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Ten hectic days await Argentina, and a possible second default in 12 years

Monday, July 21st 2014 - 07:38 UTC
Full article 61 comments
Cristina Fernandez refuses to dialogue with holdouts Cristina Fernandez refuses to dialogue with holdouts
Judge Griesa remains firm in his ruling Judge Griesa remains firm in his ruling
BRICS summit made no support statement BRICS summit made no support statement
Dilma said BRICS banks' loans are for members Dilma said BRICS banks' loans are for members

Ten hectic days ahead for Argentina since come 30 July and no agreement has been reached at the New York court of Federal Judge Thomas Griesa, (full payment plus accrued interests to holdout speculative funds) the country would be forced to a second default in twelve years with all the political consequences for Cristina Fernandez and Mercosur.

 As can be expected opinions are divided as to the outcome of the situation: some believe there will finally be an agreement with the speculative funds, others see no light at the end of the tunnel judging on the latest speeches from Cristina Fernandez and the holdouts, willing to talk but still demanding full payment, 1.3bn dollars plus interests.

According to Argentine political analysts Joaquin Morales Sola, there is a group of banks willing to come up with 8.5bn dollars to purchase the total (holdout) debt in litigation which is estimated at 11.5bn dollars, However he does not give further details on such an operation.

What is certain is that Argentina is demanding a 24 hours 'stay' action from Judge Griesa so that those holders of restructured bonds, 93%, can be paid their agreed coupon by 30 July, otherwise the country falls in default. However holdouts have a ruling from Griesa ordering Argentina to pay the full 1.3bn dollars plus interests before honoring the rest of bondholders.

Likewise President Cristina Fernandez has refused point blank to talk, dialogue or sit next to the holdout hedge funds which it calls 'vulture funds', 'exploiters' and even more abusive language. This is an order extensive to all Argentine officials, although does not include the New York solicitors acting for the country.

But the 93% restructured bondholders have a RUFO clause, Right Under Final Offer, meaning any improved pay conditions to other creditors are extensive to the whole group. The RUFO clause is valid until January 2015.

However economists and solicitors don't agree on the implementation of the RUFO clause. Economists fear the immediate trigger of the clause which means paying full face value to the 93%. Solicitors believe it does not apply since it is not a 'voluntary decision' from Argentina but from Judge Griesa who is forcing the country to pay full value to the holdouts.

Furthermore Argentina's strategy of collