unless it also settles with hedge funds that have sued to collect on debt the country stopped paying in 2001.
Sebastian Palla, the head of investment banking for Banco Macro SA, the country’s sixth biggest bank, traveled to New York on Tuesday night to pitch a plan to hedge funds on behalf of Argentine-owned banks belonging to banking association Adeba, a person familiar with the matter said.
Adeba president, Jorge Brito, who is also chairman of Banco Macro, is said to have been an early backer of a proposal that would at least temporarily satisfy the demands of the hedge funds. If those holdout creditors agree to a deal, they would in exchange ask U.S. Judge Griesa to suspend an order blocking Argentina’s payment to other bondholders, said a person familiar with the debate among the bankers.
A spokesman for one of the lead hedge funds, Elliott Management Corp. affiliate NML Capital Ltd., declined to comment.
The situation was fluid Wednesday as Argentine bankers debated how to proceed. One idea was for the banks to buy the claim from the holdouts while another, which seemed to gain momentum by the hour, would entail offering the holdouts a down payment while not actually buying their claim. It was unclear if international banks in Argentina would participate in the plan, a person with direct knowledge of the talks said.
One person familiar with the debate said Mr. Brito had pushed ahead with a proposal to appease the holdouts before getting complete backing from other members. A Banco Macro spokeswoman declined to comment. Another person familiar with the bank plan put the odds of reaching a deal on Wednesday or soon afterward at 60%.
“If you’re a man of faith like I am then you’re keeping your fingers crossed and praying that this works,” said the person, who has close ties to Argentine officials.
One obstacle to getting a deal is figuring out how to get a guarantee from Argentina’s government that it will adequately compensate the banks for their involvement in a deal, people familiar with the discussions said. Argentine officials haven’t commented on the matter.
One person familiar with the discussions said it could take a day or two to complete a deal and transfer any funds to the hedge funds. Another challenge involves figuring out the logistics of a deposit that would be given to the hedge funds.
Francisco Ribeiro, chief financial officer for bank Banco Piano, said in an interview with Radio Del Plata that Adeba is working to constitute a guarantee fund for the hedge funds. Local press has put that fund at between $250 million and $300 million.
“It’s in everyone’s best interest for this to get solved,” he said. “There are no winners under a default scenario.”
The plan would eliminate what Argentine officials says is the biggest hurdles to settling with the holdouts—a clause in its restructured bonds that could open a floodgate of additional creditor claims.
The “Rights Upon Future Offers”, or RUFO clause, says any voluntary deal offered to the holdouts before the end of this year must also be offered to the restructured bondholders. Argentina has argued that if it pays the holdouts in full before the clause expires, the country would also have to pay as much as $120 billion to other bondholders.
Argentine officials led by Economy Minister Axel Kicillof continued direct talks Wednesday with court appointed mediator Daniel Pollack. Representatives for Argentina and the hedge funds met face-to-face for the first time the previous day in almost 12 hours of negotiations that failed to produce a breakthrough.
Argentina missed interest payments on some of its restructured bonds due June 30 when Judge Griesa blocked the transfer of $539 million the country had deposited with the bond trustee bank for distribution to investors. The grace period for payment of those bonds ends Wednesday.
Analysts say that a default could send Argentina’s struggling economy deeper into recession, aggravate inflation that is thought to be close to 40%, and keep debt markets firmly shut to a country suffering from hard currency shortage.
Argentina continues to face legal claims stemming from its decision to stop paying about $100 billion in debt in late 2001 amid a deep economic crisis. That sovereign default ranked as the largest in history at the time.
Investors agreed to exchange almost 93% of the defaulted bonds eligible for restructuring in heavily discounted debt exchanges in 2005 and 2010 that gave them just 33 cents on the dollar. Hedge funds led by NML Capital and Aurelius Capital Management LP decided not to tender their bonds and sued for full repayment in U.S. courts.
21. ARGENTINA CDS HOLDERS FACE LIKELY WAIT  (WSJ Blog)
By Katy Burne
30 July 2014
Even if Argentina fails to make scheduled bond payments Wednesday, it could be days before investors who bet on a default using so-called credit default swaps will find out whether they can collect.
Argentina risks defaulting on its debt after U.S. District Court Judge Thomas Griesa said the country can’t pay bonds it issued in debt restructurings unless it also pays hedge funds that have sued to collect on debt the country repudiated 13 years ago.
Credit default swaps are contracts in which one party promises to pay another under certain predetermined circumstances. There are $20.7 billion of CDS outstanding on Argentine government debt, according to the Depository Trust & Clearing Corp. Prices quoted Wednesday imply investors see a 63% chance that Argentina will default over the next five years.
But CDS purchasers won’t automatically receive payouts if Argentina fails to meet its debt obligations. Instead, decisions about CDS payouts are made by a panel convened by the International Swaps and Derivatives Association, a financial trade group.
Decisions typically take a few working days after investors request a ruling from the ISDA panel, though the process isn’t always straightforward.
The ISDA panel comprises 15 unnamed people chosen by banks, hedge funds and institutional investors. The panel uses publicly available facts and agreed-upon definitions to decide whether a default has occurred.
The panel decides first whether to take up the query, and then whether sellers of CDS protection must compensate buyers. The contracts can be triggered in a range of circumstances, including a borrower’s failure to pay its debts, a bankruptcy filing or a borrower challenging the validity of its own debt obligations, something known as a “repudiation/moratorium.”
Some investors have criticized the process, citing confusion over the committee’s decision-making and concerns that panelists may vote for their own advantage. The voting members of the Americas committee, which would likely decide the Argentina situation, are Bank of America Corp., Barclays PLC, BNP Paribas, Citigroup, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Morgan Stanley, Nomura Holdings, BlueMountain Capital Management LLC, D.E. Shaw & Co., Eaton Vance Management, Elliott Management Corp. and Pacific Investment Management Co.
Elliott is among the hedge funds that have sued Argentina to collect on bonds the country defaulted on in 2001.
ISDA amended the determinations committee rules in 2012 after calls for more transparency, saying it would issue a statement at the conclusion of each committee meeting, describing the issues that were raised and next steps.
Around $2.6 trillion of CDS on sovereign debt are outstanding, a fraction of a CDS market exceeding $20 trillion, according to the latest available figures from the Bank for International Settlements.
Argentina credit swaps are widely held, but figures show that the amount of money changing hands in a default would be at most $1 billion.
As of midday Wednesday, the CDS protection on Argentina cost $3.025 million at inception to cover $10 million of bonds over five years, plus $500,000 annually. That’s down from $3.9 million upfront as of Tuesday, on hopes that default will be averted.
In June, an ISDA committee declined to take up a request to trigger payouts on Argentine CDS after the country declared its intention not to pay interest.
The Greek sovereign debt restructuring in 2012, when rating companies declared the country in selective default, was the latest episode to raise investor confusion over whether CDS would be paid out. Two requests for payouts were rejected in March of that year, but a third one in April was approved.
The Greek CDS situation was “messy,” said Adrian Miller, director in fixed income strategy at GMP Securities LLC. Argentina’s situation “is even more complicated.”
22. AFTER A DECADE OF BAD BLOOD WITH BONDHOLDERS, ARGENTINA FACES DEFAULT (Newsweek)
By Leah McGrath Goodman
July 30, 2014
“It’s one thing to put a gun to your head. It’s another thing to pull the trigger.”
So stated a high-level portfolio manager at New York hedge fund Elliott Management Corp., summing up Argentina’s predicament as it attempts to fight off more than a dozen plaintiffs who are seeking as much as $1.5 billion on Argentine debt that’s been left unpaid for more than a decade.
After exhausting every last legal option – even appealing to the U.S. Supreme Court, which declined to hear its case in June – the South American nation has until midnight Wednesday to change its mind.
If it does not pay, the consequences could be devastating for Latin America’s No. 3 economy, which is already battling some of the highest inflation on the planet, not to mention force it into its first default since 2001.
Those skirmishing with Argentina represent the last of the nation’s bondholders who refuse to accept reduced payments on their debt. The majority of Argentina’s bondholders – about 93 percent – agreed to lower payments in 2005 and 2010. By a legal quirk, the so-called “holdouts” have succeeded in halting payments to all of the bondholders until Argentina agrees to settle with them. If Argentina does not, it will officially go into default July 30.
David Tawil, president of Maglan Capital, a New York-based hedge fund that’s closely watching the situation unfold in Argentina, said Wall Street is on tenterhooks, as some think Argentina may yet broker an 11th hour deal.
“Argentina may seem like it’s out of tricks, but they have so many tricks,” he told Newsweek. “They’ve lost the legal battle, but they don’t care. It says ‘game over’ on the screen, but Argentina does not acknowledge it. People are wondering if it might still somehow find a way out of this.”
Argentina’s President Cristina Kirchner has vowed never to allow the country to submit to what she views as “extortion,” by the holdouts, which she calls “vulture funds,” and which include Paul Singer’s Elliott Management. A multibillion-dollar hedge fund, Elliott’s NML Capital division is leading a group of 19 plaintiffs demanding full payment on Argentina’s bonds dating back to its 2001 default.
In a statement last week, Elliott said talks with Argentina in the past 30 days, moderated through court-appointed Special Master Daniel Pollack, have not progressed. To many, this does not come as a surprise, as Argentina has stated before it will not pay the holdouts and has gone so far as to pass a law prohibiting the country from paying them at all.
“Argentina’s government made it clear that it will be choosing to default,” Elliott said in the statement, adding: “Its representatives simply stated that no solution was possible. This outcome is unfortunate and completely unnecessary. We will continue to seek ways to engage Argentina in negotiations, but there is currently a total lack of willingness on Argentina’s part to solve the problem.”
A representative from Elliott told Newsweek that Argentine officials have at no point agreed to speak directly with the fund and have only had contact with the special master, who has confirmed the talks have yet to gain traction.
Jay Newman, the point person for Elliott’s longstanding Argentine bond investment, has not disclosed how much is at stake for the fund. But a former portfolio manager from Elliott, Mark Brodsky, who now runs his own New York-based hedge fund, Aurelius Capital Management, estimated last year that the amount of profit he stood to make on his investment in Argentine bonds came to around $500 million.
Elliott and Aurelius both bought the Argentine bonds for pennies on the dollar after the 2001 default in hopes of making a big profit.
This is not the first arms-length standoff between Elliott and Argentina, whose tensions have boiled over in dramatic fashion before.
In an attempt to seize Argentine assets against its unpaid bonds in 2012, Elliott secured a court order to force the seizure of a 113-yard-long, Argentine naval tall ship in a port in Ghana. The incident not only grabbed international headlines, but climaxed with Argentine sailors brandishing weapons on the deck of the ship and threatening Ghana’s port officials with gunfire after waiting for weeks to be released.
The faceoff underscores just how far Elliott is willing to go to extract full payment from Argentina on its debt – even if Argentina does default Wednesday. (In fact, the default would hurt Argentina far more than Elliott, which is accustomed to long, litigious battles before reaping payouts.)
“It really does not affect us, we will just keep on going,” said the Elliott portfolio manager. “We will continue to seize assets, enforce judgments. Argentina can’t isolate themselves from the U.S. or in places where our claims are enforceable forever. That would be amazing in today’s world.”
The impasse has raised red flags about whether Washington should allow Wall Street money tussles to spill over into foreign relations, as the row prompts Argentina to seek to strengthen its ties with China and Russia.
Aurelius Capital’s Brodsky has said he believes that Argentina is a “unique” situation and poses a conflict that, despite its critics, is “less than meets the eye.” Those who object to the tactics of the holdouts, he says, are “fear-mongering.” For its part, Elliott, which has assiduously lobbied Washington to allow it to aggressively pursue repayment options on its Argentine debt without interference, has been demonstrably generous to the Beltway.
Elliott, which says it has reached out to Argentina on numerous occasions to forge a settlement, told Newsweek it remains open to exploring flexible terms on with Argentina, if the country is ever willing to negotiate.
Reached in Buenos Aires this week, Argentine government officials declined to comment. Both in New York and Buenos Aires, investors are awaiting the final verdict on the talks, which have continued. Neither Elliott nor Aurelius would comment on the status of the discussions as of late Tuesday.
“We don’t know what will happen,” said one trader at Louis Dreyfus Commodities in Buenos Aires. “We are really just hoping for the best.”
He added that some members of the firm’s team had traveled to New York this week to catch word of the outcome of the talks as soon as it might come down. Conversely, many of New York’s financial establishment have traveled to Argentina to do the same.
Privately, many observers say they do not know what to expect if Argentina defaults, because, unlike in 2001, this time it could actually pay – if it wanted to.
“I don’t know if the markets will react as strongly as with your typical default, because this is a technical default,” said Maglan’s Tawil. “The point is, there is no need for any of the disruption that’s going to happen. This is a case of two sides where each side consists of some very stubborn opponents.”
By all accounts, it is shaping up to be one of the more bizarre debt-collection tales ever witnessed on Wall Street.
“You’re talking about two sides that are not even on the same planet. They do not speak the same language. They do not play by the same rules,” Tawil said.
Perhaps a lawyer for the Ghana Ports and Harbors Authority, Asare Darko, speaking in 2012 on the tall ship debacle, had it right when he drily noted, “This is turning into an international disaster.”
23. AXEL KICILLOF IS ARGENTINA’S SECRET WEAPON AGAINST DEFAULT (Newsweek)
By Leah McGrath Goodman
July 30, 2014
Give Argentina high marks for high theater.
As Latin America’s third-largest economy teeters on the brink of default Wednesday evening, it is pinning its hopes on the star power and persuasive skills of its young economy minister, Axel Kicillof, to broker an 11th-hour deal.
If the South American nation doesn’t succeed in reaching a settlement with its creditors by midnight Eastern Time on Wednesday, it will default for the first time in more than a decade, battering the country’s already acutely fragile economy.
Newsweek Magazine is Back In Print
Until just hours ago, Kicillof refused to meet face to face with a group of creditors – which include New York-based multibillion-dollar hedge funds Elliott Management Corp. and Aurelius Capital Management LP – demanding that Argentina make them whole on bonds that have gone unpaid since 2001.
In fact, even after a U.S. judge appointed Special Master Daniel Pollack to assist Argentina in forging a long-awaited settlement with its unpaid creditors, Kicillof traveled to New York in late June – but only to give an explosive speech at the U.N. lambasting the U.S. courts for driving Argentina’s economy to the brink.
He then promptly caught a jet back to Argentina. Throughout his short trip, Kiciloff never made clear whether he would meet with Argentina’s New York-based creditors, who are owed an estimated $1.5 billion – and left them dangling.
Even if it was not a deliberate move to tweak Argentina’s inflamed creditors, it worked: for the past 30 days, hedge funds such as Elliott have stepped up the urgency of their rhetoric, exhorting Argentina in editorials and emails to the press to come to the negotiating table. “With July 30th only 11 days away, the Argentine government appears determined to default,” Elliott wrote in a recent missive to the financial press. “We hope it chooses to avoid this dead-end path.”
Arriving suddenly on Tuesday, Kicillof swept into the New York offices of Special Master Pollack, where creditor talks were under way.
And, just like that, he reignited negotiations.
As one Argentine trader, who also traveled to New York this week, remarked following the appearance of Kicillof, “Looks like default will be avoided.”
Known for his anti-establishment sideburns, Marxist leanings and aversion to ties and business suits, Kicillof is likely to find he clashes over a good deal more than just financial terms at the negotiating table with his hedge fund opponents.
Even so, it is unlikely Kicillof, who has the full backing of Argentina’s President Cristina Kirchner, would stake so much political capital on a last-ditch effort if he was not confident of cementing a deal.
If he does, it will be not a moment too soon. Late Wednesday, the ratings agency Standard & Poor’s slashed Argentina’s foreign-currency credit rating to “selective default” from a triple-C-minus long-term rating. (A selective default means the country is meeting some, but not all, debt-payment commitments.)
“If and when Argentina cures the payment default on the discount bonds, we could revise our ratings on Argentina depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets, and its overall credit profile,” S&P wrote in a note.
As for the financial press, unaccustomed to dashing economy ministers who trail paparazzi and appear shirtless on the Internet, the challenge is a different kind entirely.
Of Kicillof, one Reuters journalist quipped on Twitter Wednesday: “I am trying so hard not to make a million jokes about how hot he is so as to appear like a Serious Journalist.”
24. ARGENTINA IN DEFAULT AS BATTLE AGAINST BILLIONAIRE PAUL SINGER’S ELLIOTT DRAGS ON (Forbes)
By Agustino Fontevecchia
July 30, 2014
At approximately 4:38 PM in New York, credit rating agency Standard & Poor’s lowered Argentina’s foreign currency rating to SD, or selective default, for missing a $539 million interest payment on its Discount bonds maturing in 2033, after a 30-day grace period expired (see the body of the text for a further explanation).  Argentine Finance Minister Axel Kicillof had been engaged in negotiations with a court-appointed mediator and representatives for Elliott Management and other hedge funds known as holdouts, yet about an hour later in a press conference at the Argentine Consulate confirmed no deal had been reached.  At the same time, and as explained below, a group of Argentine banks is locked in negotiations with holdout bondholders in an attempt to provide a guarantee that would allow Judge Griesa to reinstate a stay that would allow the Republic to pay exchange bondholders and emerge from default.
The court appointed mediator, Daniel Pollack, also released a statement noting no deal had been reached, and warned of the risk of “imminent” default.
Trying to extract maximum leverage from a weakened position, a delegation including Argentine Finance Minister Axel Kicillof finally agreed to meet holdout hedge funds led by billionaire Paul Singer’s Elliott Management face-to-face Tuesday night.  Both parties are looking to avoid triggering a default that could exacerbate an economic contraction fueled by runaway inflation and foreign exchange restrictions, and at the same time leave the so-called vulture funds without their hard-sought returns.  Despite a ruling by U.S. Judge Thomas Griesa forcing the South American nation to pay holdouts in full, legal restrictions and the possibility of a massive restructuring coming unwound makes that a practical impossibility, leaving few options on the table for both parties to come to an agreement.  As Argentina frantically looks to get the judge to reinstate a stay on his last ruling to avoid a selective default, an association of private banks is offering to provide a monetary guarantee to the hedge funds to buy some time.
Down to the wire: negotiations between Argentina and a group of hedge funds including Elliott/NML, Aurelius, and Blue Angels truly got underway Tuesday night when Finance Minister Axel Kicillof made a surprise appearance at the office of a court-appointed mediator, Special Master Daniel Pollack.  While members of Argentina’s Economy Ministry have held meetings with the mediator through the past several weeks, Kicillof’s presence, and the first face-to-face meeting with the hedge funds he blasted as “extortioners” gave hope that a deal may be cut at the eleventh hour.
The issue goes back to Argentina’s 2001/2 sovereign debt default, dubbed the largest in modern history, where the second largest South American economy ceased payments on approximately $100 billion in foreign debt.  In two successive exchange offers in 2005 and 2010, the administrations of Nestor Kirchner first and then of his wife and successor Cristina Fernandez signed up more than 92% of their creditors, getting them to take an approximately 70% haircut on their bond holdings.  A select group including hedge funds Elliott Management and Aurelius Capital held out, looking for better terms and taking the Republic to court, where they won three major battles: getting Judge Griesa to rule on the famous pari passu clause that required they receive full payment before any of the restructured bondholders get paid, a Second Circuit confirmation on that ruling, and a Supreme Court refusal to take up the case, meaning it stood by the lower courts.
Now, after having missed a payment to holders of restructured debt on June 30, Argentina had a 30-day grace period before falling into default for the second time in 12 years.  On the verge of a default, Kicillof entered mediator Pollack’s offices in midtown New York Wednesday morning with hours to go.
Argentina is tied by the a contractual clause known as RUFO (rights upon future offers) that bars it from offering holdouts anything better than the 30 cents on the dollar the exchange bondholders received.  That clause, which expires on December 31, 2014 and is triggered by a voluntary offer by Argentina, has been the backbone of the Republic’s attempts to delay the conversation and get Judge Griesa to place an emergency stay to avoid default.  Indeed, Argentina has already deposited the money in the account of its trustee, the Bank of New York Mellon, which is prohibited from making the payment as it would be found in contempt with the court.  If Argentina pays the vulture funds in full, it could trigger additional claims from other holdouts totaling anywhere between $4 to $15 billion, depending who is counting, and it threatens to unravel the whole restructuring, potentially unlocking claims for more than $120 billion, Kicillof has argued.  Argentina’s foreign reserves have fallen from over $50 billion in 2011 to less than $30 billion today.
Sitting across Kicillof and the lawyers from Cleary Gottlieb representing Argentina will be a powerful group of hedge funds.  Jay Newman, senior portfolio manager at Paul Singer’s Elliott Management, is the man responsible for the fund’s strategy.  He has repeatedly indicated the issue can be quickly solved if they only met face-to-face.  He has hinted that a combined bond and cash offer, much like the ones Argentina used to settle with Repsol and the Paris Club, could be possible.  He’s also disputed Argentina’s claim the RUFO would be triggered in a settlement that was court ordered.
While both sides are trying to sell the general public their own book, seriously scared third parties have tried to act.  A group of Argentine banks led by Banco Macro hashed together a plan to compensate the hedge funds, either by providing a guarantee or by buying their bond holdings in full in order to avert default.  Figures oscillating from a $250 million guarantee to a $1.6 billion acquisition have been thrown out.  This would technically avoid triggering RUFO as it wouldn’t be an offer from the Republic, but from a private group of banks supposedly acting out of their own will.  At the same time, a group of bondholders sitting on more than $4 billion of the $11 billion Discount and Par euro-denominated bonds sent a letter to the mediator noting they’d be willing to wave the dangerous RUFO clause under the right conditions.
It will be a tense rest of the day for investors in Argentina and across the sovereign debt market as any piece of information could spark massive spikes in asset prices.  Argentine equities, including the MERVAL index and state-owned oil company YPF have traded with extreme volatility over the past several trading sessions, but have experienced substantial rallies on Wednesday.  The keys to unlocking this puzzle rest with Kicillof, the vulture funds, and the elderly Griesa.
25. ARGENTINA FAILS TO REACH DEBT AGREEMENT, DEFAULT IMMINENT (Reuters News)
By Richard Lough, Eliana Raszewski and Daniel Bases
July 31, 2014
BUENOS AIRES/NEW YORK (Reuters) – Argentina will default on its debt within hours after talks with holdout creditors broke down on Wednesday.
As the clock ticked toward a midnight (0400 GMT) deadline, Economy Minister Axel Kicillof stuck firmly to the government line, repeatedly denigrating the holdouts as “vultures” after two days of intense negotiations.
Argentine banks scrambled to put together a proposal to buy out the non-performing debt held by hedge funds and avert a default. But that deal collapsed, a senior banking executive and a second source from the financial market said.
“It all fell through,” said the banking executive.
A default will hurt an economy already in recession, fueling risks to consumer prices in a country with one of the world’s highest inflation rates and putting more pressure on a peso that was devalued sharply early in the year.
It also marks a set-back to the Buenos Aires government’s attempts to return to global credit markets. Argentina has been isolated from international financial markets since its record $100 billion default in 2002.
The default results from Argentina’s failure to comply with a court order that holdout bondholders be paid at the same time as a $539 million coupon payment to those who accepted reduced payments in two prior restructurings.
“Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default,” Daniel Pollack, the court-appointed mediator in the case, said in a statement on Wednesday evening.
Mark Brodsky, chairman of Aurelius Capital Management, one of the two leading hedge funds opposing the deal, referred calls to his spokesman, who said the firm had no immediate statement. Calls to the other leading holdout, NML Capital, a unit of Elliot Management Corp, were not immediately returned.
Kicillof told reporters in New York that Argentina had offered the holdouts the same terms as the bond swaps issued in 2005 and 2010. The funds rejected those terms, Kicillof said before preparing to fly back to Argentina.
“Argentina paid, it has money, it will continue to pay the next installments because we want to do so and because the money is available,” he said.
“This money is there. If it were a default, there would be no money.”
U.S. District Judge Thomas Griesa in New York, who awarded $1.33 billion plus interest to the holdout hedge funds, has called Argentina’s payment illegal and rejected its argument that it has fullfilled its obligations.
Kicillof reiterated the country’s position – that it cannot pay the holdouts without triggering a clause that could leave it open to claims worth hundreds of billions of dollars from bondholders who accepted the restructured debt agreements following the 2002 crisis.
“USED TO BAD NEWS”
Many Argentines took the news on the chin.
“We are used to bad news,” said 34-year-old office worker Mariano Garcia. “Every 10 years or so there is some cataclysmic event. It’s a shame.”
The sanguine reaction is a far cry from the chaos that erupted during the country’s economic crash in 2001-2002. Millions of Argentines lost their jobs, the economy collapsed and dozens of people were killed in protests that lasted months.
This time the government is solvent. The country’s commercial banks are solid, with low capital ratios, and Argentina still boasts a trade surplus, albeit a shrinking one, thanks in large part to high prices for soy.
How much pain the default inflicts on Latin America’s third-biggest economy will depend on how swiftly the government can extricate itself from the mess.
“To go home carrying a default in their hands just doesn’t make sense,” said Kathryn Rooney Vera, senior macroeconomic strategist at Bulltick Capital in Miami.
“If this is resolved over the next few days, the impact is very limited. But if it sticks, it’s a very different story.”
In a sign of how markets might respond on Thursday, U.S.-traded shares in Argentina’s energy firm YPF (YPF.N: Quote, Profile, Research, Stock Buzz) slumped 7.7 percent in after-hours trading while Banco Macro (BMA.N: Quote, Profile, Research, Stock Buzz) plummeted 12.7 percent.
Argentina had pushed hard for a stay of the ruling by Judge Griesa that set Wednesday’s deadline for the Buenos Aires government to pay the holdouts.
It has consistently argued that a so-called Rights Upon Future Offers, or RUFO, clause prohibits it from settling with the holdouts on terms better than those received by holders of the restructured debt. That clause expires at the end of 2014.
Argentina tried making a $539 million interest payment in late June, but Griesa blocked the funds’ onward transfer to creditors. The money remained in limbo in the Buenos Aires account of trustee agent Bank of New York Mellon on Wednesday.
U.S. ratings agency Standard & Poor’s downgraded the country’s long- and short-term foreign currency credit rating to “selective default”. The default rating will remain until Argentina makes its overdue June 30 coupon payment on its discount bonds maturing in 2033, the agency said.
Prior to the collapse of the talks, Argentina’s markets had rallied on optimism for a deal. Yields on Argentina’s key dollar bond due 2033 fell to its lowest level in about three and a half years on Wednesday, and its MerVal index .MERV hit a record.
Markets are likely to reverse those moves on Thursday.
“We’ll give up today’s gains and then some on Thursday. We have to start pricing for the risk that this may not be a negotiation tactic or legal tactic,” said Siobhan Morden, head of Latin America strategy at Jefferies in New York.
“If the private sector solution is not real, I’ll have to reassess for a much lower target than 68 (cents on the dollar) on the Discount bonds.”
(Corrects typo “clocked” in second paragraph)
26. NO DEAL: ARGENTINA IN DEFAULT AS TALKS FAIL (CNN Wire)
By Mark Thompson and Katie Lobosco
31 July 2014
LONDON (CNNMoney) — Argentina has defaulted for the second time in 13 years after officials failed to come to an agreement with the country’s bondholders.
After frantic last minute talks failed to produce a deal late Wednesday, Standard & Poor’s deemed the country to be in selective default. The change in credit rating is likely to hike Argentina’s borrowing costs, and put even more pressure on the country’s already-struggling economy.
The crisis stems from a legal battle with a small group of “holdout” creditors that have demanded payment of about $1.5 billion on bonds they bought after the $144 billion default in 2001. That standoff has blocked payments to other creditors.
Economy minister Axel Kicillof met the “holdouts” for the first time in New York this week but said Wednesday that they rejected an offer he made.
Now, the country may have to devalue its currency to preserve foreign currency reserves, and that could trigger a dangerous rise in inflation that is already projected to hit 40%.
The peso has fallen by about 25% against the dollar this year.
“It’s the worst moment for Argentina to go into default … because they need fresh sources of funding, and that is only possible if they sort out in a positive way their dispute with the holdout creditors,” said Carlos Caicedo, senior analyst for Latin America at IHS.
“Social unrest is a possibility,” he told CNN.
Last minute efforts fall short
There was still hope for a deal on Tuesday, ahead of Wednesday’s midnight deadline.
It looked like Argentina’s banks might throw the government a lifeline. The Wall Street Journal reported that they could agree to pay off the “holdout” creditors — NML Capital and Aurelius Management — and wait until next year to be repaid with government bonds.
But Daniel Pollack, the court-appointed mediator, issued a statement Wednesday evening that the talks fell apart. He said that “default cannot be allowed to lapse into a permanent condition” and that he would still be available to help the parties reach some kind of resolution.
How did it come to this?
The crisis has its roots in Argentina’s last default. It reached agreement with 93% of creditors to restructure its debt, but 7% refused to accept.
The countdown to a new default started in earnest last month when a U.S. judge ruled that if Argentina doesn’t pay the holdouts, it can’t make any more payments to restructured bondholders.
Argentina worried that a deal with the holdouts could trigger billions of dollars in additional claims — money it doesn’t have. The country’s government also insisted it doesn’t have enough time to reach a fair resolution.
Serial offender?
This is Argentina’s third default in 25 years, according to ratings agency Moody’s. Still, it no longer holds the record for the biggest — that now belongs to Greece after its distressed debt exchange worth $273 billion at the height of the eurozone crisis in 2012. Russia’s $39 billion default in 1998 is the third largest in history.
27. ARGENTINA BRACES FOR MARKET REACTION TO SECOND DEFAULT IN 12 YEARS (Reuters News)
By Sarah Marsh
31 July 2014
BUENOS AIRES, July 31 (Reuters) – Argentina defaulted for the second time in 12 years after hopes for a midnight deal with holdout creditors were dashed, setting up stock and bond prices for declines on Thursday and raising chances a recession could worsen this year.
After a long legal battle with hedge funds that rejected Argentina’s debt restructuring following its 2002 default, Latin America’s third-biggest economy failed to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds.
Even a short default will raise companies’ borrowing costs, pile more pressure on the peso, drain dwindling foreign reserves and fuel one of the world’s highest inflation rates.
“It is going to complicate life for businesses like YPF which were going to look externally for financing,” said Camilo Tiscornia, a former governor of Argentina’s central bank. State-controlled energy company YPF needs funds to develop Argentina’s huge Vaca Muerta shale formation.
Argentina had sought in vain to win a last-minute suspension of a ruling by U.S. District Judge Thomas Griesa in New York to pay holdouts $1.33 billion plus interest. He ruled Argentina could not service its exchange debt unless it paid holdouts at the same time.
A proposal for Argentina banks to buy out the hedge funds’ non-performing debt also fell through, sources told Reuters.
“This is a very particular default, there is no solvency problem, so everything depends on how quickly it is solved,” said analyst Mauro Roca of Goldman Sachs.
As dire as it is, the situation is a far cry from the mayhem following the country’s economic crash in 2001-2001 when the economy collapsed around a bankrupt government. Millions of Argentines lost their jobs.
This time the government is solvent. How much pain the default inflicts on Argentina, which is already in recession, will depend on how swiftly the government can extricate itself from its obligations.
Buenos Aires had argued that agreeing to the hedge funds’ demands to pay them in full would break a clause barring it from offering better terms than those who accepted steep writedowns in the 2005 and 2010 swaps.
However, that clause expires on Dec. 31, after which the government would be able reach a deal with the funds. Many investors and economists still hope for a separate solution before then between the holdouts and private parties.
“Our base case is that a default would be cleared by January 2015,” said Alberto Bernal, a partner at Miami-based Bulltick Capital Markets. He projected that a default would cause the economy to shrink 2 percent this year compared with a previous market consensus for a 1 percent contraction.
Failure to strike a deal will not cause financial turmoil abroad because Argentina has been isolated from global credit markets since its 2002 default on $100 billion, but domestic markets that had rallied on hopes of a deal in recent days will probably reverse course.
Yields on Argentina’s key dollar bond due 2033 fell to the lowest level in about three and a half years on Wednesday, and the country’s MerVal index hit a record.
“The correction will depend on perceptions of how long the default will take to solve,” said Roca.
HOW DIRE A DEFAULT?
The default could get much messier and take longer to clear up if creditors force an “acceleration” for early payment on their bonds.
“How bad the outcome ends up being depends on whether bondholders accelerate,” said Alejo Costa, strategy chief at local investment bank Puente.
“Acceleration would open a new legal battle for the government that could end up in a new restructuring.”
Argentina has foreign currency restructured debt worth about $35 billion while its foreign exchange reserves stand at $29 billion.
U.S. ratings agency Standard & Poor’s on Wednesday downgraded the country’s long- and short-term foreign currency credit rating to “selective default”. The default rating will remain until Argentina makes its overdue June 30 coupon payment on its discount bonds maturing in 2033, the agency said.
Holders of insurance against an Argentine credit default will have their eyes peeled for an announcement from the International Swaps and Derivatives Association (ISDA). If ISDA declares an Argentine default, the total amount of money that would be paid out is just over $1 billion.
After two days of talks with holdouts in New York, Argentine Economy Minister Axel Kicillof on Wednesday evening told reporters that Argentina was not in default because it had made the June $539 million interest payment to holders of exchanged bonds – even if this had not reached creditors by July 30, at the end of the month-long grace period.
Judge Griesa called the payment illegal and blocked the funds’ onward transfer to creditors. It remains in limbo in the Buenos Aires account of trustee agent Bank of New York Mellon.
Argentines were sanguine about news of the default.
“We have been in a similar situation before, and we will make it through,” said a 27-year old employee at an automobile firm who declined to give his full name. “The sun rises each day. It will get resolved, be it next week, or next month.”
28. PRESS RELEASE: DANIEL A. POLLACK, SPECIAL MASTER IN ARGENTINA DEBT LITIGATION, ISSUES THE FOLLOWING STATEMENT (Dow Jones Institutional News)
30 July 2014
PR Newswire
NEW YORK, July 30, 2014
NEW YORK, July 30, 2014 /PRNewswire/ — Daniel A. Pollack, the Special Master appointed by Judge Thomas P. Griesa to conduct and preside over settlement negotiations between the Republic of Argentina and its Bondholders, issued the following Statement today:
“This morning and this afternoon, representatives of the Republic of Argentina, led by Minister of the Economy, Axel Kicillof, and representatives of its large bondholders held further face-to-face meetings in my office and in my presence. Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in Default. Today, July 30, was the last day of the grace period for the Republic of Argentina to pay many hundreds of millions of dollars of interest to its “exchange” bondholders, i.e. those who took bonds in 2005 and 2010 in exchange for the bonds they held following the Default of 2001. In order to make that payment of interest, however, the Republic of Argentina was also required, simultaneously, to make a “ratable” payment to the bondholders who declined to accept the exchanges of 2005 and 2010, i.e. the “holdouts”. The Republic of Argentina did not meet those conditions and, as a result, will be in Default. Notwithstanding any claim to the contrary, Default is not a mere “technical” condition, but rather a real and painful event that will hurt real people: these include all ordinary Argentine citizens, the exchange bondholders (who will not receive their interest ) and the holdouts ( who will not receive payment of the judgments they obtained in Court). The full consequences of Default are not predictable, but they certainly are not positive. This case has been highly publicized and highly politicized for many weeks. What has been perfectly clear to me all along, however, in my capacity as the neutral Special Master, is that the laws of the United States must be obeyed by all parties. The courts of the United States (both the United States District Court and the United States Court of Appeals), after full briefings and hearings, ruled that the Republic of Argentina could not lawfully make the interest payments to the exchange bondholders unless it simultaneously made the payments due the holdouts. I have worked relentlessly, over a five-week period, to bring the Republic of Argentina and its bondholders together in an agreement that would allow the June 30 interest payment of many hundreds of millions of dollars to be made, and to be made lawfully, thereby avoiding Default. It is not my role or intent to find fault with either side. I will continue to be available to the parties to aid them in reaching a resolution which they must reach in the interests of all concerned. Default cannot be allowed to lapse into a permanent condition or the Republic of Argentina and the bondholders, both exchange and holdouts, will suffer increasingly grievous harm, and the ordinary Argentine citizen will be the real and ultimate victim.”
SOURCE Daniel A. Pollack
CONTACT: Daniel A. Pollack, 212-609-6800
29. CHRONOLOGY: ARGENTINA’S TURBULENT HISTORY OF ECONOMIC CRISES (Chicago Tribune)
By Sarah Marsh in Buenos Aires and Brian Winter in Sao Paulo; Editing by Richard Lough and Jonathan Oatis
July 30, 2014
BUENOS AIRES  – Argentina was in a race against time on Wednesday to cut a deal by the end of the day with holdout investors who are suing it and to avert its second debt default in a little over a decade.
It was the latest crisis in Latin America’s No. 3 economy, which has suffered a series of economic and political meltdowns going back to the 1930s.
In the early 20th century, the South American country was one of the world’s richest, thanks to its production of beef, wheat and other farm goods, plus an educated workforce made up mostly of European immigrants and their descendants.
But the constant crises, often attributable to government mismanagement and fluctuating commodities prices, have plunged millions into poverty and put the country off-limits to all but the most daring investors today.
Here are some of Argentina’s crises through history:
1930
The Great Depression hit Argentina especially hard, as demand in Europe and United States for its farm exports suddenly dried up. As customs revenues plunged, the government had trouble paying public workers, causing unrest to grow.
Fed up with the crisis, the military staged a coup in 1930 against democratically elected President Hipolito Yrigoyen, setting a precedent for throwing out governments in times of economic trouble. For the remainder of the 20th century, more generals (14) than civilians (11) would run the country.
1955
President Juan Peron, a populist who drew his support from Argentina’s poor and working class, oversaw a period of relative prosperity following World War Two. Factory workers received paid vacations and unions gained unprecedented power as the economy grew at an annual pace of nearly 6 percent.
However, by the early 1950s, the good times came to an end as commodity prices fell once again. Peron’s nationalizations of British-owned railroads and other property antagonized business leaders and caused investment to dry up.
Inflation soared to 40 percent, and real wages plunged. The death in 1952 of Peron’s wildly popular first lady, Eva, known as “Evita,” weakened him further. Three years later, as labor strikes paralyzed the country, Argentina’s military intervened again and sent Peron into exile.
1976
Argentina’s economy failed to stabilize under a succession of military and democratic governments that implemented wildly different policies. Between 1930 and 1983, presidents averaged only two years in office, while the lead minister for economic affairs was replaced at a pace of once a year.
By the 1970s, many Argentines with warm memories of postwar prosperity were clamoring for the military to allow Peron to return home. The generals relented, and Peron assumed the presidency once again. But he was unable to heal either the economy or the increasingly violent fissures in Argentine society, and Peron died of heart failure just a year later.
Various armed factions struggled for control under Peron’s successor: his third wife, a former nightclub dancer he had met in Panama. In early 1976, as annual inflation surpassed 600 percent, the generals staged yet another coup.
Ensuing years would see rising inequality and an explosion in Argentina’s foreign debt, as well as the deaths of up to 30,000 suspected leftists as the military tried to snuff out dissent in the so-called “Dirty War.” In 1982, the military launched an invasion of the Falkland Islands, a British colony claimed by Argentina and called the Malvinas by the South American country. Britain retaliated, and Argentina lost the ensuing brief, but bitter war. Many believed the military was using the conflict to distract from economic woes fueling political discontent.
1989
Democracy returned to Argentina in 1983 – this time to stay. With the armed forces disgraced by widespread human rights abuses, the loss of the Falklands War and poor economic management, a vast majority of Argentines deemed the armed forces unfit for power, an opinion that still prevails today.
However, that did not mean stability.
Under President Raul Alfonsin, public payrolls swelled while government revenues remained stagnant. In 1989, only 30,000 out of 30 million Argentines paid any income taxes.
That year, inflation reached an unprecedented 5,000 percent, rising so fast that some supermarkets read prices out over intercoms rather than bothering to update price tags.
As strikes swept the country and rioters looted supermarkets for food, Alfonsin decided to hand over power five months early to his elected successor, Carlos Menem.
2001
Menem spent the 1990s cultivating foreign investment, slashing import tariffs, and privatizing money-losing state enterprises. Inflation fell to single digits, and Argentina was for a time hailed as a poster child for free-market reforms by the International Monetary Fund and others.
By the time Menem left office in 1999, however, rampant corruption was scaring off many investors. Contagion from financial crises in East Asia and Russia caused capital to rush out of Argentina almost as quickly as it had come in. The currency peg that Menem used to tame inflation became untenable as the government, unable to print money, borrowed it instead.
In 2001, unemployment soared beyond 20 percent, and reports surfaced of widespread hunger and malnutrition in a country that had long prided itself as being one of the world’s breadbaskets.
When another wave of riots and looting reached the capital, Menem’s successor, Fernando de la Rua, resigned. It was a period that would see five presidents in just two weeks.
Before the crisis ended, the economy had shrunk by a fifth and thousands of young, educated Argentines had emigrated to their grandparents’ ancestral homes in Europe. The government also stopped payment on more than $100 billion in debt, the world’s biggest-ever sovereign default.
2014
Since the default, Argentina has remained cut off from foreign capital markets and is considered a pariah by most investors. But the economy has also defied doomsday predictions by Wall Street analysts and others, and has by some measures experienced its best run of growth since the 1940s.
Most economists credit high prices for Argentina’s soy and other commodities, due largely to demand from China.
However, the economy is now paying the price for President Cristina Fernandez’s populist and interventionist policies, economists say, and is set to contract for the first time on an annual basis since 2002.
High government spending on social welfare programs, printing of new money and an ailing currency have fueled one of the world’s highest inflation rates. In January, the government was forced to devalue the peso.
If Argentina defaults once again, economists forecast an outflow of dollars that will pile more pressure on dwindling central bank reserves if it cannot extricate itself from the mess swiftly. So far, no one expects a recession anywhere near as deep as in 2002.
Other hallmarks of past Argentine crises, such as social unrest and a fortified political opposition, remain absent.
SOURCES: A Brief History of Argentina, by Jonathan C. Brown; Argentina, 1516-1987, by David Rock; and Reuters research
30. BIG BANKS RALLY FOR ARGENTINA AT DEBT DEADLINE (NPR: All Things Considered)
By Jim Zarroli
30 July 2014
AUDIE CORNISH: The Republic of Argentina will eminently be in default. Those are the words today of the court-appointed mediator who’s been trying to broker an agreement between Argentina and its creditors. With a midnight deadline looming, the parties walked away without a deal late today. Argentina has been waging a protracted legal battle with a small number of bondholders who want to be paid in full for bonds they purchased years ago. NPR’s Jim Zarroli is following the story and he joins us now. And, Jim, bring us up to date on what happened today.
JIM ZARROLI: You know, it looked early in the day as though there might be a resolution to this, this dispute. We heard that the two sides had actually met face-to-face yesterday for the first time. Then there were also published reports today that Argentina’s banks had come up with a last-minute proposal to end the stalemate. This morning the two sides showed up at the office of the court-appointed mediator in Manhattan. They stayed there for several hours, but the day dragged on and there was no resolution. By the middle of the afternoon, Standard and Poor’s, the rating agency, said it was placing Argentina in selective default, which means it has paid some of its debts but not all of them. And then government officials left the talks without any resolution and said they were heading back to Argentina.
CORNISH: What have you learned about what caused the talks to break down?
ZARROLI: Well, the economy minister, Axel Kicillof, spoke to reporters as he was leaving today. He basically said a lot of the things he’s been saying all along – calling the creditors vulture funds. He said Argentina had made them an offer, they rejected it. Argentina defaulted for the first time back in 2002, and it was able to get a lot of bondholders to take less money than they were owed. But there were these holdouts who were demanding to be paid everything they were owed. And they’re the ones Argentina’s been fighting with. And Kicillof said, as he has before many times, the country cannot legally pay 100 percent of what it owes to one group of bondholders without paying the others the same thing, it can’t afford it.
CORNISH: So what is the impact likely to be from a default?
ZARROLI: It’s a big question now. The court-appointed mediator, Daniel Pollack, says the consequences of the default are not predictable but they’re certainly not positive. This is a country that’s been having some economic problems, this is going to compound them. It’s been frozen out of the debt market since the 2002 default and it’s likely to stay that way. It’s also going to have a big impact on the value of Argentina’s currency. It’s going to push interest rates higher for businesses. And of course it will hurt a lot of those individual bondholders.
CORNISH: Finally, Jim, who are the bondholders and how will they be affected?
ZARROLI: You know, a lot of them are institutional investors, hedge funds, pension funds, people who bought – investors who bought the bonds years ago because they were selling at a big discount after the first default, but a lot of individual investors too, some of them retirees who bought the bonds because the interest rates were very high. A lot of Italian pensioners were in the group. Many of these people took a big hit. After the first default, they were required to accept less money than they thought they were getting, and now they’re going to get even less than that. So a lot of people are hurt by this, but the real impact should play out, I think, over the next few days.
CORNISH: That’s NPR’s Jim Zarroli on Argentina’s failure to avoid defaulting on billions of dollars of bonds. Jim, thank you.
ZARROLI: You’re welcome.
31. ARGENTINE DEBT TALKS DOWN TO THE WIRE TO AVERT DEFAULT (HedgeWorld News)
By Richard Lough, Eliana Raszewski and Daniel Bases
30 July 2014
BUENOS AIRES/NEW YORK (Reuters)—Argentina was in a race against time on Wednesday [July 30] to cut a deal by the end of the day with holdout investors suing it and avert a default, as a surge in the country’s bond prices fed optimism that an agreement was possible.
The South American country’s economy minister, Axel Kicillof, picked his way through a scrum of journalists to enter the offices of court-appointed mediator Daniel Pollack in New York, with just hours to go until the deadline for an interest payment passed.
The holdout hedge funds want full repayment on bonds they bought on the cheap after the country last defaulted in 2002, a demand Argentina has so far rejected. Their attorneys were also at Pollack’s offices.
Argentina’s bonds surged 15 percent to levels not seen in 3-1/2 years, a sign to some investors that a deal was attainable before another damaging default.
“It’s trading like there’s a deal,” said a fund manager who holds Argentina’s restructured debt and requested anonymity. “I don’t have information, but someone knows there’s a deal.”
Latin America’s No. 3 economy has for years fought NML Capital Ltd., a unit of Elliott Management Corp., and Aurelius Capital Management, the leading U.S. hedge funds that rejected large write-downs. After exhausting legal avenues, it faces its second default in 12 years if it cannot reach a last-minute deal.
The Buenos Aires government has pushed hard for a stay of the U.S. court ruling that set Wednesday’s deadline.
The country has until midnight Wednesday (0400 GMT on Thursday) to break the deadlock. If it fails, U.S. District Judge Thomas Griesa in New York will prevent Argentina from making the July 30 deadline – representing the end of a 30-day grace period – for a coupon payment on exchanged bonds.
A consortium of Argentine banks was set to offer to buy out the holdout investors’ debt, in an 11th-hour deal aimed at averting a default, a senior banking executive familiar with the offer told Reuters on Wednesday.
The executive said there had not yet been any discussions with the U.S. hedge funds leading the litigation and that the offer would require them to take a haircut, or reduced payment for the bonds.
“The idea is to sit down with the funds and buy all their debt. We have to negotiate the final amount, the terms and how payment will be made,” the executive told Reuters.
NML Capital said it had no comment on the banks’ proposal.
Bonds Jump
Argentina’s key dollar bond due 2033 jumped on Wednesday, and its debt insurance costs fell as investors took some cheer from Tuesday’s [July 29] meeting.
The 2033 dollar discount bond surged as much as 12 points from Tuesday’s close to a bid price of 95.26, according to Thomson Reuters data. That dropped its yield to 8.86 percent, a level not seen since November 2010.
At one point, the cost of the country’s five-year credit default swaps, or insurance on the bonds, fell nearly 400 basis points from Tuesday’s close to 1,505 basis points, according to Markit. The swaps had hit six-week highs on Tuesday.
Argentina’s one-year credit default swaps dropped 51 basis points from Tuesday’s close to 4,708 basis points.
After defaulting in 2002, Argentina restructured its debt in 2005 and 2010. More than 90 percent of the bondholders agreed to accept new bonds with reduced payments. The holdouts refused the terms.
Tough-talking President Cristina Fernandez has called the funds “vultures.” Her refusal to flinch in public from her stance that they accept a write-down has split opinion among Argentines at home and abroad.
“We are divided as a family. I think the government needs to settle, and my husband thinks the government is doing the right thing,” an Argentine mother of four, who gave her name as Adriana, said while on vacation in New York.
Economy chief Kicillof’s unexpected arrival in New York raised hopes that there was still time to stave off a default that would bring more pain to an economy already in recession, though not the economic collapse seen in 2002 when Argentina defaulted on $100 billion in debt.
The country received a modicum of support on Tuesday when holders of its euro-denominated exchange bonds said a suspension would encourage a settlement.
They also said they would facilitate a deal by waiving the so-called RUFO clause that prevents Argentina from offering other investors better terms than it offered them.
Argentina has consistently argued the RUFO clause prohibits it from settling with the holdouts. However, the holdouts in a Wednesday court filing urged U.S. Judge Griesa to reject the exchange bondholders request that the stay be reinstated.
While unnerving, the debt crisis is a far cry from the turmoil of Argentina’s record default in 2002 when dozens were killed in street protests and the authorities froze savers’ accounts to halt a run on the banks.
“There is still no sign of contagion to markets elsewhere in the region,” said David Rees, emerging markets economist at Capital Economics.
32. ARGENTINA BONDS RISE TO MULTIYEAR HIGHS ON PROSPECT OF DEAL (Dow Jones Institutional News)
By Nicole Hong, Taos Turner and Matt Day
30 July 2014
Argentine bonds surged Wednesday after a day of marathon negotiations and word of a plan by banks to step in raised hopes of a last-minute deal to avoid the country’s second default in 13 years.
Argentina risks defaulting Wednesday after District Court Judge Thomas Griesa said it can’t pay bonds it issued in debt restructurings unless it also pays hedge funds that have sued to collect on debt the country repudiated 13 years ago.
Argentine government officials met for roughly 12 hours Tuesday with a U.S. court-appointed mediator, Daniel Pollack, in a session that included the first face-to-face talks with the holdout creditors. Mr. Pollack said in a statement the two sides hadn’t reached a deal when talks broke off late Tuesday. Local Argentine news reports said both parties were planning to meet again Wednesday.
Argentine Economy Minister Axel Kicillof and Finance Secretary Pablo Lopez arrived at Mr. Pollack’s offices shortly after 11 a.m. EDT on Wednesday to continue talks.
Members of Argentina’s banking association, known as Adeba, are also working on a last-minute plan to help the country avoid default, according to people familiar with the matter.
Argentina’s bond prices jumped on the prospect of a deal to avoid default. The country’s dollar bonds due 2033, the ones whose interest payment is in jeopardy, rose to around 96 cents on the dollar, from 86 cents on the dollar late Tuesday. The yield fell to 8.8% from 10.1%. Bond yields fall when prices rise. The 2033 bond hasn’t traded at this level in several years, analysts say.
“This certainly puts pressure on the Argentine government to negotiate a deal if the private sector is willing to take some of the liability,” said Siobhan Morden, head of Latin America strategy at Jefferies LLC.
Argentine bonds and stocks began rising Tuesday afternoon as investors became more optimistic about the prospects for a deal to avoid default.
Argentina missed interest payments on some of its restructured bonds due June 30 when Judge Griesa blocked the transfer of $539 million the country had deposited with the bond trustee bank for distribution to investors. The grace period for payment of those bonds ends Wednesday.
The bankers association’s plan, which hasn’t been completely hashed out among the banks, would entail buying the legal claim and paying off the holdout creditors who are suing Argentina in U.S. courts for full payment on bonds the country defaulted on in 2001.
In exchange, the banks would ask the holdouts to ask Judge Griesa to suspend his ruling barring payment of restructured bondholders, a person familiar with the idea said.
However, the person said the banks first need to agree among themselves on the details of the proposal, then they would need to get assurances from the government that they would be adequately compensated.
“I don’t think we can say today that this proposal from Adeba is firm,” a person familiar with the situation said.
This plan, if it works, would be a huge breakthrough in a case that has weighed on the country’s citizens and politicians, as well as lawyers and bondholders, for years.
Argentina’s dispute with these creditors is a long-standing battle that stems from the country’s default in 2001. The holdouts were the approximate 7% of Argentina’s bondholders who refused to accept the country’s debt-restructuring offers in 2005 and 2010 and have instead sued for full payment.
A default could send Argentina’s struggling economy deeper into recession and keep the country shut out of debt markets. Argentina already suffers from annual inflation that some economists estimate is close to 40%, and a default could fuel inflation further by putting pressure on the peso’s value and making imports more expensive.
33. ARGENTINA FACES DEFAULT AS ‘VULTURE FUND’ TALKS FAIL (Platts Commodity News)
30 July 2014
New York (Agence France Presse )–30Jul2014/932 pm EDT/132 GMT   Last-ditch talks between Argentina and the US hedge funds it has branded “vultures” failed to reach agreement Wednesday, effectively pushing the country into default.
Ratings agency Standard and Poor’s had already placed Argentina in “selective default” when economy minister Axel Kicillof emerged from the New York talks to confirm that no deal had been reached.
This left it inevitable that Latin America’s third largest economy would be unable to meet its repayment obligations by midnight, placing the country in default for second time in 13 years.
“Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default,” said Daniel Pollack, the lawyer appointed by a US court to oversee the talks.
Kicillof complained that the creditors, US hedge funds that bought defaulted Argentine debt at knockdown rates, then went to court to demand full payment, had refused to compromise.
“They were trying to impose on us something illegal,” he declared, confirming that he was heading back to Buenos Aires without a deal.
Kicillof slammed S&P’s downgrade, arguing that Argentina could not be regarded as being in default since the money for the repayment was in a US bank account ready to be paid but frozen by court order.
“That money is there. Obviously, if there were a default, the money would not be there,” he stressed, blaming a ruling by US District Judge Thomas Griesa that has prevented its transfer.
“Argentina paid. It has money. It is going to continue to pay. The one who is responsible for this situation is Judge Griesa,” he said.
“We are going to pay those who hold bonds that have been defaulted on, but on reasonable terms, not on terms that amount to extortion, created under pressure, under a threat,” he said.
Wednesday marked the deadline for Argentina to make a $539 million payment on debt it had restructured with cooperative “exchange creditors” after its previous 2001 default.
Argentina had deposited the sum — for payment to those bond holders who had accepted a write-down in deals reached in 2005 and 2010 — in a bank account when it was due at the end of June.
But Griesa blocked the bank from forwarding the payment unless Argentina also paid two US hedge funds — the “holdout creditors” — the full value of their bonds, $1.3 billion, at the same time.
Argentina and these funds — NML Capital and Aurelius Capital Management
have spent the last two days locked in talks in New York with a US court-appointed mediator to try a set a deal.
“What we offered them in terms of profit was 300%. It was not accepted, because they want more, and they want it now,” Kicillof said, insisting the funds were being unreasonably greedy.
“Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people,” Pollack warned, while not assigning blame for the failure of the talks.
There was no immediate reaction from the hedge funds.
S&P’s designation of “selective default” acknowledges that Argentina is current on payments to some creditors and is probably able to make some payments on the debt it has defaulted.
It also said it could remove the default label once the country makes the payment on the restructured bonds.
Pollack said there had been a “frank exchange of views and concerns.”
CATCH-22
Griesa’s ruling has trapped Argentina in a Catch-22.
Buenos Aires says paying the holdouts, which it calls “vulture funds,” could expose it to claims for up to $100 billion from creditors who had previously agreed to take a 70% haircut.
If Argentina pays the hedge funds in full, as Griesa has ruled, the 2005 and 2010 debt restructuring deals — in which creditors accepted a 70% write-down — could fall apart.
The 92% of creditors who agreed to take a haircut could launch claims for equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.
The RUFO clause expires at the end of the year, leaving Argentina scrambling to find a way to placate the holdouts until then.
Analysts have warned a default would deepen the economic malaise gripping Argentina, exacerbating its already troubling inflation — prices rose 15% in the first half of the year — and perhaps forcing another devaluation of the peso, already devalued 20 percent in January.
A default would also likely prolong Argentina’s isolation from global capital markets, which it has been locked out of since halting payments on its more than $100 billion in foreign debt in 2001.
That default, the largest in history at the time, plunged Argentina into an economic and social crisis that it is still battling to overcome.
The global consequences of a new default would however be far smaller than in 2001, analysts say, as Argentina has since been isolated from world financial markets.
34. S&P: ARGENTINA RATING DOWNGRADED TO ‘SD’ FROM ‘CCC-‘  (Market News International)
30 July 2014
WASHINGTON (MNI) – The following is the text of a statement Wednesday by rating agency Standard & Poor’s on Argentina:
Overview
– On June 30, 2014, the Republic of Argentina failed to make a US$539 million interest payment on its discount bonds maturing in December 2033 (Discount Bonds). Standard & Poor’s does not rate the Discount Bonds. The Discount Bonds provide for a 30-day grace period for payment.
– On July 30, the grace period expired with bondholders not receiving their payment.
– We are therefore lowering our long- and short-term foreign currency sovereign credit ratings on Argentina to selective default (‘SD’) from ‘CCC-/C’, indicating that Argentina defaulted on some of its foreign currency obligations. At the same time, we are removing the ‘CCC-/C’ foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014.
– If and when Argentina cures the payment default on the Discount Bonds, we could revise our ratings on Argentina depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets, and its overall credit profile.
Rating Action
On July 30, 2014, Standard & Poor’s Ratings Services lowered its unsolicited long- and short-term foreign currency sovereign credit ratings on the Republic of Argentina to selective default (‘SD’) from ‘CCC-/C’. At the same time, we removed the ‘CCC-/C’ foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014.
We affirmed our unsolicited ‘CCC+/C’ long- and short-term local currency sovereign credit ratings and ‘raBB+’ national scale rating on Argentina. The outlook on these ratings on Argentina remains negative. The transfer and convertibility (T&C) assessment remains ‘CCC-‘.
Rationale
On June 30, 2014, Argentina failed to make a US$539 million interest payment on its Discount Bonds maturing in December 2033. Under the terms of the Discount Bonds, Argentina had a 30-day grace period following the June 30 scheduled interest payment date to make payment.
Standard & Poor’s defines “default” to include instances where either scheduled debt service is not paid on the due date or an offer of new replacement debt contains terms that are less favorable than those of the debt being replaced. Our interpretation of an issuer meeting its financial commitments “as they come due” is that investors are paid in full and on time (see “Timeliness Of Payments: Grace Periods, Guarantees, And Use Of ‘D’ And ‘SD’ Ratings,” published Oct. 24, 2013), failing which we lower the rating on the relevant rated issue(s) to ‘D’ and we downgrade the issuer to ‘SD’.
Our affirmation of the ‘CCC+/C’ local currency ratings reflects our view that the potential disruptions to interest payments on Argentina’s external debt are not likely to further erode its ability to service its debt issued in its local currency and under its local law. We also maintain our ‘CCC-‘ T&C assessment for Argentina because we believe that assessment still reflects the risks of Argentina’s restrictive exchange control laws and policies.
The foreign currency sovereign credit ratings will remain at ‘SD’ until Argentina cures its payment default on the Discount Bonds. If and when Argentina cures the payment default on the Discount Bonds, we will reassess the sovereign’s general credit standing, most likely raising the foreign currency rating to the triple ‘C’ or low ‘B’ categories.
35. ARGENTINA PUT INTO SELECTIVE DEFAULT BY STANDARD & POOR’S  (Dow Jones Institutional News)
By Matt Day and Geoffrey Rogow
30 July 2014
Standard & Poor’s on Wednesday downgraded Argentina’s foreign currency credit rating to selective default.
The ratings agency had previously given Argentina a triple-C-minus long-term rating, which is already “junk” status. However, when the country failed to make a June 30 interest payment and then still didn’t make that payment after a 30-day grace period ending Wednesday, S&P chose to lower the rating.
A “selective default” designation means the country is meeting its obligations on some bonds but not others.
“If and when Argentina cures the payment default on the discount bonds, we could revise our ratings on Argentina depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets, and its overall credit profile,” Standard & Poor’s said in a note.
S&P added if and when Argentina cures the payment default on the bonds, the firm will reassess the rating, most likely raising it to the triple ‘C’ or low ‘B’ categories. S&P reaffirmed Argentina’s long-term and short-term local currency debt rating.
The decision came as Argentine officials met with a court-appointed mediator in New York beginning at 11 a.m. EDT. The delegation left the meeting shortly after 5 p.m. without making a comment. Argentina will default on some of its debt on Wednesday unless it reaches a deal with a small group of hedge funds demanding full compensation for bonds the country defaulted on in 2001.
In an interview, Roberto Sifon-Arevalo, head of the Latin America sovereign group at Standard & Poor’s, said a deal with the holdout creditors “would definitely be a good thing. I don’t think that it would automatically be a solution, or a dramatic game-changer. It will be a very important factor though.”
Mr. Sifon-Arvelo added that Argentina’s macroeconomic environment had deteriorated “significantly.”
“You have pretty high inflation, you have parallel exchange rates, you have an economy that is not growing. You have a lot of deficiencies” in Argentina, he said.
The holdouts are about 7% of Argentina’s bondholders who refused to accept the country’s debt-restructuring offers in 2005 and 2010 and have instead sued for full payment.
A default could send Argentina’s struggling economy deeper into recession and keep the country shut out of debt markets. Argentina already suffers from annual inflation that some economists estimate is close to 40%, and a default could fuel inflation further by putting pressure on the peso’s value and making imports more expensive.
36. S&P BULLETIN: ENTITIES RATINGS UNAFFECTED BY ARGENTINA’S DOWNGRADE (Dow Jones Institutional News)
30 July 2014
The following is a press release from Standard & Poor’s:
NEW YORK (Standard & Poor’s) July 30, 2014–Standard & Poor’s Ratings Services said today that its ratings, outlooks, and CreditWatch listings on Argentine nonsovereign entities (corporate companies, financial institutions, and local and regional governments) are not immediately affected by the downgrade of the global scale foreign currency ratings on Argentina to selective default (SD). The downgrade follows the sovereign’s failure to make a $539 million interest payment on its discount bonds after the expiration of the grace period on July 30.
We affirmed our ‘CCC+/C’ local currency ratings on Argentina, reflecting our view that the potential disruptions to interest payments on the sovereign’s external debt are not likely to further erode its ability to service its debt issued in local currency and under its local law. Also, because our ‘CCC-‘ transfer & convertibility assessment on Argentina remained unchanged, we don’t expect additional restrictions on the ability of nonsovereign entities to convert and transfer funds abroad to service their debt. Therefore, our foreign currency ratings on these entities remain unaffected. Additionally, most of the local currency ratings on these entities were already on CreditWatch with negative implications, until we can further assess the potential impact of the sovereign stress on their repayment capacity.
Standard & Poor’s initiated the unsolicited ratings on the Republic of Argentina. They may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor’s has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy, but it doesn’t guarantee the accuracy, adequacy, or completeness of any information used.
This unsolicited rating(s) was initiated by Standard & Poor’s. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor’s has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.
37. ARGENTINE BANKS TO PITCH DEAL TO HEDGE FUNDS IN DEBT DISPUTE (Dow Jones Institutional News)
By Ken Parks and Taos Turner
30 July 2014
BUENOS AIRES–A group of Argentine banks has sent a representative to New York to broker a last-minute deal with hedge funds to keep Argentina from defaulting Wednesday on its debt for the second time in 13 years, according to people familiar with the matter.
Argentina finds itself on the verge of default after a U.S. District Court Judge Thomas Griesa said it can’t pay bonds it issued in debt restructurings unless it also settles with hedge funds that have sued to collect on debt the country stopped paying in 2001.
Sebastian Palla, the head of investment banking for Banco Macro SA, the country’s sixth biggest bank, traveled to New York on Tuesday night to pitch a plan to hedge funds on behalf of Argentine-owned banks belonging to banking association Adeba, a person familiar with the matter said.
Adeba president, Jorge Brito, who is also chairman of Banco Macro, is said to have been an early backer of a proposal that would at least temporarily satisfy the demands of the hedge funds. If those holdout creditors agree to a deal, they would in exchange ask U.S. Judge Griesa to suspend an order blocking Argentina’s payment to other bondholders, said a person familiar with the debate among the bankers.
A spokesman for one of the lead hedge funds, Elliott Management Corp. affiliate NML Capital Ltd., declined to comment.
The situation was fluid Wednesday as Argentine bankers debated how to proceed. One idea was for the banks to buy the claim from the holdouts while another, which seemed to gain momentum by the hour, would entail offering the holdouts a down payment while not actually buying their claim. It was unclear if international banks in Argentina would participate in the plan, a person with direct knowledge of the talks said.
One person familiar with the debate said Mr. Brito had pushed ahead with a proposal to appease the holdouts before getting complete backing from other members. A Banco Macro spokeswoman declined to comment. Another person familiar with the bank plan put the odds of reaching a deal on Wednesday or soon afterward at 60%.
“If you’re a man of faith like I am then you’re keeping your fingers crossed and praying that this works,” said the person, who has close ties to Argentine officials.
One obstacle to getting a deal is figuring out how to get a guarantee from Argentina’s government that it will adequately compensate the banks for their involvement in a deal, people familiar with the discussions said. Argentine officials haven’t commented on the matter.
One person familiar with the discussions said it could take a day or two to complete a deal and transfer any funds to the hedge funds. Another challenge involves figuring out the logistics of a deposit that would be given to the hedge funds.
Francisco Ribeiro, chief financial officer for bank Banco Piano, said in an interview with Radio Del Plata that Adeba is working to constitute a guarantee fund for the hedge funds. Local press has put that fund at between $250 million and $300 million.
“It’s in everyone’s best interest for this to get solved,” he said. “There are no winners under a default scenario.”
The plan would eliminate what Argentine officials says is the biggest hurdles to settling with the holdouts–a clause in its restructured bonds that could open a floodgate of additional creditor claims.
The “Rights Upon Future Offers”, or RUFO clause, says any voluntary deal offered to the holdouts before the end of this year must also be offered to the restructured bondholders. Argentina has argued that if it pays the holdouts in full before the clause expires, the country would also have to pay as much as $120 billion to other bondholders.
Argentine officials led by Economy Minister Axel Kicillof continued direct talks Wednesday with court appointed mediator Daniel Pollack. Representatives for Argentina and the hedge funds met face-to-face for the first time the previous day in almost 12 hours of negotiations that failed to produce a breakthrough.
Argentina missed interest payments on some of its restructured bonds due June 30 when Judge Griesa blocked the transfer of $539 million the country had deposited with the bond trustee bank for distribution to investors. The grace period for payment of those bonds ends Wednesday.
Analysts say that a default could send Argentina’s struggling economy deeper into recession, aggravate inflation that is thought to be close to 40%, and keep debt markets firmly shut to a country suffering from hard currency shortage.
Argentina continues to face legal claims stemming from its decision to stop paying about $100 billion in debt in late 2001 amid a deep economic crisis. That sovereign default ranked as the largest in history at the time.
Investors agreed to exchange almost 93% of the defaulted bonds eligible for restructuring in heavily discounted debt exchanges in 2005 and 2010 that gave them just 33 cents on the dollar. Hedge funds led by NML Capital and Aurelius Capital Management LP decided not to tender their bonds and sued for full repayment in U.S. courts.
38. ARGENTINA RISK: ALERT – RISK SCENARIO WATCHLIST (Economist Intelligence Unit – Risk Briefing)
30 July 2014
Scenario                 Category  Probability Impact Intensity
Security                 Very high Moderate    15
Political stability      Low       Very high   10
Political stability      Moderate  Very high   15
Government effectiveness Moderate  High        12
Government effectiveness Very high Moderate    15
Government effectiveness Moderate  Moderate    9
Legal & regulatory       High      High        16
Macroeconomic            High      Very high   20
Macroeconomic            High      Very high   20
Foreign trade & payments Moderate  Very high   15
Foreign trade & payments Very high High        20
Financial                Moderate  Very high   15
Financial                Very high Very high   25
Tax policy               Moderate  High        12
Tax policy               High      Moderate    12
Labour market            Very high Moderate    15
Labour market            Moderate  Moderate    9
Infrastructure           Very high Moderate    15
: 1 to 4    5 to 8    9 to 12    13 to 16    17 to 25   
: Intensity is a product of the probability and impact ratings, where ‘Very low’ scores 1 and ‘Very high’ scores 5.
SECURITY
Very high probability; Moderate impact; Risk intensity = 15
Public demonstrations are a frequent occurrence in Argentina’s capital, Buenos Aires. There has, however, been a notable pick-up in anti-government demonstrations in the past year, as the government has grappled with discontent over rampant inflation and the imposition of foreign-exchange controls. Although often disruptive to transport, demonstrations are rarely violent. Demonstrations could well grow in scale and frequency in coming months, and with anti-government sentiment rising, there is a growing risk of violence that could affect business activity. There was, for example, a spate of looting in cities throughout the country in late 2013 and early 2014. Although security forces quickly clamped down on looters, there is a risk of new outbreaks in coming months.
POLITICAL STABILITY
Low probability; Very high impact; Risk intensity = 10
Ms Fernández suffered a subdural haematoma in October 2013 and, following surgery, has become a much less profile public figure. Her latest health scare adds to an history of concerns. The president has during her time in office centralised power in her hands and relied on a small inner circle of advisers. Given this, any serious deterioration of Ms Fernández’s health in her remaining time in office would risk creating a power vacuum and serious instability. This would be particularly difficult because the vice-president, Amado Boudou, has been formally charged with bribery and conduct incompatible with public office..
POLITICAL STABILITY
Moderate probability; Very high impact; Risk intensity = 15
Political tensions have increased following an unfavourable ruling in the US court system in June that will require Argentina to repay litigant holdout creditors (who did not participate in debt restructurings in 2005 and 2010) in full or fall into default on July 30th, when the grace period on an outstanding coupon payment owed to restructured creditors expires. Opposition politicians and some pro-government politicians, including all presidential hopefuls, have suggested that Argentina must now avoid default at all costs. However, Ms Fernández and her ruling Frente para la Victoria (FV, a faction of Argentina’s dominant Partido Justicialista—the Peronist party) have taken a tougher stance, producing substantial market uncertainty, and raising fears over the economic and political consequences of default in a country already in recession, and on the brink of a much deeper crisis. Although there is a good chance that a last-minute deal with holdouts will be achieved, there remains a risk of default in the short term. If this does occur, and if it does cause unsustainable pressure for a peso devaluation, the consequences for inflation, wages, credit and GDP growth could be severe. Although the default would in all likelihood not cause a crisis as severe as that which occurred in 2001, recession, combined with the government’s intransigent stance, could prompt further social unrest, to the extent that questions over the political transition due at the end of 2015 are raised (given Argentina’s relatively recent history of pushing an unpopular government out of office during the 2001 crisis).
GOVERNMENT EFFECTIVENESS
Moderate probability; High impact; Risk intensity = 12
The Supreme Court ruled a controversial media law constitutional. The media law was presented by the government as an attempt to break up media monopolies; Argentina’s media companies, like Clarìn, assert that it is an attempt by the government to silence criticism that puts press freedoms at risk. The Supreme Court ruling prompted claims by the opposition that the court is open to government influence. That said, the Supreme Court had previously ruled against the government on several occasions in the past year. It had for example, declared a reform to the Magistrates’ Council that had been pushed through by the government amid controversy and public protest in May 2013 unconstitutional. That ruling was a major setback for the government and its attempts to exercise greater control over the judiciary. The reform of the Magistrates’ Council was the key element of the judicial reform project led by the president, Cristina Fernández de Kirchner. It proposed the selection of members (who are tasked with appointing judges) by popular vote, in a move that was widely criticised both domestically and internationally (among others by the UN Special Rapporteur on the independence of judges and lawyers) as putting the independence of the judiciary at risk. The ruling will force the cancellation of Magistrates’ Council elections that the government had been pushing ahead with. It also nullifies the government’s attempts to increase the number of council members from 13 to 19 and to allow the removal of judges by a simple rather than a two-thirds majority. These efforts had been widely seen as an attempt to pack the council with pro-government members and allow the government to remove judges as it saw fit. The government’s options are now extremely limited, but we do not expect it to back down from its confrontational stance. It may attempt to force the resignation of individual Supreme Court members (such as Carlos Fayt, who is above the age limit set out in the constitution). As in the past, government investigations of judges and their close associates could also escalate in an effort to secure favourable rulings. Judges therefore seem likely to come under ever continuing pressure from the government in the rest of the Fernández term.
GOVERNMENT EFFECTIVENESS
Very high probability; Moderate impact; Risk intensity = 15
Ms Fernández’s Frente para la Victoria (FV, a faction of Argentina’s dominant Peronist party) just managed to retain a congressional majority in the October 2013 mid-term election. But she clearly lacks the two-thirds majority in Congress required to change the constitution and run for a third term, and has no obvious successor to groom. This has increased perceptions that her star is on the wane, and opposition politicians have rushed to jockey for position ahead of the October 2015 presidential election. In Argentina’s clientelist political system, where loyalties are extremely weak, her supporters in Congress and in the provinces (provincial governors are powerful in Argentina) have already started to desert her, and she could well lose her congressional majority via defections at some point in coming months. Although power is centralised in the executive in Argentina, the loss of its congressional majority would complicate the policy agenda of the government somewhat, and raise the risk of legislative gridlock.
GOVERNMENT EFFECTIVENESS
Moderate probability; Moderate impact; Risk intensity = 9
The vice-president, Amado Boudou, under investigation for alleged corruption for more than two years, was formally charged in June with bribery and conduct incompatible with public office. The case against Mr Boudou centres around Ciccone Calcográfica, a printer of official documents that was threatened with bankruptcy in 2010 and then bought by a company to which Mr Boudou has been linked. Ciccone had accumulated tax arrears of Ps200m (around US$50m) by mid-2010, when the tax bureau called for the company to be declared bankrupt. However, just a few weeks later the tax bureau reversed its decision, after Ciccone was bought by a company call The Old Fund, of which Mr Boudou was subsequently alleged (by the ex-wife of Ciccone’s president) to be a partner. Mr Boudou is also accused of having subsequently abused his position, sending a letter to the tax bureau noting his support for a tax moratorium for Ciccone, which was subsequently granted. So far, Mr Boudou has refused to resign. He has little influence in government (having been the subject of corruption allegations since February 2012, just months after he was inaugurated in December 2011) and, in this context, his difficulties will have little immediate impact on the functioning of government. However, there have been calls from the opposition for the vice-president now to leave his post or face impeachment. There are, therefore, some concerns that the vice-president’s departure from government—by choice or by force—would cause some sort of institutional crisis in a government that is already very weak. In the meantime, Mr Boudou’s troubles raise the risk that support for the government both inside and outside congress falls further, to the detriment of political effectiveness.
LEGAL & REGULATORY
High probability; High impact; Risk intensity = 16
The nationalisation of YPF in 2012 raises concerns that the government will seek to increase state control in other sectors. The government nationalised private pension funds amid the global financial crisis in 2008, and in 2010 threatened to nationalise Telecom Argentina amid a dispute with its joint owner, Telecom Italia. This was widely viewed at the time as sabre-rattling by the government in an effort to secure its objectives, and investments in that sector have grown rapidly since then amid a consumer spending boom. Despite some shift to the left among the president’s key economic policy advisers, we do not currently believe that a wave of nationalisations is planned as part of a shift towards state-led development (unlike Venezuela, where a series of nationalisations has taken place over recent years as part of an explicit shift to a socialist development model). But the risk is that, with access to finance becoming ever more restricted, and with speculation over a peso devaluation rife (amid high inflation and net capital outflows), asset grabs in sectors such as telecoms, banking and electricity—and in the remainder of the privately owned oil and gas industry (YPF accounts for only around one-third of Argentina’s oil output, with the rest made up by a large number of other domestic and international players)—will become an increasingly attractive option for a government that has proved unmoved by international criticism and amenable to heavy-handed interventionism. In this environment the threat of expropriation may also be used as a bargaining tool to extract concessions from companies concerned, so that contract rights will remain weak even if outright expropriation is avoided.
MACROECONOMIC
High probability; Very high impact; Risk intensity = 20
The outlook for 2014 is bleak, and fraught with risks. Our benign baseline forecast is for contraction in real GDP of 1.2%. This is based on our assumption that the peso will weaken by just over 35% in 2014 and that fiscal and monetary policies will be tightened to rein in the inflationary impact of peso adjustment, causing domestic demand to contract. We expect fixed investment to fall sharply as purchases of imported transport equipment plummet, while private consumption will be hit hard (much harder than in the 2009 or 2011 downturns) as real wages fall substantially. The peso adjustment currently under way will gradually start to have a beneficial impact on net exports, which we assume will make a positive contribution to GDP growth in 2014 after dragging it down for several years, and set the stage for a modest export-led recovery in 2015. However, currency adjustment will not solve all of Argentina’s problems. Domestic demand will be constrained by continued uncertainty over tariffs, controls, and the legal and regulatory environment, and we do not expect the Fernández government to address these issues before leaving office in late 2015. With the business environment remaining unfavourable and with government attempts to reduce economic distortions and engineer a relatively smooth adjustment to lower the high-inflation environment likely to prove extremely challenging, there are substantial risks of an uncontrolled depreciation, an inflationary spiral and a much steeper, more prolonged contraction in real GDP than we are currently assuming. Economic performance in 2016-18 will hinge to a large extent on the environment after the 2015 elections. Our forecasts are based on the most likely scenario of a change to a more pragmatic, business-friendly government, which would engender greater confidence in the rules of the game and work to eliminate economic distortions. Under these assumptions, we expect investment growth to accelerate and GDP growth to rise towards 4.5% in 2016-18. However, our forecasts are subject to substantial risks.
MACROECONOMIC
High probability; Very high impact; Risk intensity = 20
On June 16th the US Supreme Court denied Argentina’s request for review of an appeals court ruling that seeks to force the sovereign to pay litigant ‘holdout’ creditors (who did not participate in 2005 or 2010 debt restructurings) in full. The decision means that a ruling by a New York court remains intact. The latter found in favour of litigant holdout creditors and instructed Argentina to repay the holdouts at the same time as it makes payments on its current restructured bonds. The Argentinian government has vowed in the past never to repay the holdouts, many of whom bought the defaulted bonds at a steep discount after the default. This is partly a reflection of the government’s financial constraints: the US$1.3bn held by litigant holdouts represents just a fraction of total holdout credits, and the government will now fear legal action by other holdout creditors. Negotiation with holdouts is also complicated by clauses in the restructured bonds that would allow the latter to be renegotiated in the event that other creditors are offered better terms. These clauses expire at end-2014; renegotiation before then could potentially force Argentina to restructure all debts associated with the 2001 default. The government’s response to the ruling has appeared defiant, but it has publicly committed to some form of dialogue with the holdouts in the case, leaving open the possibility that a deal on repayment could still be achieved by July 30th, when the grace period on an outstanding coupon payment on restructured debts expires. The government has brought forward a US$650m payment due to creditors from July 30th to July 28th. It may also propose placing funds in an escrow account for repayment on January 1st 2015, therefore avoiding potential conflict with restructured bondholders whose renegotiation clauses expire at the end of 2014. It remains highly uncertain whether this will be acceptable either to the US courts or to the holdouts, who now have the upper hand in their decade-long fight with the government. The risk of default will, therefore, be extremely high in the short term, depending on any deal with litigant holdouts, and on subsequent demands from other holdouts or restructured bondholders. If default were to cause a sudden currency depreciation of more than around 10% (bearing in mind that the peso has already fallen in value by 20% in the year to date), this would prove extremely problematic for reserves, inflation, interest rates, wages, bank credit and economic activity, with the potential to cause a much steeper contraction than currently forecast. That said, the US court decision also presents some upside risks to our forecasts, if it finally prompts the government to negotiate a deal with the 8% of creditors who have not yet restructured their defaulted bonds, and therefore clears the path for Argentina to regain much-needed access to international credit markets at some point in the forecast period.
FOREIGN TRADE & PAYMENTS
Moderate probability; Very high impact; Risk intensity = 15
Chaco province was forced in late 2012 to pay a US dollar-denominated bond issued locally (worth US$260,000) in pesos after the Banco Central de la República Argentina (BCRA, the Central Bank) refused to sell the province the dollars required for the transaction. The ‘pesification’ of Chaco province’s US dollar-denominated debt came amid increasingly harsh foreign-exchange controls. Nonetheless, the announcement was surprising, given that the sum involved was so small and the governor of Chaco, Jorge Capitanich, is very close to the president, Cristina Fernández de Kirchner. The result was major market jitters over the risk of future pesification of public- and private-sector dollar-denominated debt. The BCRA later asserted that funds would be made available to the sovereign and sub-sovereign issuers for dollar-denominated debt issued under foreign legislation. Bonds issued by the central government—which are being repaid out of the foreign reserves—and financial trusts for infrastructure works will also be repaid in dollars. This leaves open the question of whether debt issued in the local market under national legislation, like Chaco’s dollar bond, will be repaid in pesos or dollars. Foreign exposure to local dollar-denominated debt is low, and the BCRA says that funds will be made available for external payments, but events in Chaco highlight the fact that the risks to currency convertibility have grown.
FOREIGN TRADE & PAYMENTS
Very high probability; High impact; Risk intensity = 20
The government tightened import controls in 2012. In certain sectors import controls had already been in place for a year, in the form of requirements that imports be matched by an equal amount, in dollar terms, of exports. Under the newer measures, all imports need to be authorised by the secretariat of interior commerce (headed by Guillermo Moreno, a close ally of the president), in order to establish the potential impact on the domestic market. A host of objections to the move have been raised. There are fears over the operational efficiency of the regime (bearing in mind that an import licensing regime has led to substantial delays in recent years for affected products). Perhaps more significantly, the criteria for the approval of import operations have not been clearly defined, opening the door to further discretionality in foreign trade operations. There is also a strong possibility that a cumbersome import regime will backfire (in its aim of propping up the trade surplus), by driving shortages and bottlenecks and negatively affecting the output of exported goods in complex industries with high levels of imported inputs. Intermediate goods, fuels and capital goods represent around 60% of total imports. The share of imported inputs in the production process differs according to each industry, but is particularly high in sectors such as the car industry, which is a major driver of manufacturing production and also an important exporter (cars account for 12% of total exports).
FINANCIAL
Moderate probability; Very high impact; Risk intensity = 15
Sharp monetary tightening by the Central Bank has caused lending rates to spike again in 2014 and credit growth to to slow. Ultimately there is a risk that renewed volatility will produce a freeze in lending, a deterioration in asset quality and widespread bank runs (in a country with very weak confidence in banks). Fears of further foreign-exchange controls and the memories of the “corralito” (the freezing of bank withdrawals) imposed during the 2001-02 financial crisis resulted in the steady withdrawal of dollar-denominated deposits since late 2011 and a subsequent rise in interest rates. There is a risk that despite recent events, steps will be taken to encourage (or force) banks to lend that will harm financial soundness indicators and ultimately raise the risk of bank runs, in a country where confidence in banks is very weak. There is also a risk of a fresh sovereign default; although this would not affect Argentinian banks directly, the potential for default to deepen the current recession and worsen sentiment will heighten the risk of a deterioration in loan quality and of a run on bank deposits.
FINANCIAL
Very high probability; Very high impact; Risk intensity = 25
January’s 15% peso devaluation was not sufficient to reverse several years of real appreciation in a context of high inflation and, amid continued devaluation pressure (evident in a black-market exchange rate around Ps12:US$1 in mid-July), we assume that the Central Bank will allow further gradual depreciation of the peso in the remainder of the forecast period. On the benign baseline assumption that the process of peso adjustment is managed without provoking an abrupt, uncontrolled devaluation, we expect the peso to weaken in nominal terms by close to 35% by year-end. We expect continued adjustment under the heavily managed float in the coming years, including still-substantial depreciations of around 20% per year in 2015-16 and around 10% per year in 2017-18. This should reverse the accumulated real appreciation of the peso of the past five years that has eroded export competitiveness, and bring the real trade-weighted exchange rate back to around 2008 levels. The main risks to this forecast are inflation, which must be brought under control to prevent the gains from a weaker nominal peso from being rapidly eroded; continued pressure on the foreign reserves (import cover has fallen from over 11 months in 2009 to just over four months in 2013); and the imminent threat of default, which risks driving a flight to the US dollar that produces unsustainable pressure (given the thin reserves cushion) for devaluation.
TAX POLICY
Moderate probability; High impact; Risk intensity = 12
The government has limited access to external sources of finance, and is being forced to seek greater recourse to funding from the social security agency, public-sector banks and the Central Bank to meet its financing gap. In this context the possibility of further tax increases cannot be discounted. An increase in consumption taxes would increase already strong inflationary pressures. Increases in agricultural export taxes would also face strong political opposition, and potentially spur renewed rural protests of the kind that brought activity to a halt in 2008, suggesting the government would be most likely to increase corporate tax rates if financing needs were to rise further.
TAX POLICY
High probability; Moderate impact; Risk intensity = 12
Reforms to the system of revenue-sharing with the provinces are badly needed to secure the stability of the tax system, but are a political minefield, and continued delays on a comprehensive reform are in prospect. The opposition tried in 2010 to increase the percentage of revenue from the financial transactions tax that is transferred automatically to the provinces from 15% to 54% of total, but the bill failed to prosper in a divided Congress. The executive has instead announced a series of rollovers of provincial debt. In December 2013 the government signed an agreement with 18 provinces to refinance Ps75bn (US$11.5bn) in debt, in an attempt to alleviate the tricky financial situation facing most provinces. The latest agreement (signed with all provinces except Santa Fe, San Luis, La Pampa, Santiago del Estero, Formosa, and the city of Buenos Aires, which do not owe debts to the central government) seeks to roll over debt originated in another restructuring programme, the so-called Programa Federal de Desendeudamiento de las Provincias Argentinas y de Asistencia Financiera, signed in 2010. In 2011 the government modified this programme, granting a longer grace period and scheduling the first debt-service payment for January 2014. The current weakness of the provincial finances would have made it extremely difficult for the provinces to comply with this commitment. The latest restructuring was not unexpected. We continue to think that the provinces’ weak finances will be another major challenge for the central government in 2014. However, we still do not expect the government to take up the extremely difficult task of reforming the system of revenue-sharing between the provinces and the central government. This raises concerns that further measures will need to be taken to assist the provinces. Without a more comprehensive reform, weaknesses in the provincial finances will sustain the need for further central government bailouts and thus raise the risk of periodic ad hoc measures at the national revenue to increase tax revenue.
LABOUR MARKET
Very high probability; Moderate impact; Risk intensity = 15
Hugo Moyano—who has become a harsh critic of the president, Cristina Fernández de Kirchner—was re-elected as head of the trade union federation. However, a major split in the Confederación General del Trabajo, the main trade unions confederation, has seen a number of groups (some anti-government and some pro-government) break away from the main union leadership. On the face of it, this would appear to be good news for the government, as it will help keep Mr Moyano in check. However, the atomisation of a union movement that has until now been under the close control of successive Peronist administrations has the potential to create even more union disputes, raising the risk of labour unrest in coming months.
LABOUR MARKET
Moderate probability; Moderate impact; Risk intensity = 9
Strong rates of growth in the past decade mean that skills shortages have become more of a problem for business, compounded by a lack of effective training programmes in both the public and private sectors. Secondary and tertiary enrolments are very high by regional standards, but educational outcomes are not as good as would therefore be expected and vary widely by region, while access to job training tends to be unequal and informal. Where possible, in-house training programmes are advised.
INFRASTRUCTURE
Very high probability; Moderate impact; Risk intensity = 15
The risk of periodic electricity shortages, particularly during peak winter and summer periods, will persist. Reflecting the freezing of tariffs since the 2001 crisis, the finances of most electricity companies operating in the country are now so precarious that in August 2012 the government was forced to intervene in the sector. As part of the intervention a new regulatory commission, headed by influential deputy economy minister Axel Kicillof and incorporating representatives of the Ministry of Energy and the Ministry of the Interior on its board, has been created. This commission will be in charge of analysing electricity companies’ costs, investment projects and efficiency as part of a new regulatory framework, full details of which have yet to emerge. Although details provided by the government remain vague, it seems likely that the electricity sector will move towards a system where the government will set companies’ tariffs, earnings and ‘reasonable’ profit rates, according to their cost structure, efficiency and investment projects. Under this regime, companies will mainly play an operating role, in line with decisions taken by government authorities. Since private companies had all but given up hope of moving to a more market-oriented system (through a liberalisation of tariffs) under the current government—and feared outright nationalisation after Yacimientos Petrolíferos Fiscales’s nationalisation—they will probably welcome the government’s willingness to re-establish better profitability levels. However, there are serious doubts that this will prompt major long-term investments in increasing capacity. Under these conditions, the risks of shortages will remain high at least in the short term.
INFRASTRUCTURE
Moderate probability; Moderate impact; Risk intensity = 9
Comparatively large investments in the 1990s expanded and modernised Argentina’s physical infrastructure. The new model of public utility concessions that the government has been implementing since October 2003 consists of leaving repairs and maintenance in the hands of the private sector, while assuming control of strategic decisions on where new investment should be directed. Over the medium term the success of the new regime will require a clear delimitation of responsibilities between the private and public sectors in order to prevent the kind of disputes that plagued concessions during the 1990s. In cases where the government takes over a concession from the private sector, as appears possible in a few cases where foreign investors are negotiating new contracts with the government, investment is likely to fall. At the end of 2008 the government unveiled a Ps110bn (US$31.9bn) plan for public works. The plan, named Plan Obras para Todos los Argentinos (Plan of Public Works for all Argentinians), aimed to improve infrastructure, mainly in energy, transport and housing. However, implementation has proved problematic, not least because of pressure on the government finances. Companies should make provision for deterioration in the quality of the physical infrastructure if investment fails to rise in the medium term.
39. CONTROVERSIAL PRESIDENT OF ARGENTINE FOOTBALL ASSOCIATION (The Washington Post)
By Vicente L. Panetta
31 July 2014
Julio Grondona, the longtime head of the Argentine Football Association who drew criticism for his blunt, at times offensive statements, died July 30 in Buenos Aires. He was 82.
The news came Wednesday from the South American Football Confederation. News media in the Argentine capital reported that he died of heart problems.
Mr. Grondona had been the AFA’s president since 1979. He was also a senior vice president of FIFA, football’s world governing body, and head of FIFA’s finance committee. He had said he would step down from his posts in 2015.
Mr. Grondona attended the World Cup final three weeks ago when Argentina lost 1-0 to Germany at the Maracana stadium in Rio de Janeiro. He mingled in the stands with other top football officials before the match.
Julio Humberto Grondona was born Sept. 18, 1931, and rose from modest roots. He helped found the Argentine club Arsenal de Sarandi and was a director from 1957 until he left in 1976 to take over the presidency of Independiente football club. He stayed there until taking over at AFA three years later.
Under Mr. Grondona, Argentina won the World Cup in 1986 and lost the finals in 1990 and 2014. He became one of world football’s most powerful figures, and he did it though he spoke almost no English.
“I speak only Spanish,” he said in an interview. “But I have an advantage over the rest of the polyglots. I speak the language of football very well.”
He was never far from controversy. Critics blamed him for the endemic fan violence in Argentine football, where every club match faces the threat of violence by hooligan groups. Mr. Grondona said the problem simply reflected the growing violence in the country.
He was also heavily criticized by former national coach and retired star Diego Maradona, who blamed Mr. Grondona for many of the problems in the national game.
Mr. Grondona hired Maradona as the national team coach and then dismissed him after Argentina lost in the quarterfinals of the 2010 World Cup in South Africa. During the 2014 tournament, Maradona responded to being called a “bad luck charm” by Mr. Grondona by showing him the middle finger on live TV.
In 2003, Mr. Grondona was forced to apologize after telling a live TV audience, “I do not believe a Jew can ever be a referee. It’s hard work and, you know, Jews don’t like hard work.” He was later promoted to FIFA senior vice president.
A son, Humberto, was questioned by FIFA during the World Cup in Brazil, amid news reports that he had sold tournament tickets for profit. FIFA said later that Mr. Grondona’s son “most probably” gave tickets to a friend and did not sell them.
He was ill in recent years and was badly affected by the death in 2012 of his wife, Nélida.
==========================
Six seconds ‘can transform health’ —
Short six-second bursts of vigorous exercise have the potential to transform the health of elderly people, say researchers.

http://www.bbc.co.uk/news/health-28400968

 

ARGENTINE UPDATE – Jul 30, 2014

1 agosto, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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1. BANKS READY PLAN TO AID ARGENTINA (The Wall Street Journal)
By Taos Turner, Nicole Hong and Matt Day
30 July 2014
Members of Argentina’s banking association, known as Adeba, are working on a last-minute plan to help the country avoid default, according to people familiar with the idea.
News of the plan came as Argentina’s economy minister said late Tuesday that the country hadn’t yet reached a deal to avoid default and would continue negotiations on Wednesday.
Meanwhile, Argentina’s representatives and the holdout creditors met face to face for the first time Tuesday, the court-appointed mediator, Daniel Pollack, said in a statement after the talks had concluded.
“The issues that divide the parties remain unresolved,” Mr. Pollack said.
Mr. Pollack said Argentina and the holdouts hadn’t yet determined whether and when to meet on Wednesday.
Elliott Management Corp., one of the leaders of the holdouts, could not immediately be reached for comment.
The bankers association’s plan, which hasn’t been completely hashed out among the banks, would entail buying the legal claim and paying off the holdout creditors who are suing Argentina in U.S. courts for full payment on bonds the country defaulted on in 2001.
In exchange, the banks would ask the holdouts to ask U.S. District Judge Thomas Griesa, whose ruling has barred Argentina from paying its restructured bondholders unless it pays off the holdouts, to suspend his ruling.
“There is a little bit of a mess within Adeba,” said one of the people, noting that the president of one of the banks took the lead in trying to organize the plan without getting full authorization from the other banks.
Another person said the idea is for the banks to buy the government’s claim in three cash installments. In exchange, the banks would ask the government to pay them back in bonds beginning in January, when a key clause in the case expires.
This clause, the “Rights Upon Future Offers,” or RUFO clause, says that any voluntary deal offered to the holdouts before the end of this year must also be offered to the restructured bondholders. Argentina has argued that if it pays the holdouts, the country would also have to pay as much as $120 billion to other bondholders to comply with the RUFO clause.
“I don’t think we can say today that this proposal from Adeba is firm,” a person familiar with the situation said.
The person said the banks first need to agree among themselves on the details of the proposal, then they would need to get assurances from the government that they would be adequately compensated.
This plan, if it works, would be a huge breakthrough in a case that has weighed on the country’s citizens and politicians, as well as lawyers and bondholders, for years.
Argentine officials were in talks with the mediator at his New York office for 12 hours on Tuesday.
Argentine Economy Minister Axel Kicillof arrived approximately seven hours into the negotiations.
Argentina was negotiating a settlement with the holdouts to avoid a default on Wednesday, which would be the country’s second default in 13 years. Argentina missed an interest payment on its restructured bonds due June 30, and the grace period for that payment ends on Wednesday. A U.S. judge has said Argentina is not allowed to make that payment until it pays the holdouts. Argentina had refused to pay the holdouts or even meet with them face-to-face for negotiations.
Argentina’s dispute with these creditors is a longstanding battle that stems from the country’s default in 2001. The holdouts were the approximate 7% of Argentina’s bondholders who refused to accept the country’s debt-restructuring offers in 2005 and 2010 and have instead sued for full payment.
A default could send Argentina’s struggling economy deeper into recession and keep the country shut out of debt markets. Argentina already suffers from annual inflation that some economists estimate is close to 40%, and a default could fuel inflation further by putting pressure on the peso’s value and making imports more expensive.
Meanwhile, Argentina’s stocks and debt rallied Tuesday.
Investors and analysts said the length of Tuesday’s talks was potentially a sign of movement toward a deal with the holdouts. Several previous sessions with the mediator over the past month broke up after a few hours with little apparent progress.
Argentina’s dollar discount bonds due 2033, which are subject to a potential default if a deal isn’t reached on Wednesday, rose to 86 cents on the dollar from 83.5 cents on the dollar. The yield fell to 10.15% from 10.53%; bond yields fall when prices rise. The benchmark Merval stock index surged 6.5% in afternoon trading, reversing the morning’s modest losses.
“The meeting has been going for so long,” said Peter Lannigan, a managing director at broker-dealer CRT Capital Group LLC. “Investors think that the length of the meeting is saying something, that they’re going to figure out some kind of solution.”
Separately on Tuesday, a group of investors who own Argentina’s restructured bonds denominated in euros asked the U.S. judge overseeing the country’s debt negotiations for more time to avert a default.
“This court can single-handedly avoid a default” by temporarily lifting its order and giving the parties more time to resolve the issues holding up a settlement, the creditors said in a filing in federal court in Manhattan.
The lawyers represent holders of Argentina’s restructured debt, including Knighthead Capital Management LLC, Redwood Capital Management LLC and Perry Capital LLC. These groups, and similarly situated investors eager to give Argentina and its holdouts more time to talk together, hold about $7 billion in Argentina’s restructured debt, the filing said.
 
2. ARGENTINA, US BONDHOLDERS MEET AS DEADLINE LOOMS (The Washington Post)
July 30, 2014
NEW YORK — Argentina’s economy minister emerged from daylong negotiations aimed at preventing a default Tuesday to say both sides had finally spoken for the first time, a development that raised hopes that a deal might be reached to avert a financial crisis.
Minister Axel Kicillof made the revelation shortly before midnight as he left talks he had joined several hours earlier.
Shortly afterward, court-appointed mediator Daniel A. Pollack issued a statement saying Kicillof had led a delegation that met lawyers for U.S. bondholders trying to collect about $1.5 billion they are owed by Argentina.
He said the two sides met several hours in his office and in his presence.
“These were the first face-to-face talks between the parties. There was a frank exchange of views and concerns. The issues that divide the parties remain unresolved,” he said.
Although Kicillof said the negotiations would resume Wednesday, Pollack mentioned the deadline day with more caution.
“Whether and when the parties will meet tomorrow (July 30) remains to be determined overnight,” he said in the statement issued just before midnight.
Argentina faces a deadline midnight Wednesday when it must either meet its bond obligations or plunge into a default for the second time in 13 years.
A federal judge last week had ordered around-the-clock negotiations, but sporadic talks did not seem to take on a sense of urgency until a team of negotiators from Argentina showed up Tuesday morning.
Kicillof arrived seven hours later to meet with lawyers for U.S. hedge funds that bought Argentina’s bonds on the cheap and are now demanding payment.
U.S. District Judge Thomas P. Griesa had ordered Argentina to pay the U.S. bondholders if the South American nation also pays the other 92 percent of bondholders who swapped their bonds for less valuable ones in the last decade.
Kicillof entry into the talks came after the earlier arrival of Argentina’s Finance Secretary Pablo Lopez, treasury official Javier Pargament and two lawyers who said nothing as they entered Pollack’s building.
Argentina has blamed the judge for the crisis, saying his orders are forcing it into insolvency. Argentina last went into default in 2001.
The judge has twice rejected Argentina’s request to suspend the effect of his orders to give Argentina more time to negotiate a settlement with all bondholders.
President Cristina Fernandez has long refused to negotiate with the U.S. hedge funds, led by New York billionaire Paul Singer’s NML Capital Ltd., which spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief.
Argentina has labeled the U.S. funds “vultures” for picking up bonds on the cheap. The government has said paying the U.S. funds would likely trigger lawsuits from other bondholders demanding payment on similar terms. Argentina says that would cost more than $20 billion.
Late Tuesday, lawyers for a group of London-based bondholders who exchanged their bonds in the last decade said the financial firms that hold the bonds might be willing to drop a clause in their contracts that allows them to match deals reached with other bondholders.
The lawyers said the stance by the bondholders was a “clear signal that the republic may be able to obtain a waiver … opening up a path to settlement.”
At a court hearing last week, attorney Jonathan Blackman told the judge that the clause was a “huge issue” that made a settlement by the end of the month impossible without some easement of his orders.
3. ARGENTINA FIGHTS WITH DEBT HOLDOUTS; DEFAULT NEARS (The Washington Post)
By Torrens reported from New York. Business Writer Matthew Craft from New York
July 29, 2014
BUENOS AIRES, Argentina — Argentina risks financial default unless it reaches an agreement with a group of holdout bondholders by Wednesday. Here are the issues at stake:
HOW DID ARGENTINA GET HERE?
In 1998, Argentina fell into recession and faced crushing payments on its international debt. As it tried to avoid default in 2001, it arranged a “debt swap,” asking investors to trade in bonds coming due for longer-term ones. The swap, however, failed to resolve Argentina’s troubles. In December 2001, the country declared it would stop making payments on about $100 billion of debt.
Argentina’s government lined up two more swaps in 2005 and 2010, offering existing creditors new bonds worth much less than the old ones. Critics described Argentina’s negotiating style as “take it or leave it.” Most investors accepted — something is better than nothing — and traded in roughly 93 percent of the defaulted bonds.
WHO’S SUING?
Hedge funds began buying Argentina’s bonds as the country slid into crisis and kept adding to their holdings after it defaulted. Some, like NML Capital, refused to participate in the exchanges and held out for a better deal.
These holdouts then turned to U.S. courts, seeking to force Argentina to pay up under terms agreed to when the bonds were first sold, before 2001.
Argentina’s government demonizes the investors as “vulture funds.” ‘’The vultures feed on carrion, and these fund groups are circling around countries in default or close to default,” said Matthias Carugati of the Management & Fit consulting firm in Buenos Aires.
At least two of these groups are in litigation with Argentina: Billionaire Paul Singer’s NML Capital Ltd., and Aurelius Capital Management.
HOW MUCH DOES ARGENTINA OWE?
U.S. District Court Judge Thomas Griesa in Manhattan ruled in 2012 that the creditors who rejected Argentina’s earlier debt-swap offers deserved to be paid in full — a figure he put at $1.33 billion. With interest, that amount has risen to about $1.5 billion. The creditors say they are due $1.6 billion.
The U.S. Supreme Court last month refused to overturn Griesa’s ruling. The court also allowed the plaintiffs to ask any court in the country to investigate Argentina’s assets and subject them to liens to ensure payment of the debt.
WHAT IS ARGENTINA’S POSITION ON THE RULING?
Argentina asked Griesa to temporarily suspend his order, saying it could not comply because it has legal obligations to creditors who accepted the debt swaps. It says a delay would give it time to solve the problem of the holdouts.
Since Griesa refused to suspend his ruling, Argentina must continue negotiations led by a court-appointed mediator. The meetings are taking place in New York.
WHY IS THERE TALK OF A NEW DEFAULT?
Griesa blocked a $539 million payment that Argentina was due to make on June 30 to holders of the restructured debt securities. He said it would violate his orders unless Argentina also pays money owed to the plaintiffs. A 30-day grace period for paying the restructured debt expires Wednesday.
Normally, any country that didn’t pay its bondholders would be in default. Argentina’s situation has a wrinkle. The Argentine government maintains it will not default because it has already deposited the payment in a New York bank. If that money fails to reach the creditors, it says, Argentina isn’t to blame because the judge has blocked the release of the money.
WHAT ABOUT THE OTHER BONDHOLDERS?
A clause in Argentina’s earlier debt restructuring agreements bars the government from voluntarily offering the plaintiffs a better deal than the one given investors in the debt swaps of 2005 and 2010, according to Anna Gelpern, professor at Georgetown University in Washington. The clause expires on Dec. 31. If Argentina fails to abide by that agreement, the other creditors could file claims worth $120 billion, according to the government.
WHAT ARE GRIESA’S OPTIONS IF THE NEGOTIATIONS FAIL?
According to analysts, the judge could order that the payment Argentina has deposited in the New York bank be divided among the debt-swap creditors and the plaintiffs. He could also authorize embargos against Argentina to pay the plaintiffs.
WHAT WOULD THIS MEAN FOR OTHER COUNTRIES?
Gelpern said other countries could find it much more difficult to restructure their debt unless there are changes in laws and financial institutions, which “could take a long time.”
WHAT COULD THIS MEAN FOR ARGENTINES?
Economists and businesses warn it would further choke off Argentina’s ability to obtain dollars through international financial markets and would complicate the government’s plans to loosen the foreign exchange market, restricted since late 2011. Private businesses and local governments would find it harder to get dollars or international credit, leading to fewer jobs. It could drive down the value of Argentina’s peso against the scarce dollars and drive inflation even higher.
According to private economists, the country’s inflation was 30 percent in 2013. So far in 2014, it is 19 percent. According to the government, the rate in 2014 is 15 percent.
“We believe that a default would be completely negative because the Argentine economy day by day already is in recession,” said Carugati of Management & Fit. “This, for the average citizen, would mean greater pressures on the rate of exchange … and obviously would end up aggravating the recession that already is underway.”
HOW WOULD A NEW DEFAULT DIFFER FROM THE 2001 DEFAULT?
One of the biggest differences is that the economy in 2001 was deeper in recession. Unemployment was rampant. The possibility of social unrest was greater.
Ramiro Castineira, of the Buenos Aires consulting agency Econometrica, said that in 2001, Argentina defaulted on its debts “because it was broke, and now it would be because it doesn’t comply with a (court) ruling.” The financial system, he said, “is better prepared to cope with a default.”
 
4. ECONOMY MINISTER JOINS DEBT TALKS (The Washington Post)
30 July 2014
Argentina’s economy minister, Axel Kicillof, joined a meeting with a court-appointed mediator in New York as the country tries to resolve a dispute with holdout creditors before a bond-default deadline Wednesday.
Kicillof arrived about seven hours after an Argentine delegation led by Finance Secretary Pablo Lopez began meeting with mediator Daniel Pollack. Tuesday’s talks, the fifth with Pollack since a U.S. judge named him to the post in late June, lasted longer than all the previous meetings.
U.S. District Judge Thomas Griesa blocked Argentina from making a June 30 debt payment because the country didn’t comply with a court ruling that it pay the holdout creditors at the same time. Those investors, led by Paul Singer’s Elliott Management, had refused to accept the terms of the country’s debt restructurings in 2005 and 2010.
5. AS TALKS FALTER, BOND DEFAULT BY ARGENTINA APPEARS LIKELY (The New York Times)
By Alexandra Stevenson
30 July 2014
Barring a last-minute deal, Argentina will default on billions of dollars of bonds on Wednesday.
It would be Argentina’s second default in 13 years. But unlike the last time, when scores of unhappy Argentines took to the street as unemployment rose to 25 percent and inflation soared, this default would look decidedly different.
Argentina’s equity, bond and currency markets, which have been volatile in recent days, would certainly feel a jolt. The government and Argentine companies, which have been largely locked out of global markets since the last default in 2001, would find it even harder to raise money. And the economy, which has struggled with stagflation for years, would most likely slow further.
But the reaction will probably be muted because this default is not a surprise.
”This is kind of a chronicle of a default foretold,” said Arturo Porzecanski, director of the international economic relations program at American University, referring to the novella by the Colombian writer Gabriel García Márquez, ”Chronicle of a Death Foretold.”
A default has been in the making since a group of New York hedge funds gained significant victories in American courts, where they are demanding that Argentina pay them in full on government bonds that defaulted in 2001.
As in Mr. García Márquez’s books, the hedge funds’ battle against Argentina is full of unusual twists.
In a pivotal ruling, Judge Thomas P. Griesa of Federal District Court in Manhattan said that Argentina could not continue to make regular payments on its main class of bonds — whose investors had agreed to accept a lower amount than they were owed — without paying the hedge funds. A payment is scheduled for the main class of bondholders on Wednesday. Argentina, however, has insisted that it will not cave into the demands of the hedge funds, which it has called vultures.
”It would be a shocking surprise,” Mr. Porzecanski said, ”if Argentina pulled out their pocketbook and paid” the hedge funds.
But even as it fights the hedge funds, which are led by Paul E. Singer’s NML Capital, Argentina also risks angering its main debt holders and prolonging its legal and financial woes.
The country’s predicament today is inextricably linked to its default in 2001 and events after it. Argentina’s economy in 2001 was in dire straits after four years of recession. Unable to continue making payments on loans from foreign creditors, it was engulfed in debt before it declared a formal default.
Through two restructurings, the government eventually struck a deal with a majority of its bond investors, who are now called exchange bondholders because they exchanged their bonds for ones that were worth as little as a fourth of the value of the original securities. The hedge funds, known as the holdouts, declined to participate in the restructurings. Instead, they are seeking $1.5 billion in repayment, including interest.
Judge Griesa’s ruling in 2012 was later upheld by the United States Court of Appeals for the Second Circuit. Then in June, the United States Supreme Court refused to consider Argentina’s last appeal. Judge Griesa gave Argentina a 30-day grace period on a scheduled June 30 payment to its main exchange bondholders.
Yet after a series of unsuccessful and hurried last-minute mediated talks between representatives of the Argentine government and the holdouts, both sides appear to have failed to settle their differences.
In defiance of Judge Griesa’s ruling, Argentina in June deposited $539 million into the Bank of New York Mellon, the trustee handling the bond payments, in an attempt to meet its exchange bond payment.
But Judge Griesa ruled that if Bank of New York Mellon made the payment, it would be in contempt of court.
Argentina has also asked the judge for a stay on his 2012 ruling, arguing that a delay would help it to negotiate a deal. On Tuesday, a group of investors of Argentina’s euro-denominated exchange bonds urged the judge to issue an emergency stay on his ruling. But this is unlikely to be granted unless the holdouts request it, analysts said, or the court-appointed mediator, Daniel Pollack, recommends it.
In depositing the next installment of bond payments, the Argentine government has said that a default would not be its fault, a claim that has gained it political mileage. In a speech last week, the country’s president, Cristina Fernández de Kirchner, conveyed this belief. ”They’re going to have to come up with a new name,” she told an audience, referring to the word default, ”a new term that reflects the fact that the debtor paid and someone blocked it.”
Also last week, Judge Griesa ordered the Argentine delegation and the holdouts to meet with Mr. Pollack and talk ”continuously” until an agreement was reached.
The response from Argentina was tepid; the delegation met twice with Mr. Pollack last week before returning home to Buenos Aires for the weekend to consult with the government.
When a group of lawyers returned to Mr. Pollack’s offices on Tuesday, they arrived more than 15 minutes late. And despite Mr. Pollack’s insistence that they engage in ”face-to-face conversations with the bondholders,” as of Tuesday evening, the Argentines had yet to sit down across the table from the holdouts.
Argentina’s lack of enthusiasm has prompted some lawyers and analysts watching the case to question whether Argentina actually wants to avert a default.
”If you’re picking a default as a rational avenue, it is because you have decided two things,” said Marco E. Schnabl, a partner at Skadden, Arps, Slate, Meagher & Flom who is not directly involved in the case. ”One, that picking a fight with the American legal system is politically convenient, and two, that the cost of settling with holdouts and everyone else who still has unpaid bonds is vastly greater than the costs of having to take a default.”
But even with that thinking, the picture is anything but clear because some of the legal theories behind the contracts governing Argentina’s debt have not been tested.
Argentina has said, for example, that if it agreed to a settlement, it could be on the line for as much as $15 billion in holdout investors’ claims. That is because any deal would have to include all holdouts, even those not represented in the case.
In such a case, bondholders who exchanged their defaulted bonds for discounted ones might also have the right to demand the same compensation terms, according to a clause in the bond restructuring terms that expires at the end of this year.
On the other hand, if Argentina does default, it runs the risk of more lawsuits, said Siobhan Morden, head of Latin America strategy at Jefferies. In many ways, this is perhaps the most significant implication of a default.
If enough bondholders from one class of exchange bondholders agree, they have the right to ”accelerate” their bonds after Argentina misses its July 30 payment. They could then pressure the government to pay the full amount of their discounted bonds quickly, Ms. Morden added. This could mean a payment of as much as $28.7 billion to those bondholders, according to estimates by JPMorgan.
”With acceleration, you know everyone has a gun,” said Anna Gelpern, a law professor at Georgetown University. ”The question is. Will they shoot?” But, she added, if Argentina agreed on a settlement with the holdouts, that could prompt lawsuits from exchange bondholders seeking the same terms. In that case, she said, ”You don’t know if there is a gun, but if there is, it is a bazooka.”
This is a more complete version of the story than the one that appeared in print.
6. ARGENTINE BOND STANDOFF PUTS U.S. JUDGE IN FOCUS (The Wall Street Journal Online)
By Nicole Hong
29 July 2014
Judge Thomas Griesa Gains Notoriety After Ruling in Nation’s Dispute With Holdout Creditors
As Argentina hurtles toward a second default in 13 years, the local press has alit upon a convenient villain: 83-year-old U.S. District Judge Thomas Griesa.
Cartoons in Argentine newspapers have shown the judge with a vulture perched behind him, accusing him of cozying up to the bondholders that Argentine government officials call “vulture funds.” A journalist appearing on Argentine television said Judge Griesa is “not right in the head.” A newspaper ad placed by the Argentine government blamed the judge, who has presided over the government’s disputes with bondholders for more than a decade, for pushing the country toward default.
Judge Griesa is squarely in the spotlight as Argentina faces a Wednesday deadline for more than $500 million in debt payments. It is uncertain whether Argentina will be able to make the payments, bringing to a head a standoff with holdout hedge funds that have refused the country’s two debt-restructuring offers over the past decade.
At the center of the dispute is Judge Griesa’s 2012 ruling that Argentina isn’t allowed to pay its restructured bondholders until it pays the holdouts—a decision that legal analysts call unprecedented and that the Argentine government contends puts it in a costly legal bind. A default could keep Argentina out of international credit markets and dent a struggling economy.
“This case will define his legacy,” said Henry Weisburg, a lawyer at Shearman & Sterling LLP who has appeared before Judge Griesa.
Judge Griesa has jurisdiction over the case because in the 1990s Argentina agreed in some of its bond contracts to litigate any issues in New York courts. He declined to comment on any aspect of the case, but the notoriety is an unexpected twist for a jurist who has generally kept a low profile since being appointed four decades ago by President Richard Nixon
He plays the harpsichord and likes to eat the same lunch of soup, an orange and “usually some cookies” every day, he says. Each summer for the past 25 years, he has spent a week in Stratford, Ontario, to watch Shakespeare plays with his wife of 51 years, Christine. His former staffers say he is a warm and generous boss.
Judge Griesa’s ruling blocked Argentina from making an interest payment that was due June 30. A 30-day grace period on that payment ends Wednesday. Judge Griesa said any banks that help Argentina make payments to restructured bondholders would be violating a U.S. court order.
Lawyers said the ruling was surprisingly harsh, marking the first time a U.S. judge had issued such an injunction based on the so-called “pari passu” clause that states that all bondholders must be treated equally.
The U.S. government backed Argentina, calling Judge Griesa’s ruling “impermissibly broad” and raising concerns that it could undermine U.S. foreign relations. The International Monetary Fund and other organizations warned that Judge Griesa’s ruling could make it easier for a handful of creditors to disrupt a country’s efforts to reduce its debt burden.
“It is amazing that one person with such a narrow view can align with a small group and make a decision that has a global impact,” said Eric LeCompte, executive director of Jubilee USA Network, which advocates for debt relief in developing countries.
But the Second Circuit Court of Appeals in New York upheld Judge Griesa’s decision, and the U.S. Supreme Court last month declined to hear Argentina’s appeal.
Longtime followers of the case say the judge has been fair and, early on, often gave Argentina the benefit of the doubt. He suspended rulings several times to give Argentina breathing room to present its restructuring offers in 2005 and 2010.
“In the first few years, Griesa was actually pretty cooperative with the government,” said Gustavo Cañonero, a Deutsche Bank economist who attended Judge Griesa’s earliest Argentina hearings.
In May 2005, Néstor Kirchner, Argentina’s president at the time, said the country was “deeply satisfied” after an appeals court upheld Judge Griesa’s ruling that allowed Argentina’s 2005 restructuring to proceed.
One of the biggest criticisms against the judge lately is that he may not be fully aware of the scope of his rulings.
At a hearing last week, it appeared that the judge didn’t know which sets of Argentine bonds were covered by his ruling. “I may have very well not covered things that should have been covered,” he said at the hearing. He issued an order Monday night that clarified this issue.
Argentina has done little to gain the judge’s sympathy. President Cristina Kirchner and other Argentine officials have repeatedly likened the holdouts’ efforts to extortion and accused the judge of abusing his power. They also have openly defied or tried to circumvent the judge’s rulings over the years, including attempts to change the jurisdiction of their U.S. law bonds to Argentina.
“What does a judge do about the fact that he’s being defied?” said Mark Cymrot, a partner at BakerHostetler who represented Peru in lawsuits brought by creditors in the 1990s. “He’s doing the natural thing of trying to use what power he has to resolve this situation.”
Born in 1930 in Kansas City, Mo., Judge Griesa was appointed to the bench in 1972. Before his appointment, he was a partner with Davis Polk & Wardwell LLP in New York. He has degrees from Harvard College and Stanford Law School, and lives with his wife in an apartment on the Upper East Side of Manhattan. The two met in church.The two met in church.
In the 1980s, he blocked the Westway, a multibillion-dollar plan to build a mostly underground highway on landfill in Manhattan, after he determined state officials had covered up the potentially harmful impact the project would have on the Hudson River’s striped bass. The project was widely supported by officials at the time, including President Ronald Reagan.
Judge Griesa can come off as short-tempered in court. In 1992, he told hotel mogul Leona Helmsley at her sentencing for income-tax evasion, “It’s time for you to get realistic.”
However, those who know Judge Griesa privately say he is very charming.
“The fact that he’s so sweet and warm may be a surprise to people,” said Arthur Fergenson, who clerked for Judge Griesa from 1972 to 1973 and has stayed in touch with him. Mr. Fergenson is now senior counsel at boutique law firm Ansa Assuncao LLP.
7. ARGENTINA’S DEFAULT OPTION AND ITS CONSEQUENCES (Financial Times)
By Alan Beattie
July 29, 2014
Argentina’s national motto is En unión y libertad (In Union and Liberty). Should it, perhaps, consider changing it to Sui Generis?
Having found a variety of ways throughout its history to break new ground in macroeconomic and sovereign debt mismanagement, Buenos Aires this week may be forced into a new one.
A US court ruling has driven it towards defaulting on bonds that had already been restructured after the previous default in 2001. The alternative is to pay out on both restructured and unrestructured bonds, hugely increasing the country’s liabilities. (For detailed explanation of the legal issues that brought us to this intriguing juncture, see here and here.)
Should emerging market investors as a whole care about yet another Argentine default? Or should they shrug it off as another case of Argentina managing to find new ways of messing up that other countries are unlikely to be willing or able to emulate?
The answer comes in two parts. Potential damaging impacts on the emerging economy class – investors fleeing Argentina for havens elsewhere, financial collapse and recession dragging down other economies, a rash of copycat defaults – are highly unlikely to materialise. In terms of the longer term impact of legal changes on emerging market sovereign debt, the shock could be considerable. But with the legal position complex, murky and subject to more change, it is uncertain in which direction the incentives of investors and governments will change.
First, with regard to the immediate impact, common sense and historical precedent suggest it will be low. Argentina’s debt issued under foreign law – mainly US and English – is only around a third of the $80bn or so on which it defaulted thirteen years ago, and that against a general emerging market sovereign bond universe that has expanded rapidly since. In any case, Argentina has in effect been shut out of international capital markets since the default, thus muffling further any impact on other emerging economy borrowers.
The likelihood in the short term either of investors fleeing Argentina into other emerging markets, or provoking a general flight out of the asset class, is low. The bull market in emerging sovereign debt remains strong. Another serial sovereign debt defaulter, Ecuador, last month sold dollar-denominated bonds for the first time since it defaulted in 2008.
Similarly, on the real side, Argentina’s economy is just too small (less than 1 per cent of global GDP) for another financial collapse and crunching recession to do much damage even in Latin America, let alone the global economy. Certainly, the peso’s devaluation in January did appear to be one of the events that triggered the second stage of the “taper tantrum”, a general sell-off of emerging market assets. Yet if that is true, the fact that those assets subsequently smartly recovered suggests it was an overreaction to a rather small shock.
As it happens, history also provides a guide. Argentina’s sovereign default in 2001 was then the largest ever, and yet even it did not provoke contagion in global markets. The default is sometimes blamed for spreading chaos to Brazil, where sovereign bond yields rose rapidly until the IMF intervened in August 2002 with what was then the biggest rescue loan in its history. In reality, Brazilian risk premia were low for some months after the Argentine default. Rather than being driven by the Argentine crisis, they rose in lockstep with the poll ratings of Luiz Inácio Lula da Silva ahead of Brazil’s presidential election in October, in what transpired to be an entirely erroneous belief that Lula would prove to be a classic spendthrift Latin American populist.
Nor did some of Argentina’s more eccentric behaviour, such as defaulting to the World Bank in 2002, encourage other emerging markets to follow, or indeed threaten the credit rating or integrity of the bank itself.
The second part of the answer, with regard to the future legal framework for sovereign debt, is far more uncertain. If the principle in the court ruling stands it will make the work-out of any sovereign debt default more difficult and expensive for the borrowing country. More generally, if US courts feel themselves free to make other rulings on dollar-denominated sovereign debt that will affect bonds issued under other jurisdictions, it will introduce even more uncertainty into an already complex and confusing legal environment.
What impact this will have on the behaviour of investors and sovereign issuers, though, is unclear. Unlike the period running up to default in 2001, when Argentine bond prices dropped sharply, they have rallied over recent months. The most convincing explanation is that this reflects the fact that investors believe the legal ruling will reward all bondholders, not just the holdouts, when Argentina is finally forced to pay.
This is all highly speculative, but if the scope of sovereign immunity is reduced it will make investors in future more eager to buy sovereign debt, at least from countries with enough wherewithal to pay up. Then again, governments will be less eager to issue debt for the same reason. That could be a recipe for more sharp increases in the the prices of bonds that do exist. Yet if issuing governments have sufficiently short-term horizons, those prices will induce them to issue in any case.
Not for the first time, Argentina’s management of its sovereign debt has contrived to expand the limits of the possible, and not in a good way. The immediate impact is likely to be limited; the longer-term effects remain a mystery both in size and in direction.
8. THE GET OUT OF RUFO FREE CARD (Financial Times)
By Joseph Cotterill
July 29, 2014
Update – Midnight UK time: Argentine press was reporting at pixel time that the country’s banks may provide collateral to the holdouts for a temporary stay. Argentina would then use the stay to ask restructured bondholders to consent to waiving the RUFO clause. (Using private banks to pay the collateral would avoid a RUFO trigger.) Also at pixel time, Argentina’s economy minister had entered negotiations in New York — so something was up.
The talks may move quickly into Wednesday. But the emergency stay request in the original post below shows some of the issues here…
_____________
At the eleventh hour…
Click for the request by holders of Argentina’s English-law, euro-denominated restructured bonds for Judge Griesa to stay the pari passu injunction before Wednesday’s default date.
The Euro Bondholders have emerged as one of the most active litigants in the saga in recent weeks. They have argued before Judge Griesa, as in last week’s hearing, that they can help resolve Argentina’s terror — a case of sovereign statuvolism — of incurring Rights Upon Future Offers lawsuits if it settles with holdouts.
Which is the impetus here:
The potential implication of the RUFO clause apparently is making settlement difficult. There are at least two ways, however, that the potential impact of the RUFO clause can be avoided. First, the Republic could undertake a consent solicitation, seeking a waiver of the RUFO clause from the Exchange Bondholders. The Euro Bondholders previously have stated to this Court that they would consider a fair and effective waiver of the RUFO clause if it would lead to a negotiated settlement, and they would be willing to work with the parties and Special Master Pollack on a resolution. Indeed, on July 26, 2014, the Euro Bondholders sent a letter to Special Master Pollack and counsel for the Republic, informing them that the Euro Bondholders and other interested bondholders—together holding over €5.2 billion of euro-denominated bonds—would be willing to waive the RUFO clause…
Second, even if the Republic cannot obtain a waiver of the RUFO clause from the Exchange Bondholders, the RUFO clause will not be an obstacle to settlement after December 31, 2014, when it expires. Given that it could take weeks or even months to undertake a consent solicitation, the simpler approach may be to stay the Injunctions until the RUFO clause expires, so that the parties can complete a negotiated settlement after that time.
If Judge Griesa were to stay the order right up until RUFO expiry, as requested in that second option, then it would put the case on hold for almost half a year.
And pigs might fly past his window at the Daniel Patrick Moynihan United States Courthouse first.
Judge Griesa’s desire for a settlement is loud and clear at this point, but he has appeared to regard the RUFO issue as something for Argentina’s negotiators to discuss with the holdouts in the Special Master meetings. Which, given the non-existent state of these discussions, means Wednesday would proceed in “unfortunate” fashion, to use the judge’s words, unless a breakthrough occurs on this issue.
Even so, the interesting thing is that €5.2bn worth of Argentine bondholders are telling the court here that they really would like not to sue Argentina over this clause that exists in their contracts — preferring to waive it.
Again, this might show once more that RUFO is a relatively minor obstacle after all. It might also shed some light on who wanted RUFO protection in Argentina’s 2005 debt restructuring anyway. The republic has argued that creditors wanted it. But its offer in cents-on-the-dollar terms was so poor that Argentina could have been the one that wanted RUFO the most all along, to get creditors to ditch hopes of a better deal and sign up. The largest Argentine bondholder group at the time didn’t want it.
But most of all, if restructured creditors are prepared to loosen their contractual rights because they believe a holdout settlement remains within reach — and bond prices on both sides suggest this thinking — then watch closely on Wednesday.
Because the way things are going without a compromise, they will soon have the right to accelerate their claims on Argentina… post-default.
9. THE ECONOMIST EXPLAINS : WHY ARGENTINA MAY DEFAULT ON ITS DEBTS (The Economist Blog)
By A.P.
July 29, 2014
ARGENTINA has until midnight (Eastern Standard Time) on July 30th to avoid going into default for the eighth time in its history. The story leading to today’s deadline started way back in 2001, the last time Argentina defaulted on its debts. Most of its creditors exchanged their defaulted debt for new securities in two restructurings that took place in 2005 and 2010. But a few creditors, led by a hedge fund called NML Capital, took a different path. They scooped up the cheap defaulted debt in order to chase payment of full principal plus interest in the New York courts, under whose law the original bonds were written.
It is this protracted legal battle that has now forced Argentina to the brink of another default. In 2012 a ruling by Thomas Griesa, a New York district-court judge, banned Argentina from paying the creditors who held the exchanged bonds if the country did not also pay NML what it wants. Judge Griesa based his ruling on a pari passu clause in the documentation of the original bonds, which entitles all creditors to equal treatment. Last month the Supreme Court of the United States refused to get involved in the case, leaving Judge Griesa’s ruling intact and Argentina with only thorny choices: pay NML the $1.3 billion plus interest awarded by the court; negotiate a settlement with the hedge fund; or stop paying the exchange bondholders. A payment due on June 30th to those exchange bondholders was missed. The grace period expires on July 30th, at which point Argentina will again be in default.
The assumption had long been that some kind of settlement would be reached. That would be in the interest of exchange bondholders, who would keep getting paid. It would also clearly suit the holdouts. And it would keep Argentina on course for rehabilitation in the eyes of the international capital markets. But the clock has almost run out and there has been no sign of substantive negotiations. President Cristina Fernández de Kirchner has always opposed stumping up to the “holdout” creditors—also dubbed vulture funds. And Argentina claims it cannot arrange a settlement with the holdouts without potentially triggering a Rights Upon Future Offers (RUFO) clause written into its restructured bonds. This clause, which expires on December 31st, specifies that Argentina cannot voluntarily offer holdouts a better deal than it did during its 2005 and 2010 restructurings without extending the offer to all bondholders.
Judge Griesa has rejected requests from Argentina for a stay on his decision until after the RUFO clause expires. It is just possible that he might look more kindly on a request for a stay from NML itself. But without a last-minute settlement or a bit of can-kicking, the country will again default (or, as Twitter puts it, “Griefault”). Whatever the costs for Argentina, the impact of default on the outside world should at least be containable. Few investors would be shocked if Argentina defaults; and its outstanding debt under foreign law amounts to only $29 billion, far less than the $81 billion it reneged on in 2001.
10. ARGENTINE ECONOMY MINISTER KICILLOF JOINS DEBT TALKS IN NEW YORK (Bloomberg News)
By Camila Russo
July 29, 2014
Argentina’s Economy Minister Axel Kicillof joined a meeting with a court-appointed mediator in New York as the country tries to resolve a dispute with holdout creditors before a bond-default deadline tomorrow.
Kicillof arrived about seven hours after an Argentine delegation led by Finance Secretary Pablo Lopez began meeting with mediator Daniel Pollack. Today’s talks, the fifth with Pollack since a U.S. judge named him to the post in late June, lasted longer than all the previous meetings.
“We all interpreted it as a good sign that the meeting was extended, because clearly they’re working on something,” said Jorge Piedrahita, chief financial officer of Torino Capital LLC.
The country’s stocks rallied today as the meeting extended into the early evening, with Argentina’s benchmark Merval (MERVAL) index jumping 6.5 percent after earlier losing as much as 1.1 percent. The index closed at its highest since June 23. Argentine bonds due 2033 rose 1.6 cents to 85.47 cents on the dollar.
U.S. District Court Judge Thomas Griesa blocked the country from making a June 30 debt payment because the country didn’t comply with a court ruling that it pay the holdout creditors at the same time. Those investors, led by Paul Singer’s Elliott Management Corp., refused to accept the terms of the country’s debt restructurings in 2005 and 2010.
If Argentina doesn’t pay the notes tomorrow by the end of a 30-day grace period, it’ll default for the second time since 2001, when it reneged on a record $95 billion of debt. This time Argentina stands to default on $29 billion of foreign currency, issued under international laws.
Sweetening Deal
In the four previous meetings Argentine officials have held with Pollack, they’ve asked holdouts to offer protection against a clause that prohibits the nation from sweetening their deal without making the same offer to investors who accepted the restructured bonds. As an alternative, they urged the court to delay the ruling until that requirement expires at the end of this year.
While Pollack had urged the sides to hold face-to-face talks, the government so far had refused. The last meeting at the mediator’s office lasted just one hour.
Local television channel CN23 reported that the association of local private banks will offer to buy the defaulted bonds from the holdout creditors in an attempt to help Argentina avoid default.
On June 16 the U.S. Supreme Court left intact lower-court orders for Argentina to pay the holdout creditors about $1.5 billion if it makes any payments on restructured debt.
11. ARGENTINE DEBT TALKS TO RESUME AS DEFAULT DEADLINE LOOMS (Bloomberg News)
By Katia Porzecanski, Daniel Cancel and Jenna M. Dagenhart
July 30, 2014
Argentina said it will resume talks aimed at avoiding a default today after 12 hours of meetings at the office of a court-appointed mediator failed to produce a deal that would allow it to make interest payments.
Economy Minister Axel Kicillof, speaking at 11:20 p.m. yesterday after exiting mediator Daniel Pollack’s office in Manhattan, said the parties agreed to a pause in the discussions. Government officials met face-to-face with representatives of hedge funds that successfully sued the country for full repayment of $1.5 billion on debt still owed from a default in 2001, Pollack said in an e-mail.
“We’re taking a break,” Kicillof told reporters. “Since it’s still an ongoing meeting, I can’t give details about the content.”
Any default by Argentina could trigger bondholder claims of as much as $29 billion, equal to the nation’s foreign-currency reserves. The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, may shrink by an additional 5 percent in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Bank of America Corp.
To avoid another default before today’s deadline for an interest payment expires, President Cristina Fernandez de Kirchner must reach a deal to settle the suit, compensate the hedge funds in full or obtain a delay on the U.S. court ruling that forbids her from servicing any debt before paying the holdout creditors. The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago, and foreign reserves used to pay debt are near an eight-year low. Argentina devalued its peso in January.
Banks Proposal
“There was a frank exchange of views and concerns,” Pollack said in the statement. “The issues that divide the parties remain unresolved. Whether and when the parties will meet” again will be determined overnight, he wrote.
U.S. District Court Judge Thomas Griesa blocked a $539 million payment to bondholders last month because the nation didn’t also include funds for the holdouts. The investors declined to accept offers of about 30 cents on the dollar during two restructurings following the country’s 2001 default, deciding to take their claims to court instead.
A group of local Argentine banks has drafted a proposal to purchase the claims owned by holdout creditors, according to an official at Banco Macro SA who asked not to be identified because the information is private. The bank’s president, Jorge Brito, is the head of the ADEBA bank association.
Stock Rally
An official from a local bank traveled to New York today to present the plan to holdout creditors including Elliott Management Corp. during meetings with the mediator and government delegation, the person said. The proposal was reported earlier by television channel CN23.
The Economy Ministry didn’t immediately reply to an e-mail seeking comment.
Argentina’s restructured bonds due in 2033, which had their interest payments blocked, rallied to a three-year high of about 94 cents on the dollar earlier this month on speculation a deal with the holdouts would be reached. They traded at 85.26 cents as of 9:31 a.m. in London.
The benchmark Merval (MERVAL) stock index jumped 6.5 percent yesterday, after earlier losing as much as 1.1 percent, to close at the highest since June 23. The notes due 2033 rose 1.6 cent to 85.47 cents on the dollar, reversing earlier losses as the talks continued in New York. Its currency, the peso, has weakened 20 percent this year.
RUFO Clause
Fernandez has taken steps to restore Argentina’s standing with investors so it can return to international capital markets. In the past year, the country has settled arbitration cases at the World Bank, agreed to pay $9.7 billion to the Paris Club of creditors and compensated Repsol SA for the takeover of its local unit with $5 billion of bonds.
The dispute with holdout creditors came to a head on June 16 when the U.S. Supreme Court declined to hear Argentina’s appeal in the case, exhausting its legal options in U.S. courts.
The government says it needs a delay of the ruling until the Rights Upon Future Offers clause expires on Dec. 31, after which it will be able to negotiate. The so-called RUFO clause in the restructured bond contracts prohibits the government from making a better offer to holders of defaulted debt than was given to investors who accepted earlier restructurings.
Selective Default
Fernandez said yesterday in Caracas that the holdouts, whom she calls “vulture funds,” should accept the same terms and accused Griesa of bias.
“Argentina won’t default, because Argentina paid,” Fernandez said, referring to the blocked debt payment.
The government’s payment capacity “should not be taken for granted” if it defaults, Marcos Buscaglia, chief Latin America economist at Bank of America, said in a research note yesterday. Weak fiscal, monetary and external conditions make the probability of the “situation spinning out control quite high,” he wrote.
Standard & Poor’s would place Argentina under selective default as soon as tonight if bondholders don’t receive their interest payment, analyst Delfina Cavanagh said yesterday in a telephone interview from Buenos Aires.
“If by the end of the 30th, Argentina doesn’t pay the interest due on its discount bonds, we’d place it in selective default right away,” Cavanagh said. “We’re looking at whether creditors have received their payments, regardless of legal impediments.”
 12. ARGENTINA EURO BONDHOLDERS CITE WAIVER IN BID FOR DELAY (Bloomberg News)
By Bob Van Voris
July 29, 2014
Holders of Argentine Euro bonds filed an emergency request that a U.S. judge halt litigation over the South American nation’s defaulted bonds, citing an agreement by some debt-holders to waive a key clause as justification to allow settlement talks extra time.
Argentina faces a possible bond default tomorrow with the expiration of a 30-day grace period to pay restructured bonds. U.S. District Judge Thomas Griesa previously ruled that the country can’t pay that debt unless it also pays more than $1.5 billion to holders of its defaulted bonds.
The Euro bondholders, who aren’t involved in a suit by hedge funds led by billionaire Paul Singer’s NML Capital, said holders of more than 5.2 billion euros ($6.97 billion) of restructured bonds agreed to waive a key provision in their contracts. Argentina warned the provision may allow those bondholders to claim billions of dollars more if it pays off defaulted bondholders such as NML, and is s major obstacle to a settlement.
The Euro bondholders asked Griesa for a delay of at least 90 days in enforcing his orders in hopes of “opening up a path to settlement,” one that may be more easily obtained given the waiver of the rights upon future offers, or RUFO, clause.
Argentina, while having previously requested Griesa stay enforcement of his order that defaulted bondholders be paid, hasn’t made a similar emergency request. An Argentine delegation of government officials and court-appointed mediator Daniel Pollack were meeting today in New York. David Brooks, a spokesman for Pollack, declined to comment.
Record Default
Argentina defaulted on a record $95 billion in debt in 2001. About 92 percent of creditors agreed to exchange their bonds for new ones, at a discount of about 70 percent, in debt restructurings in 2005 and 2010. Many of the holdouts, including NML, sued, seeking full payment in Griesa’s court.
Argentina claims the RUFO clause in the restructured bonds may allow their holders to claim full payment if the country pays NML and the other holdouts. The clause obliges it to extend any improved offer on defaulted bonds to holders of restructured debt.
The holdouts contend the clause, which expires at the end of this year, only applies to voluntary offers, not payments made in compliance with a court order.
Argentine discount bonds due 2033 rose 0.35 cent to 84.22 cents on the dollar at 5:15pm in Buenos Aires, erasing earlier losses. Argentine ADRs trading in New York also rallied.
Separately, Argentina appealed part of an order by Griesa yesterday in which he permitted the country to make a one-time-only payment this week on some dollar-denominated bonds issued under that nation’s law.
Griesa said he’ll allow the payment to go forward because bonds issued in a settlement involving the Spanish oil company Repsol SA — where payments aren’t subject to court orders — can’t be immediately distinguished from a group of dollar bonds issued in the country’s 2005 and 2010 debt restructurings. Payments on the latter securities can’t be made unless holdout creditors are paid at the same time.
Griesa said future payments on the dollar-denominated Argentina law bonds would be barred. Today, Argentina challenged that aspect of his decision.
The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).
13. ARGENTINE BONDS RALLY WITH STOCKS AS MEDIATOR MEETING EXTENDED (Bloomberg News)
By Camila Russo and Katia Porzecanski
July 29, 2014
Argentina’s stocks and bonds rallied on speculation the government is moving closer to reaching an accord to avert default as a meeting with a court-appointed mediator extended into the early evening.
Argentina’s benchmark Merval (MERVAL) stock index jumped 6.5 percent, after earlier losing as much as 1.1 percent, to close at the highest since June 23. Argentine bonds due 2033 rose 0.35 cent to 84.22 cents on the dollar at 5:50 p.m. in Buenos Aires, erasing earlier losses.
An Argentine delegation led by Finance Secretary Pablo Lopez took a break after meeting with court-appointed mediator Daniel Pollack for about five hours and will resume talks this afternoon, state-run news agency Telam reported, citing a person close to the talks who it didn’t identify. U.S. District Court Judge Thomas Griesa blocked a debt payment due June 30 because the country didn’t comply with a court ruling that ordered it to pay defaulted bonds at the same time. A grace period expires tomorrow.
“If they resume the meeting, it must be because they have something to talk about,” said Guillermo Mondino, an emerging-markets economist at Citigroup Inc. “It’s remarkable how the market reads a break in a meeting.”
Officials arrived at the Manhattan office at 11:15 a.m.
In the four previous meetings they’ve held with Pollack, Argentine officials have asked for the court to delay the ruling until January and for holdouts to offer protection against a clause that prohibits the nation from sweetening the deal to holdouts without making the same offer to exchange bondholders.
The government has thus far rejected direct talks with holdouts as urged by Pollack. The last meeting lasted just one hour.
Holders of Argentine Euro bonds filed an emergency request to halt litigation over the South American nation’s defaulted bonds, citing an agreement by some debt-holders to waive a key clause as justification to allow settlement talks extra time.
On June 16 the U.S. Supreme Court left intact an order for Argentina to pay holders of defaulted bonds including Elliott Management Corp. about $1.5 billion whenever it pays restructured debt.
14. ARGENTINA REPRESENTATIVE: ANNOUNCEMENT PLANNED SOON ON DEBT  NEGOTIATIONS (Dow Jones Institutional News)
By Taos Turner, Nicole Hong and Matt Day
30 July 2014
Members of Argentina’s banking association, known as Adeba, are working on a last-minute plan to help the country avoid default, according to people familiar with the idea.
News of the plan came as Argentina’s economy minister said late Tuesday that the country hadn’t yet reached a deal to avoid default and would continue negotiations on Wednesday.
Meanwhile, Argentina’s representatives and the holdout creditors met face to face for the first time Tuesday, the court-appointed mediator, Daniel Pollack, said in a statement after the talks had concluded.
“The issues that divide the parties remain unresolved,” Mr. Pollack said.
Mr. Pollack said Argentina and the holdouts hadn’t yet determined whether and when to meet on Wednesday.
Elliott Management Corp., one of the leaders of the holdouts, couldn’t immediately be reached for comment.
The bankers association’s plan, which hasn’t been completely hashed out among the banks, would entail buying the legal claim and paying off the holdout creditors who are suing Argentina in U.S. courts for full payment on bonds the country defaulted on in 2001.
In exchange, the banks would ask the holdouts to ask U.S. District Judge Thomas Griesa, whose ruling has barred Argentina from paying its restructured bondholders unless it pays off the holdouts, to suspend his ruling.
“There is a little bit of a mess within Adeba,” said one of the people, noting that the president of one of the banks took the lead in trying to organize the plan without getting full authorization from the other banks.
Another person said the idea is for the banks to buy the government’s claim in three cash installments. In exchange, the banks would ask the government to pay them back in bonds beginning in January, when a key clause in the case expires.
This clause, the “Rights Upon Future Offers,” or RUFO clause, says that any voluntary deal offered to the holdouts before the end of this year must also be offered to the restructured bondholders. Argentina has argued that if it pays the holdouts, the country would also have to pay as much as $120 billion to other bondholders to comply with the RUFO clause.
“I don’t think we can say today that this proposal from Adeba is firm,” a person familiar with the situation said.
The person said the banks first need to agree among themselves on the details of the proposal, then they would need to get assurances from the government that they would be adequately compensated.
This plan, if it works, would be a huge breakthrough in a case that has weighed on the country’s citizens and politicians, as well as lawyers and bondholders, for years.
Argentine officials were in talks with the mediator at his New York office for 12 hours on Tuesday.
Argentine Economy Minister Axel Kicillof arrived approximately seven hours into the negotiations.
Argentina was negotiating a settlement with the holdouts to avoid a default on Wednesday, which would be the country’s second default in 13 years. Argentina missed an interest payment on its restructured bonds due June 30, and the grace period for that payment ends on Wednesday. A U.S. judge has said Argentina isn’t allowed to make that payment until it pays the holdouts. Argentina had refused to pay the holdouts or even meet with them face-to-face for negotiations.
Argentina’s dispute with these creditors is a long-standing battle that stems from the country’s default in 2001. The holdouts were the approximate 7% of Argentina’s bondholders who refused to accept the country’s debt-restructuring offers in 2005 and 2010 and have instead sued for full payment.
A default could send Argentina’s struggling economy deeper into recession and keep the country shut out of debt markets. Argentina already suffers from annual inflation that some economists estimate is close to 40%, and a default could fuel inflation further by putting pressure on the peso’s value and making imports more expensive.
15. ARGENTINE DEBT NEGOTIATIONS STRETCH INTO 11TH HOUR — LITERALLY  (Dow Jones Institutional News)
29 July 2014
Argentine officials have now been meeting with a court-appointed mediator at his New York office for more than 11 hours, as Argentina makes a last-ditch effort to avoid default on Wednesday. The country’s economy minister, Axel Kicillof, unexpectedly showed up about seven hours into the talks, which was taken as a sign that something serious must be cooking. He’s expected to have a press conference soon, but no one knows when that could happen. If he does unveil some plan to pay the holdouts and avoid default, it would be a huge breakthrough in a lawsuit that has weighed on the country for so many years.
16. ARGENTINA’S STOCKS, DEBT RALLY AS OFFICIALS NEGOTIATE TO AVERT A DEFAULT (The Wall Street Journal Online)
By Matt Day and Nicole Hong
29 July 2014
Group of Bondholders Asks U.S. Judge to Allow More Time for Talks
Argentina’s stocks and debt rallied Tuesday as government officials engaged in last minute talks with a mediator to avert a default, and a group of the country’s bondholders asked a U.S. judge to allow more time for negotiations.
Argentine officials have been meeting with a court-appointed mediator in New York since 11 a.m. EDT. Argentina will default on some of its debt on Wednesday unless it reaches a deal with a small group of hedge funds demanding full compensation for bonds the country defaulted on in 2001.
Investors and analysts said the length of Tuesday’s talks was potentially a sign of movement toward a deal with the holdouts. Several previous sessions with the mediator over the past month broke up after a few hours with little apparent progress.
Argentina’s dollar discount bonds due 2033, which are subject to a potential default if a deal isn’t reached on Wednesday, rose to 86 cents on the dollar from 83.5 cents on the dollar. The yield fell to 10.15% from 10.53%; bond yields fall when prices rise. The benchmark Merval stock index surged 6.5% in afternoon trading, reversing the morning’s modest losses.
“The meeting has been going for so long,” said Peter Lannigan, a managing director at broker-dealer CRT Capital Group LLC. “Investors think that the length of the meeting is saying something, that they’re going to figure out some kind of solution.”
Separately on Tuesday, a group of investors who own Argentina’s restructured bonds denominated in euros asked the U.S. judge overseeing the country’s debt negotiations for more time to avert a default.
Lawyers for the investment firms asked U.S. District Judge Thomas Griesa to suspend his ruling that the country isn’t allowed to pay its restructured bondholders unless it also pays the holdouts. Argentina has deposited $539 million designated for interest payments due June 30 on its restructured debt, including the bonds denominated in euros, but Judge Griesa blocked the transfer to bondholders.
“This court can single-handedly avoid a default” by temporarily lifting its order and giving the parties more time to resolve the issues holding up a settlement, the creditors said in a filing in federal court in Manhattan.
The lawyers represent holders of Argentina’s restructured debt, including Knighthead Capital Management LLC, Redwood Capital Management LLC and Perry Capital LLC. These groups, and similarly situated investors eager to give Argentina and its holdouts more time to talk together, hold about $7 billion in Argentina’s restructured debt, the filing said.
Argentina’s lawyers have also asked Judge Griesa to suspend his ruling to allow for more time. At a hearing last week, the judge declined to grant this request, telling Argentina that it should negotiate for more time in talks with the holdouts.
Argentina largely ran out of legal options after the U.S. Supreme Court on June 16 declined to hear its appeal in the case, leaving in place Judge Griesa’s ruling.
Although Argentine officials have met with court-appointed mediator, Daniel Pollack, they have refused to negotiate face-to-face with the holdout creditors. The holdouts, led by Elliott Management Corp. affiliate NML Capital Ltd., have expressed their willingness to meet face-to-face with the officials.
Elliott declined to comment, referring inquiries to Mr. Pollack’s office. Representatives for Mr. Pollack declined to comment.
17. STATEMENT OF DANIEL A. POLLACK, SPECIAL MASTER IN ARGENTINA DEBT LITIGATION (Dow Jones Global Press Release Wire)
30 July 2014
NEW YORK, July 30, 2014 /PRNewswire/ — Daniel A. Pollack, the Special Master appointed by Judge Thomas P. Griesa to conduct and preside over settlement negotiations between the Republic of Argentina and its Bondholders, issued the following Statement tonight:
“A delegation from the Republic of Argentina, led by the Minister of the Economy, Axel Kicillof, and the principals of the large Bondholders met tonight for several hours in my office and in my presence. These were the first face-to-face talks between the parties. There was a frank exchange of views and concerns. The issues that divide the parties remain unresolved. Whether and when the parties will meet tomorrow (July 30) remains to be determined overnight.”
CONTACT: Daniel A. Pollack, 212-609-6800
18. IF ARGENTINA DEFAULTS, THEN WHAT? (WSJ Blog)
By Mike Cherney
29 July 2014
Argentina faces a Wednesday deadline for more than $500 million in debt payments. It appears unlikely that bondholders will receive their money, bringing to a head a standoff with a separate group of creditors, the so-called “holdout” hedge funds that have refused the country’s two debt-restructuring offers over the past decade.
At the center of the case is a 2012 U.S. District Court ruling that Argentina cannot pay bondholders who accepted the restructuring agreements until it pays the holdouts — a decision that the government contends puts it in a costly legal bind.
Here’s a primer on what might happen should Argentina miss the payments.
Q: Will Argentina go into default?
A: If a debt-service payment isn’t transmitted before midnight on Wednesday evening, Argentina will be in default under the bond documents, legal experts say. Argentina, however, could continue to claim that it isn’t in default. If necessary, a court may have to decide, though legal experts say Argentina’s claim would be thin.
Q: How can Argentina claim it isn’t in default?
A: Argentine officials contend they have met their obligations by transferring money to the trustee. Argentina has deposited the cash with bond trustee Bank of New York Mellon Corp. for an interest payment that was due June 30 on some of the bonds it issued in past restructurings.
But thanks to the 2012 ruling, the bank cannot disburse the money to investors without risking being held in contempt of court. Legal experts point to bond documents that indicate that for a payment to be made, the money must actually be dispensed by the trustee. Just sending money to the trustee “is not sufficient for their payment obligation,” said Jonathan Zonis, a lawyer at Clifford Chance.
Argentina has a 30-day grace period, so in any case the bonds wouldn’t enter default until the end of Wednesday, legal experts said.
Q: What rights do bondholders have?
A: If the payment to investors isn’t made, investors who own affected bonds could submit a demand to “accelerate” payments–that is, a demand that Argentina immediately pay not just interest owed, but all principal, too. An investor, or a group of investors, that owns 25% of a series of outstanding bonds would be eligible to make an acceleration demand.
“The whole logic of acceleration is that the world has changed, and therefore you should have the right to your funds back immediately,” said Brett House, a senior fellow at the Centre for International Governance Innovation, a Canadian think tank.
Q: What would happen if bondholders make a demand for acceleration?
A: A demand for acceleration would turn up the heat on Argentina and make it more worthwhile for those investors to sue, since their monetary claim would be larger. Such a demand could also trigger a “cross-default” provision, meaning investors who own other new bonds would be able to make an acceleration demand even if their bonds weren’t scheduled for a payment on June 30.
Q: Why wouldn’t Argentina pay the old bondholders?
A: The new bonds have an equal-treatment clause, called the Rights Upon Future Offers, or RUFO, clause, that says if old holdout bondholders are offered a better deal, the same offer must be made to the new bondholders. The clause expires at the end of this year.
Analysts say Argentina could argue that any offer wouldn’t be made “voluntarily” because of the litigation, so the clause wouldn’t be triggered. But new bondholders could argue otherwise.
Q: Is a demand for acceleration likely?
A: Mark Weidemaier, an associate professor of law at the University of North Carolina School of Law, said there appears to be little benefit to submitting an acceleration demand.
“The question is whether Argentina views a short-term default as a worse option than cutting a deal now and risking litigation under the RUFO clause,” Mr. Weidemaier said. “As long as you think a country is able and willing to pay you, and it’s all contingent on getting this deal done–I wouldn’t tell you there’s no incentive to try and accelerate but there’s not a particularly compelling reason to do it.”
Q: What happens to Argentina bond prices?
A: Analysts say the immediate reaction on the day of the default could send bond prices plummeting to 50 cents to 60 cents on the dollar from around 86 cents on the dollar right now, as some investors may be forced to sell if they aren’t allowed to hold defaulted bonds. However, few believe bond prices will drop to levels reminiscent of the country’s 2001 default. At that time, Argentine bonds fell to around 30 cents on the dollar.
Q: What happens to credit-default swaps on Argentina bonds?
A: A committee of a derivatives trade group will have to decide whether Argentina has defaulted for purposes of credit-default swaps, a separate product that acts as insurance and pays holders of the swaps if Argentina defaults on the bonds.
Q: Will Argentina’s bond ratings be affected?
A: Standard & Poor’s currently gives Argentina a triple-C-minus long-term rating, which is already “junk” status. If the country fails to pay the June 30 interest payment, S&P said it would lower the rating to “selective default,” meaning the country is meeting its obligations on some bonds but not others.
Moody’s has said that it will consider a missed payment on Wednesday a default, though that wouldn’t trigger an immediate downgrade.
19. HOPES FOR A BREAKTHROUGH IN ARGENTINA DEBT TALKS?  (Dow Jones Institutional News)
29 July 2014
– Argentine stocks and bonds are on the rise, evidently on hopes that a last-minute deal will avert the country’s second default in 13 years. The country’s negotiators are meeting with their court-appointed mediator in New York, and the fact that the gathering apparently lasted longer than Friday’s brief session is on its own a sign of potential progress. Additionally, a group of holders of Argentina’s euro-denominated debt have asked the U.S. judge overseeing the negotiations to give the country and its holdout creditors more time. If the judge doesn’t lift his prior order, Argentina may default as soon as tomorrow. Meantime, Argentine stocks are up 6.5% and its bonds have rallied.
– S&P and Moody’s are expected to declare Argentina in default if the country fails to comply with a US court order by tomorrow and pay its holdout creditors. S&P said in a July 1 report that if Argentina doesn’t make the interest payment originally due June 30 within the grace period (which ends tomorrow), the ratings firm would lower its rating on Argentina to “selective default.” That means Argentina is meeting its obligations on some bonds but not others. Moody’s also said in a report last week that it would consider Argentina in default if there’s no payment tomorrow, although it would not trigger an automatic downgrade.
20. TIME ALMOST UP FOR ARGENTINA TO AVOID DEBT DEFAULT (Reuters News)
By Richard Lough
July 30, 2014
(Reuters) – Argentina faced a race against on time on Wednesday to avert its second default in 12 years, needing to either cut a deal by the end of the day with “holdout” investors suing it or win more time from a U.S. court to reach a settlement.
Argentine Economy Minister Axel Kicillof scrambled to New York on Tuesday to join last-ditch negotiations, holding the first face-to-face talks with the principals of New York hedge funds who demand full repayment on bonds they bought at a discounted rate after the country defaulted in 2002.
The hedge funds are owed $1.33 billion, but an equal treatment clause in an agreement Argentina made with bondholders in 2005 would cost Argentina many billions more.
Kicillof emerged from talks late on Tuesday saying only that they would resume on Wednesday, but mediator Daniel Pollack said issues dividing the parties “remain unresolved” and it was still undecided whether the sides would meet on Wednesday.
Latin America’s No. 3 economy has for years fought the holdout hedge funds that rejected large writedowns, but after exhausting legal avenues Argentina faces default if it cannot reach a last-minute deal.
Argentina has until the end of Wednesday (0400 GMT on Thursday) to break the deadlock. If it fails, U.S. District Judge Thomas Griesa will prevent Argentina from making a July 30 deadline for a coupon payment on exchanged bonds.
Kicillof’s unexpected appearance in New York raised hopes there was still time to avoid a default that would pile more pain on an economy already in recession, though not the economic collapse seen in 2002 when it defaulted on $100 billion in debt.
“Avoiding a default is still feasible and, even if there is a default, we believe the government could manage market expectations,” Bank of America Merrill Lynch said in a briefing paper on Tuesday.
The Buenos Aires government has pushed hard for a stay of the U.S. court ruling that triggered Wednesday’s deadline.
Its chances of success were boosted on Tuesday when holders of Argentina’s euro-denominated exchange bonds on Tuesday said a suspension would encourage a settlement.
They also said they would facilitate a deal by waiving the so-called RUFO clause that prevents Argentina from offering other investors better terms than it offered them.
Argentina has consistently argued the RUFO clause prohibits it from settling with the holdouts.
“Obtaining a waiver of the RUFO clause, however, will take time,” the group of bondholders said in an emergency motion for a stay filed on Tuesday.
While unnerving, the debt crisis is a far cry from the turmoil of Argentina’s record default in 2002 when dozens were killed in bloody street protests and the authorities froze savers’ accounts to halt a run on the banks.
How much pain a new default would inflict depends on how quickly Argentina could extricate itself from the mess. That would largely be determined by whether Argentina had persuaded enough bondholders it was ready to negotiate a swift settlement after the Dec. 31 expiration of the RUFO clause.
Christine Lagarde, the head of the International Monetary Fund, said an Argentine default was unlikely to prompt broader market repercussions given the country’s relative isolation from the international financial system.
South American leaders on Tuesday rallied behind Argentine President Cristina Fernandez, castigating the holdouts as financial speculators menacing the entire region.
21. WHY A NEW YORK JUDGE HOLDS ARGENTINA’S ECONOMIC FUTURE IN HIS HANDS (CNN Blog)
By Mick Krever and Ken Olshansky
July 29, 2014
A country that just weeks ago was at the heights of world cup fever could be facing an economic crash.
But this is not a case of ill-advised economic policy or financial malfeasance.
Indeed, economic journalist Felix Salmon told CNN’s Hala Gorani, in for Christiane Amanpour, it is a crisis that appears to be unprecedented.
“Inflation is high, unemployment is bad, but we’re not anywhere close to Armageddon,” Salmon, senior editor at Fusion, said.
“Argentina has the means to pay its debts and it has the willingness to pay its debt. The only reason why it’s not paying its debts is because the U.S. courts aren’t allowing it to do so.”
You would be forgiven for doing a double-take there. Yes, a U.S. Federal Court in New York may cause Argentina, a hemisphere away, to default on its debts.
A billionaire American investor, Paul Singer, holds a large amount of Argentine debt, which he bought up after Argentina’s last financial disaster, a decade ago.
In negotiations over how much of its debt Argentina could afford to pay back, Salmon said, all the other people and organizations that held Argentine debt agreed on a middle ground, taking some fraction of the bonds’ face value.
But Singer, Salmon said, is demanding the full value of the debt, and a New York judge, Thomas Griesa, agreed with him.
“He has ordered the Bank of New York” – which is holding the money Argentina is willing to pay back – “not to pay a penny to any of the bondholders unless and until Paul Singer, the vulture investor, the hedge fund investor, gets paid off in full the one point five billion dollars that he’s owed.”
The result is that Argentina cannot make any deal, and will likely be forced to default tomorrow, Wednesday, when a grace period to pay back its debts expires.
“We’ll have an official default tomorrow, and then everyone will be in default. Paul Singer has been in default for a decade now, basically, and now everyone else will be in default as well. So it will, to use a technical term, be a mess.”
At the center of it all, he told Gorani, are “two incredibly strong personalities.”
“Cristina Fernandez de Kirchner is this hard-charging, populist, woman of the left, champion of her people, who has made a political career in large part out of demonizing what she calls the ‘vulture funds,’ who are epitomized by this man, Paul Singer, multi-millionaire hedge-fund manager who bought up Argentine debt at pennies on the dollar and now wants to get well over face value for his debt.”
Argentina, of course, has defaulted before. But in 2002, Salmon said, it was because it simply did not have the money to pay off its debts.
Now, we are in “completely uncharted territory,” where a judge – not the markets – will determine Argentina’s economic future.
“Argentina has defaulted before. Virtually every other country in Latin America has defaulted before. The bond markets and the international capital markets know how to deal with sovereign defaults in principle and in general.”
“But this one is so different because it’s entirely a U.S. jurisprudential issue.”
22. TIME ALMOST UP FOR ARGENTINA, US BONDHOLDERS IN DEBT TALKS (Voice of America)
By VOA News
July 30, 2014
Several hours of negotiations between Argentine officials and holdout investors ended without a resolution, Economy Minister Axel Kicillof said in New York on Tuesday, just a day before the nation faces a possible default.
Kicillof left the meeting at the court-appointed mediator’s office in Manhattan at about 11:20 p.m. EDT (0320 GMT), saying talks would continue Wednesday, although no time was set. If a deal is not reached, Argentina faces another default on its sovereign obligations.
“I cannot give information,” he told reporters after leaving the offices where mediator Daniel Pollack is based. “We are working.
“These were the first face-to-face talks between the parties. There was a frank exchange of views and concerns. The issues that divide the parties remain unresolved,” he said.
After a long battle in the U.S. courts, the South American nation is out of options: it has until the end of the day to either pay in full the hedge funds that rejected its restructuring on their defaulted bonds, cut a deal or win a stay of the court order that triggered the deadline.
‘Holdout’ hedge funds
The so-called “holdout” hedge funds whose refusal to accept a write-down on debt it defaulted on in 2001 has pushed Latin America’s third-largest economy to the brink of a new default.
Argentina’s isolation from global credit markets since its 2002 default on $100 billion means a default would be highly unlikely to cause financial turmoil abroad, but it would hurt a domestic economy already in recession.
Buenos Aires, which has insisted the only possible solution is for U.S. District Judge Thomas Griesa to suspend his ruling in favor of the hedge funds, maintained a defiant tone.
Griesa’s ruling has trapped Argentina in a Catch-22, barring it from making payments on its restructured debt without also paying the holdouts the full $1.3 billion it owes them.
But Argentina’s 2005 and 2010 debt restructuring deals — in which creditors accepted a 70-percent write-down — could fall apart if it pays the hedge funds in full.
The 92 percent of creditors who agreed to take a haircut could launch claims for equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.
Argentina was due to make a $539-million payment on the restructured bonds on June 30. The 30-day grace period expires at midnight Wednesday (0400 GMT).
The RUFO clause meanwhile expires at the end of the year, leaving Argentina scrambling to find a way to placate the holdouts until then.
Last week, Griesa had ordered around-the-clock negotiations, but sporadic talks did not seem to take on a sense of urgency until a team of negotiators from Argentina showed up Tuesday morning.
Refused to negotiate
Argentina President Cristina Fernandez has long refused to negotiate with the U.S. hedge funds, led by New York billionaire Paul Singer’s NML Capital Ltd., which spent more than a decade litigating for payment in full rather than agreeing to provide Argentina with debt relief.
Argentina has labeled the U.S. funds “vultures” for picking up bonds on the cheap. The government has said paying the U.S. funds would likely trigger lawsuits from other bondholders demanding payment on similar terms. Argentina says that would cost more than $20 billion.
Kicillof’s appearance at the office of the court-appointed mediator presiding over the negotiations was his first in more than three weeks. The scant progress made in talks, and Kicillof’s absence, had raised questions over Argentina’s commitment to reach a settlement with the holdouts.
The minister, who this year brokered deals with the Paris Club of creditor nations and Spanish energy giant Repsol, made no comment to reporters staking out Pollack’s office.
NML Capital, a unit of Elliott Capital Management, and Aurelius Capital Management, the two hedge funds central to the legal battle, have said they are willing to negotiate a deal. They were awarded $1.33 billion, plus interest, by  Griesa, who ordered Argentina to pay the holdouts at the same time as other investors.
23. CHAIRMAN MENENDEZ ISSUES STATEMENT ON ARGENTINA’S DEFAULT DEADLINE (US Fed News)
29 July 2014
WASHINGTON, July 29 — Senate Foreign Relations Committee Chairman, Robert Menendezissued the following statement:
U.S. Sen. Robert Menendez (D-NJ), Chairman of the Senate Foreign Relations Committee, issued the following statement on the nearing default deadline for Argentina.
“There is no reason that a member of the G20 should fail to meet its international financial and legal obligations. Last month’s decision by the U.S. Supreme Court should have sent a clear signal to the Government of Argentina that it needed to enter into good faith negotiations with its creditors. Instead, the Kirchner Administration has engaged in a dangerous game of international brinkmanship that will likely have catastrophic consequences for Argentina’s economy and its citizens. Argentina’s refusal to renegotiate its debt obligations also has had a negative impact on more than $1.5 billion dollars of international investments – including millions of dollars of New Jersey pension funds.
“While time is quickly running out, I call on the Government of Argentina to enter into immediate and direct negotiations with its creditors. In the absence of such action, if Argentina defaults this week, it will be the sole result of irresponsible decisions made by the Kirchner Administration that will further alienate Argentina from its trading partners.”
24. ARGENTINA RISK: ALERT – DEFAULT LOOMS (Economist Intelligence Unit – Risk Briefing)
29 July 2014
The Argentinian government is approaching technical default on July 30th, when the grace period on an outstanding coupon payment due on June 30th expires. On the back of a US court ruling that leaves Argentina with no option but to repay holdout creditors or fall into default on bonds issued under New York law, negotiations between the government and the holdouts, via a court-appointed mediator, have continued but with no results. Publicly at least, there is no sign that the two sides are anywhere close to a deal and, with only days to go until the July 30th deadline, attention is turning to the possible impacts on the Argentinian economy of a fresh default.
The US court ruling upheld in early June, when the US Supreme Court declined to review the case, seeks to force Argentina to repay holdout creditors, who did not participate in 2005 or 2010 debt restructurings, at the same time it repays holders of restructured bonds, under a fresh interpretation of the pari passu (equal treatment) clause. The ruling has real teeth because it forces third parties, including the Bank of New York Mellon (BNY), Argentina’s agent for the payment of restructured bonds, to abide by its terms.
Argentina did attempt to make the coupon payment due on June 30th, transferring money to BNY, but this deposit was frozen, as expected, by the New York judge in charge of the case, Thomas Griesa. Argentina has stated that it has met its obligations by so doing, and that it should not therefore be considered to be in default if a deal with holdouts fails to materialise by July 30th. However, it was always clear that the payment would not reach the restructured bondholders, and Argentina will therefore need to come to some sort of agreement with holdouts if it is not to fall into technical default in the coming week.
Negotiations make little headway
Talks between government representatives, the holdouts and the court-appointed mediator, Daniel Pollack, have made worryingly little progress. The Rights Upon Future Offers (RUFO) clause included in restructured bonds remains a huge obstacle to a deal. This clause, included in the bonds during the 2005 swap to establish that Argentina would never make a better offer (and thus encourage participation), requires that any improved offer on defaulted bonds made before December 31st 2014 must also be made to the holders of restructured debt.
Argentina claims that payment of the holdouts by the deadline of July 30th would cause an avalanche of counter-claims by restructured bondholders, to the extent of US$120bn. On this basis, it has suggested that no deal can be done unless the litigant holdouts themselves provide guarantees in the event of legal challenges by restructured bondholders, or, alternatively, unless Mr Griesa reinstates a stay on the ruling until the end of 2014, an action that Argentina has already unsuccessfully twice formally requested.
It is unclear that the RUFO clause is the impediment to a deal that the government suggests. The text of the clause clearly states that bondholders have the right to request new terms if Argentina “voluntarily” offers a better deal elsewhere, a situation that would appear not to apply in this case and would make the viability of any legal challenge questionable. Nor is it in the interest of restructured bondholders to force Argentina into default; some have come out publicly to state that they would waive their rights to the RUFO. The government could, in fact, with the approval of 85% of creditors, revise the RUFO clause in the bond contracts, probably with little difficulty. The problem is that this process would take weeks or months, rather than the few days left before default ensues.
The government’s public actions have suggested that it is now prepared to accept default. The negotiating team led by the finance secretary, Pablo López, has returned to Buenos Aires from New York after meetings late last week with Mr Pollack. The economy minister, Axel Kicillof, remains at home. The president, Cristina Fernández de Kirchner, is due to leave for a summit of the Mercado Común del Sur (Mercosur, the Southern cone customs union) in Venezuela. With enthusiasm for the negotiations not apparent on the Argentinian side, it is possible that the government may have decided to default and then initiate a swap of restructured bonds under Argentinian jurisdiction.
Deep recession?
Looming default leaves open the question of its likely effect on the economy. Government representatives have suggested that “nothing will happen on July 30th”, in an apparent effort to calm markets. It is true that default will have no direct impact on the sovereign, which has no access to international capital markets. However, it will have an impact on trade finance and on subsovereign and corporate (mainly state-owned oil company YPF) issuance.
More broadly, the knock to confidence risks fuelling renewed currency pressure and a fresh run on reserves. The problem is that, even before the question of default arose, Argentina was already in recession and on the brink of a deeper balance-of-payments crisis. A 15% peso devaluation in January did little to resolve external competitiveness problems, and there is limited firepower to defend the peso from fresh market nervousness.
A depreciation of 10% or more is therefore a real possibility, and one that would have serious knock-on impacts on inflation, real wages, interest rates and bank credit, deepening the recession and delaying the expected second-half recovery. Our forecasts currently assume a contraction in GDP of 1.2% this year and a moderate recovery next year; default could cause the economy to contract by 3% or more this year, with contraction continuing into 2015, depending on how the government acted to restructure the debt post-default and resolve the holdouts question-bearing in mind that, in the event of default, holdout creditors would continue to pursue Argentinian assets, including those of YPF, in the US courts.
In addition, a default would be likely to have serious political consequences. Opposition politicians and some pro-government politicians, including all presidential hopefuls, have suggested that Argentina must repay the holdouts and avoid default at all costs. Depending on the extent of any ensuing recession, default would leave the government open to harsh criticism and potentially even higher levels of social unrest. There have been rumours that some cabinet members would leave office, and the president’s supporters in Congress could also desert her. Default would certainly put Ms Fernández’s Frente para la Victoria (a faction of Argentina’s dominant Peronist party) in an extremely weak position in the run-up to the presidential contest in October 2014. It could even raise questions over the political transition, given Argentina’s past history of unrest, Ms Fernández’s record of poor health and the corruption allegations currently facing the vice-president, Amado Boudou.
Given the potentially dire consequences of default, it is possible that Argentina’s public intransigence during negotiations should be interpreted in the context of the RUFO clause, as proof that it is not “voluntarily” negotiating and as a shield against future claims from restructured bondholders. Under this optimistic interpretation, the government and bondholders may have come to some agreement behind closed doors, with holdouts paving the way for Mr Griesa to reinstate the stay and for Argentina to avoid default at the last minute. However, time is running out, the government is keeping its cards close to its chest, and default now appears a real possibility.
25. ARGENTINA ECONOMY: QUICK VIEW – ARGENTINA MAKES EARLY REPAYMENT TO PARIS CLUB (Economist Intelligence Unit – ViewsWire)
29 July 2014
Event
The government has brought forward a US$650m payment due to Paris Club creditors from July 30th to July 28th. The payment is part of a deal signed in May to restructure US$9.7bn in debt, including past-due interest and penalties, owed to Paris Club creditors following Argentina’s 2001 default.
Analysis
The government’s decision to bring forward the payment comes amid growing signs of market nervousness over the risk of default on July 30th. On July 26th the black-market exchange rate moved from around Ps12:US$1 to Ps13:US$1. The official exchange rate has remained around US$8.15:US$1, but the shift in the black-market rate is an early indicator of renewed depreciation pressure on the official rate that the authorities could find difficult to combat.
Amid growing market jitters, the government will be hoping that early payment of its Paris Club obligations serves as a timely reminder of Argentina’s willingness and capacity to pay current creditors. This could help to minimise market fallout if the government does indeed fail to agree a deal with litigant holdout creditors by July 30th, and, as a consequence, falls into technical default. Government representatives have continued to assert that “nothing will happen” on July 30th, but will in reality be extremely concerned over the impact of any rapid peso depreciation on an economy that is already in recession.
Given Argentina’s lack of external financing options, the funds to pay the Paris Club will have come out of the foreign reserves, which, owing to a seasonal boost in foreign currency liquidations by soybean exporters, have risen in recent months, from a low of US$27bn in early January to US$29.7bn in late June. However, even considering recent severe import compression resulting from recession and tight foreign-exchange controls, this represents a low level of import cover, and leaves the country vulnerable to a currency run in the aftermath of any default on July 30th.
26. ARGENTINA VEERS TOWARD DEFAULT AND WORSENING ECONOMY (Market News International)
By Charles Newbery
29 July 2014
Government Seems Determined to Avoid Triggering RUFO Clause
BUENOS AIRES (MNI) – Argentina is on the verge of its second default in 13 years, a fate that could push the economy deeper into recession and delay a much-needed return to borrowing abroad, analysts said Tuesday.
The default could come Wednesday unless a last-minute solution is found Tuesday.
The government sent a delegation to meet with Daniel Pollack, a U.S. court-appointed mediator for a latest round of talks on finding a solution to a conflict with creditors who refused to participate in debt restructurings – the so-cold holdouts – and won a lawsuit to collect $1.5 billion on bonds left over from the $100 billion default in 2001.
Worse than the political fallout of ceding to their claims, two other facets of the case are making it all but impossible for Argentina to make the payment even though it can afford to do so out of its $29 billion in foreign reserves.
One reason for not paying the holdouts is it would violate a local law that prevents the government offering better terms that the restructurings.
The second reason is that a settlement could trigger a clause in the restructured bonds that allows the 92.4% of creditors to demand the same treatment, meaning they could collect up to 70 cents on the dollar.
This rights upon future offers clause expires Dec. 31, 2014 and the government has been trying to string out the case until Jan. 1. The government estimates that breaking the RUFO clause could open the country to additional debts of between $120 billion and $240 billion, while others put the estimate at upwards of $300 billion.
“The government has thrown the keys in the river,” said Marina Dal Poggetto, an economist at Estudio Bein in Buenos Aires. “It is saying that risk of RUFO is real and that it’s not going to risk triggering the clause.”
Earlier Tuesday, Cabinet Chief Jorge Capitanich insisted on the official position that the country has paid the restructured bondholders and will not enter into default – a technical distinction that does not convince many in the markets.
The judge in the case “must explain to Argentines and the world why he is blocking what Argentina has paid,” Capitanich said in a televised press conference. “This is the first case in the world in which a debtor pays and there is a judge that interprets this otherwise.”
U.S. federal judge Thomas Griesa in 2012 ordered the country to pay back the creditors and the government has since then exhausted all of its appeals. According to the court order, the government must pay the plaintiffs at the same time as it pays bondholders who accepted 30 cents on the dollar in the restructurings in 2005 and 2010.
The government tried to make the latest service payment of $539 million to the holders of the restructured bonds before the June 30 due date, but Griesa blocked the paying agents, including the Bank of New York Mellon, from distributing the funds, saying it would breach his order based on pari passu, an equal treatment of creditors clause in the defaulted bonds.
That left the government with a 30-day grace period to find a solution, an effort that has largely involved slamming Griesa and the holdouts for being, as officials put it, unfair.
The litigants, among them a hedge fund of New York billionaire Paul Singer, held out of the restructures to pursue legal channels to collect full repayment plus past-due interest and penalties
The government estimates that these hedge funds, which it calls vultures, stand to make a 1,600% profit on their investment in the defaulted bonds.
To avoid triggering the RUFO, the government has asked Griesa to put a stay on his order until Jan. 1. That would allow it to freely settle the $1.5 billion held by the litigants in this case, and another $13.5 billion or so held by the rest of the holdouts.
Griesa so far has declined the request for the stay, shifting the only possibility of such a move to the plaintiffs.
But the holdouts may opt not ask for a stay even if it means it could take longer to collect, because they may hold positions in credit default swaps that they can collect on in the event of a default.
“With a stay they will make a fortune, and with a default they will also make money with the CDS,” she said.
For Argentina, a default could bring a big debt headache.
While the first default would be of discount bonds from the debt restructuring, if no solution is found before the end of the year the other exchange bonds – global and par – also would go into default.
But a default on the discount bonds could spark a cross default on all of the restructured bonds if holders of the global and par bonds exercise a right to demand that the government bring forward the maturities to allow them collect immediately, Dal Poggetto said.
This would force the government to rally support from bondholders to prevent an acceleration of repayment, for which it would need around 50% agreement from the bondholders, she said.
If not, then if 25% of the bondholders agree to demand bringing forward the repayment, the government would have to oblige. That is unless it gets a stay from Griesa on the settlement before the Sept. 30 due date for the next service payment on the Par bonds, Dal Poggetto said.
But this is not as big a problem as $300 billion in claims from exchange bondholders that could come with a violation of the RUFO, she added.
The risk of these lawsuits, too, would push up borrowing rates and delay efforts to return to global financial markets.
Economists already are speaking of a post-default economy and what could – and should – be done to avoid a deeper recession. And while the scenario is not as bad as 2001, which led to a nearly 11% contraction in the economy, things are not great.
“Argentina is running low on dollars and this has been the case since 2011,” said Martin Polo, chief economist at Analytica Consultores, an economic consulting firm in Buenos Aires.
He does not expect dollar inflows to recover quickly because an overvalued peso against the dollar is limiting exports, while declining consumer spending is slowing output of exportable goods and wobbly business conditions are delaying foreign investment.
“The only thing the government can do to compensate for the decline in exports is to restrict imports,” he said.
With a default, it will be harder for the government to service the debt out of reserves, likely leading to more capital restrictions and harder times for companies and provinces to borrow at home and abroad, Polo added.
“We are going to have fewer dollars,” he said.
This could lead the central bank to accelerate a devaluation of the peso against the dollar, posing the risk of rising inflation, which already is running at 30% annual and further depressing consumer demand, he added.
Adding to the quandary, a flight to dollars likely will surge after a default. This would reduce foreign reserves and lead the central bank to raise interest rates to sustain peso deposits and limit the drain of dollars. But higher interest rates could accelerate inflation and recession, Polo added.
“There is no margin for improvement,” Polo said. “With a default, the situation is going to get worse.”
He said the only thing going for Argentina is the expectation that an October 2015 presidential election will bring in a new government that can take advantage of the country’s wealth in natural resources and low global interest rates to grow again, he said.
“If the markets see that a new government will pursue rational economic policies, this could ease the return of foreign capital in 2015,” he said.
27. DEBT RESTRUCTURING MECHANISMS NEED REVIEW IF ARGENTINA DEFAULTS: IMF (Platts Commodity News)
29 July 2014
Washington (AFP)–29Jul2014/716 pm EDT/2316 GMT  The mechanisms allowing a country to restructure its sovereign debt should be “reviewed” if Argentina defaults, IMF chief Christine Lagarde said Tuesday.
Under a US court order, Argentina faces a Wednesday midnight deadline to pay certain hedge funds demanding full payment on defaulted bonds or risk being declared in default.
If that happens, “the debt restructuring principles and the efficiency” of collective-action clauses “will have to be reviewed,” said Lagarde, managing director of the International Monetary Fund, at a news conference in Washington.
Collective-action clauses — including when a government issues bonds — traditionally allow a majority of creditors to agree to a debt restructuring when the country is facing a crisis.
Lagarde added that the Fund was monitoring the situation and analyzing the potential consequences of a default.
Argentina used collective-action clauses to deal with its 2001 default on close to $100 billion in debt, which plunged the country into an economic crisis it is still battling to overcome.
Argentina persuaded 92% of its creditors to accept writeoffs of up to 70%.
But under the US judge’s ruling, it cannot pay its other creditors without also paying hedge funds which did not agree to the debt restructuring.
Argentina is due to make a $539 million payment on the restructured bonds on Wednesday.
If Argentina pays the so-called “holdout” hedge funds 100% of the $1.3 billion it owes them, it could be forced to pay all remaining creditors in full, as well, under the restructuring deal.
Some analysts say the US judge’s ruling could encourage investors to hold out in other restructurings of sovereign debt, making it more difficult for the IMF and other official lenders to help stabilize countries whose finances have collapsed.
The IMF proposed an international debt restructuring mechanism in 2003 but the plan was abandoned under pressure from the United States, the institution’s largest stakeholder, and the major emerging-market economies.
28. ARGENTINA’S EURO BONDHOLDERS ASK U.S. JUDGE TO SUSPEND DEBT RULING (HedgeWorld News)
By Daniel Bases and Jorge Otaola
29 July 2014
NEW YORK/BUENOS AIRES (Reuters)—Holders of Argentina’s euro-denominated exchange bonds urged a U.S. judge on Tuesday [July 29] to suspend a debt ruling in favor of holdout investors suing the country that risks toppling Latin America’s No. 3 economy into default.
The countdown clock is ticking. Argentina has until the end of Wednesday [July 30] to either fulfill a ruling by U.S. District Judge Thomas Griesa to pay hedge funds that rejected its restructuring in full on their defaulted bonds, cut a deal or obtain a stay.
If not, Griesa will prevent Argentina from making the July 30 deadline for a coupon payment on bonds exchanged in its 2005 and 2010 debt swaps.
Argentine debt negotiators met on Tuesday in New York with a court-appointed mediator for extensive negotiations in an attempt to cut a deal to avoid what is being called a “Griefault” on social media.
“This Court can facilitate a settlement – and avoid a potential default – by issuing a temporary stay,” the bondholders said in a memorandum of law justifying their motion.
Griesa previously rejected Argentina’s request for a stay but could respond differently to bondholders.
“A stay will promote and encourage a global settlement. A stay will not prejudice the plaintiffs,” the bondholders said.
The news helped lift Argentine equities on Tuesday. The MerVal stock index closed 6.5 percent up.
The euro bondholders also said they would facilitate a deal by waiving the so-called RUFO clause that prevents Argentina from offering other investors better terms than it offered them.
They would also try to get holders of exchange bonds under other legislations to waive the clause. “Obtaining a waiver of the RUFO clause, however, will take time,” they said.
A default would hurt Argentina, which is already in recession and grappling with dwindling foreign reserves and soaring inflation.
Yet it would unlikely prompt broader market repercussions given the country’s relative isolation from the financial system, the head of the International Monetary Fund, Christine Lagarde, said on Tuesday.
Argentina has been cut off from international credit markets since its 2002 default on $100 billion, which plunged millions of Argentines into poverty.
Making Money from Defaults
For many years, the country declined to negotiate with the holdouts who bought its distressed debt on the cheap, slamming them as “vultures” picking over the carcass of its default.
Argentina sent a delegation of technical, financial and legal representatives to meet court-appointed mediator Daniel Pollack at his New York office on Tuesday, rather than Economy Minister Axel Kicillof, who sealed a number of deals with foreign investors and creditors in past months.
Kicillof was attending a meeting of the South American trade bloc Mercosur in Caracas with President Cristina Fernandez.
A report by state-run news agency Telam that the debt negotiations had broken up and would resume in a couple of hours raised hopes that some plan for a deal may be underfoot.
Jonathan Blackman, a lawyer for Argentina, was seen by a Reuters witness entering Pollack’s offices late on Tuesday.
Over past days, a default had been looking increasingly likely. Argentina’s debt insurance costs hit six-week highs on Tuesday.
Argentina’s dollar-denominated Par bonds rose strongly on Tuesday on the over-the-counter market as investors who expected bondholders could accelerate the series in the case of a default and call for immediate payment piled into the paper.
“If there is a default, and given the Par is the cheapest series, they are acquiring these bonds,” said Roberto Drimer at the local consultancy VatNet.
Par bonds closed up 2.3 percent at $51.05 while Discount bonds were down 1.2 percent to $82.55.
29. AS ARGENTINA STARES DOWN DEADLINE, ONE GROUP WILL MAKE DEFAULT CALL (HedgeWorld News)
By Daniel Bases
29 July 2014
BUENOS AIRES (Reuters)—As Argentina’s options run out as the clock ticks down to the deadline before a default, attention is turning to the committee that makes the “official” call on such matters – even though that call is really only for the benefit of those investors who bought insurance in case of non-payment.
Argentina is out of legal options to avoid paying a court-ordered $1.33 billion, plus interest, to the holdout creditors who declined to restructure their bonds. If the payments are not made, the country will have defaulted on its debt obligations for the second time since it missed a payment in January 2002 that affected roughly $100 billion in sovereign debt.
The actual determination of default is made by the International Swaps and Derivatives Association, which says whether a default, or credit event, has occurred for those who bought credit-default swaps, known as CDS and which is insurance that protects investors against such an occurrence. If that happens, the amount that would be paid out to investors who insured their Argentine debt is a bit more than $1 billion. By way of comparison, the net notional value of Brazil CDS is more than $16.8 billion.
ISDA usually makes a determination after a specific request by a holder of credit-default swap contracts; if the parties are still in talks, there might be some wiggle room. For bondholders without insurance, there’s no real official call on default. It is simply the passage of the deadline and no payment showing up in creditor accounts.
Argentina attempted to pay a scheduled interest payment due June 30 to the bondholders who accepted restructured debt in 2005 and 2010 by transferring $539 million with indentured trustee Bank of New York Mellon’s account at the Central Bank of Argentina.
But that money was not transferred to investors because U.S. District Judge Thomas Griesa ruled that the country has to pay all investors, including the holdouts. The holdouts are led by NML Capital Ltd., an affiliate of New York-based hedge fund Elliott Management Corp., and Aurelius Capital Management, another New York-based hedge fund.
The 30-day grace period expires Wednesday at midnight EDT, and that’s where things get fuzzy.
ISDA’s determinations committee would consider “whether there is a ‘failure to pay’ credit event,” according to market participants. Argentine officials have said they have paid because they deposited the money with BNY Mellon. But market participants say Argentina’s position isn’t relevant to the committee’s decision.
At that point, though, one of the CDS holders needs to pose a question to the determinations committee through ISDA’s website, a public spot where investors can ask anonymously if such an event has occurred. The process then moves somewhat quickly; the determinations committee could meet as soon as the next day.
An ISDA spokesman said determination on defaults can be held via a conference call.
Investors may choose to move quickly if there is no payment by the end of Wednesday.
“My view is that ISDA will say it is a default if the money doesn’t arrive by the end of the day, and then it will be litigated by the people on the wrong side,” said Varun Gosain, a portfolio manager at New York-based Constellation Capital Management who participated in the debt exchanges. Constellation has investments in Argentine assets.
“Given it is so focused on the fact that you have this issue and it is not resolved, I would be inclined to think more likely than not it would be considered a default and no matter what the outcome is, it is going to be litigated.”
There are five determination committees, each with 15 voting members, representing various regions of the world. The committee for the region in question votes on default, with 12 of 15 needing to vote in favor. Elliott is slated to become a member of the determination committee in all regions in November.
30. SOUTH AMERICAN LEADERS RALLY BEHIND ARGENTINA OVER DEBT (Reuters News)
By Diego Ore and Deisy Buitrago
29 July 2014
CARACAS, July 29 (Reuters) – South American leaders have rallied behind Argentine President Cristina Fernandez, who is locked in a legal battle with holdout investors that could trigger a debt default this week.
The standoff figured prominently at the Mercosur bloc’s meeting in Caracas on Tuesday, with heads of state castigating the holdouts as speculators menacing the entire region.
Argentina has until late Wednesday to either pay out or reach a deal with the hedge funds that are suing for full payment on their bonds to avert a second default in little over a decade in Latin America’s No. 3 economy.
While Fernandez was in Venezuela on Tuesday, Argentine debt negotiators met in New York with a court-appointed mediator for last-gasp negotiations to cut a deal.
“We have ratified all our militant solidarity with the Republic of Argentina, with the struggle the president is leading against the attempt, through so-called vulture funds, to cause damage via financial speculation,” Venezuela President Nicolas Maduro told the forum.
“It’s not just damage to Argentina. It’s damage to all the countries of the south,” added the socialist Maduro, who replaced Hugo Chavez after his death from cancer last year.
Regional heavyweight Brazil also backed Argentina.
“The problem that’s affecting Argentina today is a threat not just to a brother nation. It affects the entire international financial system,” President Dilma Rousseff said.
“We cannot accept that the actions of a few speculators put the stability of entire countries at risk. We need clear rules and a system that allows impartial forums, and allows for justice in the process of restructuring sovereign debt.”
If the deadlock persists, U.S. District Judge Thomas Griesa will prevent Argentina from making the July 30 deadline for a coupon payment on exchanged bonds. A default would hurt Argentina, which is already in recession and grappling with dwindling foreign reserves and soaring inflation.
Argentina has been cut off from international credit markets since its 2002 default on $100 billion, which plunged millions of Argentines into poverty.
For many years, the country refused to negotiate with the holdouts who bought its distressed debt on the cheap, slamming them as “vultures” picking over the carcass of its default.
Fernandez defended Argentina’s position extensively during the summit, accusing the holdouts of threatening the stability of the international financial system.
At the end of the summit, a formal Mercosur communique said Argentina could in no way be considered in default when it had funds to pay debt but was being legally blocked from doing so.
“The presidents reaffirmed their solidarity and unrestricted support for the Republic of Argentina regarding legal decisions favorable to a minority group of sovereign debt-holders who have rejected conditions accepted by the large majority,” it said.
31. PLAYER’S FATHER KIDNAPPED (The New York Times)
30 July 2014
The father of the Argentina and Juventus star Carlos Tevez was kidnapped but released eight hours later. The lawyer Gustavo Galasso said that Segundo Tevez was in ”good shape.” News reports in Argentina said Tevez was kidnapped by unknown assailants around sunrise.
32. RUSSIA UNDER SANCTIONS AFTER MH17, ARGENTINA IN DEFAULT: SHOULD INVESTORS SHUN EMERGING MARKETS? (Forbes)
July 30, 2014
Lately, it appears that every day has brought more bad news for emerging markets, and today looks set to be an absolute monster. Markets must digest yesterday’s tough sanctions against Russia from the EU and the US; and Argentina seems certain to enter default. That follows an Indonesian election that took more than a week to declare a winner (though the outcome was, in the end, the one investors wanted), concerns about Ebola in Nigeria and elsewhere in West Africa, and a terrible and continuing conflict in Gaza.
Should investors be avoiding emerging markets overall while this plays out? Or are these simply individual events that should be judged in isolation?
Let’s start with Russia. Yesterday’s EU and US measures are, as the FT put it, “their toughest sanctions against Russia since the end of the Cold War.” They are “intended to cripple the Russian economy” in order to persuade Russia to abandon its support for separatists in Ukraine, whom among other things are widely blamed for the shooting down of MH17.
The EU sanctions are focused mainly on financial, energy and defence sectors. Among other things, they stop Russia’s bigger state-owned banks from using the European markets to raise capital, whether debt or equity. The US ones appear to be similar, and we know that among other things three state-backed banks (Bank of Moscow, Russian Agricultural Bank and VTB Bank) have been added to its sanctions list. Both sets of sanctions bar technology transfers in the energy sector such as shale gas or Arctic oil exploration.
Very obviously, the sanctions will hit Russian companies hardest. The Economist has argued that Vladimir Putin’s rule will cost Russian investors one trillion dollars, or $7,000 for every Russian citizen, a calculation based on the fact that Russian stocks trade at a price-earnings ratio of 5.2 compared to the emerging market average of 12.5, a discount that has largely come about because of investor suspicion of Russia.
But that’s a very big-picture and inexact view. More precisely, yesterday Renaissance Capital, which had previously suggested that third quarter GDP growth was on course to rise 2% year on year, and which had forecast 1.6% full year growth, now expects about 1% growth. EU Observer says, quoting an EU source, that the EU sanctions alone should hurt the Russian economy by Eu23 billion this year, or 1.5% of its GDP, and Eu75 billion next year, 4.8% of its GDP.
Individual stocks such as VTB and Rosneft are very obviously going to be hit. Monday’s market reactions, after it became clear that sanctions were coming (but before they were announced), tell a story in miniature: the Euro Stoxx index was up 0.1% that day, and Russia’s RTS index was down 2.8%.
But what about the spillover into other markets? EU Observer said yesterday that the EU Commission expects the European Union to lose Eu40 billion this year, and Eu50 billion next, “as Russia is expected to retaliate with trade bans of its own against EU countries.” Even before the latest sanctions, BP and Renault had both warned about the impact of sanctions on their businesses.
That suggests that avoiding emerging markets is not going to save investors; developed world countries and companies could be hit too. (That said, BP, which owns nearly 20% of Russian state-owned Rosneft, is something of a special case.)
What’s next? Renaissance, ever the contrarian, looks to the positives: “From today, Russian assets would get the greatest lift from Kiev re-establishing control over eastern Ukraine,” writes Charles Robertson, global chief economist. Renaissance outlines three possible scenarios for Russian assets. Under the optimistic one, Ukrainian forces regain control over Eastern Ukraine, Russia backs off, sanctions are lifted and assets are boosted. Under the consensus scenario, tighter sanctions follow in September if the flow of weapons to separatists does not get better, and the existing situation for Russian assets gets worse. The pessimistic view is that Russian forces cross the border to defend ethnic Russians, the EU cuts oil imports from Russia, sanctions become notably tougher and the danger of escalation rises.
Then there’s Argentina. Yesterday it became clear that Argentina had not brokered an agreement with the holdout investors whom the US says must be paid in full, in contrast with a previously agreed compromise for most other investors affected by its previous default in 2001. (For more on this, click here.) If it doesn’t pay today, it will enter technical default. If it does pay today, it would increase the country’s liabilities enormously.
Obviously bad news for Argentinian assets, but again, how far does the contagion then go? The writer and analyst Alan Beattie argues the spillover effect may be limited. “Potential damaging impacts on the emerging economy class – investors fleeing Argentina for havens elsewhere, financial collapse and recession dragging down other economies, a rash of copycat defaults – are highly unlikely to materialise,” he argues. Argentina’s debt issued under foreign law (mainly American and English) is only around a third of the $80 billion upon which it defaulted in 2001, he says, and represents a still smaller proportion of overall emerging market sovereign debt which has expanded dramatically in the intervening 13 years. “In any case, Argentina has in effect been shut out of international capital markets since the default, thus muffling further any impact on other emerging economy borrowers.” Also, since Argentina’s economy represents less than 1% of global GDP, it is unlikely to do huge damage no matter how bad the local collapse, and may not even have too much of an effect on Latin America.
Generally, emerging markets have been resilient, lagging the developed world over the longer term but doing just fine over the last year; whereas the S&P500 is up 16.84% over the last 12 months, the MSCI emerging market index is up 13.51%. Oddly, problems have seemed to suit it: If we look over the last three volatile months, the S&P500 is up 4.56%, while the MSCI Emerging Market Index put on 3.18% in May, 2.25% more in June and another 3.01% in July. July has been evil for emerging markets in a political sense, so why is that market up 3% when the S&P 500 is up only 0.5%?
The answer seems to be that emerging markets are a much broader asset class than we sometimes give them credit for. There are dark times ahead for investors in Russia and Argentina but the asset class as a whole is holding up.
 

 

ARGENTINE UPDATE – Jul 25, 2014

28 julio, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1. WALL STREET TAKES A SHINE TO ARGENTINE BONDS (The Wall Street Journal)
By Matt Wirz
25 July 2014
Argentina hasn’t made many friends on Wall Street. But that hasn’t stopped bankers from trying to bring the country back into the bond market.
The largest financial firms spent much of the first part of 2014 devising an escape route for Argentina from a legal standoff with some hedge-fund bondholders that threatens to throw the nation into default for the second time in 13 years.
A handful of large banks pitched bond sales that would have paved the way for a settlement with so-called holdout creditors led by Elliott Management Corp. The proposals didn’t win the approval of Argentine officials, and it isn’t even clear how seriously they were considered, given the yawning gap between the Argentine and hedge-fund negotiating positions and the limited popularity of global financial firms in Argentina.
Even so, the effort could still be a success for Wall Street if Argentina reaches a settlement and starts issuing bonds again. Investors and bankers say firms were seeking foremost to drum up new business.
“A lot of banks are actively pitching deals to Argentina,” said Tony Volpon, head of emerging-markets research at Nomura Securities. “Argentina was Wall Street’s best client for 10 years, and a lot of people think that may come back.”
Wall Street efforts underscore the lucrative fees the banks stand to win at a time when revenue is under pressure from soft economic growth, tighter rules and hefty regulatory scrutiny. Argentina issued $56 billion of bonds between 1995 and 2001, generating an estimated $720 million for the banks that sold the debt, according to Dealogic.
The pitches have been fueled in part by strong demand from investment funds that focus on distressed debt. The push also undercuts the market assumption that defaulting debtors become international pariahs that can’t be rehabilitated.
If a new bond sale comes together, “there will be many, many people interested and we will be one of them, depending on the price,” says Redwood Capital Management LLC founder Jonathan Kolatch.
Bank of America Corp., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and UBS AG each pitched Argentine officials this year on a potential bond sale, according to people familiar with the proposals.
Argentine officials ended the discussions with the banks in June, after a U.S. Supreme Court ruling that the country’s lawyers say puts the nation at risk of breaching a clause in its bonds that promises equal treatment to all bondholders, the people familiar with the proposals said.
At least one of the banks then pushed Elliott, the lead holdout creditor, to consider an agreement under which Argentina would indemnify the holdouts for legal costs estimated to exceed $100 million, the people said. The gesture would allow Argentina to offer some financial compensation without violating the equal-treatment clause, they said.
For now, no sale or other arrangement appears imminent. Argentine officials have refused to meet with the holdouts, and if the two sides can’t reach a settlement, the country will default on a more than $800 million bond payment due July 30.
Argentina has declined to negotiate with the holdouts for more than a decade, calling them vultures who refused to accept the restructurings that more than 90% of bondholders have agreed to already. More recently, Argentine officials have said they can’t negotiate because of the equal-treatment clause, known as Right Upon Future Offers.
The clause, written into more than $54 billion of bonds Argentina issued in restructurings during the 2000s, requires any deal struck with holdouts before the end of 2014 to be offered to those who took losses in the prior exchanges.
Investors and bankers say a new bond could facilitate a settlement much like the roughly $5 billion deal the country reached earlier this year with Spanish oil company Repsol SA. Argentina would issue the bond to the holdouts, led by Elliott, which would immediately resell it to other hedge funds through an investment bank, the people familiar with the proposal say.
Argentina faces potential claims of $14.5 billion from bondholders such as Elliott. Repayment in full is unlikely, analysts said, but the country could at some point need to raise billions of dollars through bonds to repay the holdouts.
U.S. hedge funds have piled into Argentine bonds in recent years, betting the economy will flourish and bond prices will rise after President Cristina Kirchner is replaced in elections next year. The funds include Fortress Investment Group LLC, Hayman Capital Management LP, Monarch Alternative Capital LP, Perry Capital, Redwood Capital, Silver Point Capital and Third Point LLC.
Much like Greece in 2011, and Puerto Rico in 2013, Argentina has become a favorite trade for so-called vulture funds because it is one of the few borrowers with large amounts of debt trading at deep discounts. The sovereign’s benchmark bond due 2033 traded around 65 cents on the dollar in January and has since risen to about 89 cents, according to Tradeweb.
Many of the hedge funds now investing in Argentina also bought Puerto Rico bonds last year and bankrolled a new bond sale for the cash-strapped island in March to help bolster its finances. Perry Capital bought $120 million of that bond and Silver Point bought $70 million.
2. ARGENTINA REPORTS CONTINUING ECONOMIC WEAKNESS IN MAY; MAY GDP PROXY DOWN 0.2% ON YEAR, UP 0.5% ON MONTH (The Wall Street Journal Online)
By Shane Romig
24 July 2014
BUENOS AIRES—Argentina’s gross domestic product proxy for May dipped slightly on the year but edged higher on the month as the economy continued to be mired in recession.
In May, the indicator fell 0.2% on the year, but climbed 0.5% on the month, the national statistics agency Indec reported Thursday.
The indicator, known by its Spanish acronym Emae, includes most of the components used to calculate quarterly GDP.
Argentina’s economy slid into recession this year due to weak growth in top trade partner Brazil, double-digit inflation that has hit consumer spending and foreign-currency shortages that make it harder for companies to import materials and equipment.
A 20% devaluation of the peso against the U.S. dollar in January and increasing benchmark interest rates to almost 30% has also slowed growth, though those measures were successful in stopping a run on the central bank’s depleted foreign-currency reserves.
GDP contracted 0.8% during the three month period ending March 31, marking the second consecutive quarter-on-quarter contraction in the economy. GDP shrank 0.5% in the fourth quarter of last year.
Alberto Messer contributed to this article
3. RULINGS ADD TO THE MESS IN ARGENTINE BONDS (NYTimes.com Feed)
By Floyd Norris
25 July 2014
Thomas Poole Griesa has been a federal judge for 42 years. He has been grappling with Argentina’s debt default for a decade.
Only now is he learning how complicated life can be for a judge seeking to control actions by a sovereign government and issuing orders that are supposed to be binding on those who would ordinarily never be within the jurisdiction of an American court.
“We are in the soup,” he said at one point on Tuesday during the latest hearing in a case that has shaken the world of sovereign debt restructuring.
He was referring to the prospect of a new Argentine default on its sovereign bonds, something that seems almost certain to happen on Wednesday. But he could have been referring to the process he unleashed with rulings that were meant to accomplish one thing — force Argentina to live up to what he repeatedly called its “obligations” — but failed to take into account just how complex the situation is. This week’s hearing made clear that he had not completely understood the bond transactions that he had been ruling on for years. Argentina defaulted on its debt in 2001 and took an imperial attitude toward aggrieved creditors. In 2005, it offered a take-it-or-leave-it exchange of new bonds for the old ones, with investors required to accept large losses. Then in 2010 it told investors who had held out that they would have one more chance to take the exchange bonds. The vast majority did, but some, largely hedge funds, did not and demanded full repayment. Argentina vowed that those investors who refused would never receive a dime.
Then came Judge Griesa, who was chief judge of the United States District Court for the Southern District of New York until 2000, when he became a senior judge.
Other judges had ruled that Argentina owed the money, but those rulings were, in practice, unenforceable against a sovereign state. Judge Griesa came up with a legal interpretation to put teeth in the rulings. He held that Argentina must pay the old bonds in full at the same time it made the next semiannual interest payment to holders of the new bonds. And if it did not do so, any bank that helped Argentina pay interest on the new bonds would be violating the order.
That ruling was upheld by the United States Court of Appeals for the Second Circuit, and in June the Supreme Court refused to hear Argentina’s final appeal.
In Argentina’s debt restructuring, holders of the old bonds who accepted the country’s offer received a variety of new bonds depending to some extent on which old bonds they held and to some extent on which new bonds they chose. Some of the exchange bonds were denominated in United States dollars, some in Argentine pesos, some in euros and some in Japanese yen. Some of them were subject to New York law, others to Argentine, English or Japanese law.
And that is where the complexities arose that Judge Griesa seems not to have understood.
The order he issued earlier this year said that — assuming Argentina does not make good on the old bonds — it should not make interest payments on the exchange bonds, and banks should not help it do so. That sounded as if it covered all the exchange bonds, even those not issued under New York law.
But the opinion explaining the order discussed only the dollar bonds issued under New York law. It ignored the existence of other exchange bonds.
So did the ruling apply to those other exchange bonds, including those issued under Argentine law? Would a bank that processed interest payments on those bonds be in trouble with the judge?
Citibank’s Argentine branch, which is the trustee for bonds issued under Argentine law, some denominated in pesos and some in dollars, asked the judge for a clarification, and on June 27 he provided one. Citibank could process interest payments on those bonds. They were not covered by his order.
This week’s hearing was largely about changing that ruling, and the judge initially made it clear that he saw no reason for a change. He saw the bonds as domestic ones, owned by Argentine citizens. “From a practical, common-sense standpoint,” he asked a lawyer for the hedge funds who was trying to have the order modified, “why do they have to get dragged into this?”
It turned out that he did not know much about those Argentine-law bonds. He said his June order provided “a rather minute exception” to his original ruling, and told the hedge funds’ lawyer, Edward A. Friedman of Friedman Kaplan Seiler & Adelman, “It is my understanding that the bonds being talked about in your motion are not part of the exchange.”
Told that the bonds in question were exchange bonds, and that they accounted for nearly a quarter of all the exchange bonds, he said he had not realized that and reversed course.
“Sitting here right now,” he said, “it strikes me that, being exchange bonds, they should be treated as exchange bonds and that they should be included with the other exchange bonds in the Feb. 23 order.”
It was not bad theater, but it hardly inspired confidence in the American legal system.
“These questions are essential to the operation of this injunction,” Anna Gelpern, a law professor at Georgetown University who has followed the case for years, said after reading the transcript of Tuesday’s hearing. “Up to half the debt could be in or out depending on how these questions are resolved. The fact we are confronting them, days before a payment default, is scary.”
It is not as if no one had pointed out the issues in the many legal briefs and arguments filed in this case, both before Judge Griesa and before appeals courts. But those arguments seem not to have registered. “For this to come out after this has gone through so much legal process, in the most sophisticated financial jurisdiction in America,” Ms. Gelpern said, “has to be astounding.”
On Tuesday, Judge Griesa eventually decided he would think it over and rule at a later date. At some point he will also have to deal with the status of bonds issued under English or Japanese law.
If he ends up ruling that the Argentine-law bonds are covered by his original ruling, and tells Citibank not to process the interest payment, then Citibank could have to decide whether to defy him or ignore the law in Argentina, where it could face prosecution.
If he rules the other way, Argentina may try to find a way to do a new exchange, with Argentine-law bonds given to any investors who want to give up their bonds issued under United States law. The judge would probably try to block such an exchange.
A grace period gives Argentina until Wednesday to pay the interest it owes on the exchange bonds. It has paid the money to the bank trustees, including Bank of New York Mellon for the New York-law bonds. That bank has done nothing with the money because it is clearly bound by the judge’s order.
Argentina says that payment means it will not default, because it will not be the country’s fault if the exchange bond holders are not paid. The judge says Argentina acted illegally in making the payment, but he has not decided what Bank of New York Mellon should do now. The hedge funds want the judge to order the bank to return the money to Argentina. The bank, fearing suits from bondholders, wants to keep the money until all this is sorted out. The judge is also pondering that issue.
As Wednesday approaches, the judge has a lot to think about. It would be better if he had done some of that thinking before he issued his order, or if the appeals court or the Supreme Court had forced him to do so.
4. THE MUDDLED CASE OF ARGENTINE BONDS (The New York Times)
July 24, 2014
Thomas Poole Griesa has been a federal judge for 42 years. He has been grappling with Argentina’s debt default for a decade.
Only now is he learning how complicated life can be for a judge seeking to control actions by a sovereign government and issuing orders that are supposed to be binding on those who would ordinarily never be within the jurisdiction of an American court.
“We are in the soup,” he said at one point on Tuesday during the latest hearing in a case that has shaken the world of sovereign debt restructuring.
He was referring to the prospect of a new Argentine default on its sovereign bonds, something that seems almost certain to happen on Wednesday. But he could have been referring to the process he unleashed with rulings that were meant to accomplish one thing — force Argentina to live up to what he repeatedly called its “obligations” — but failed to take into account just how complex the situation is. This week’s hearing made c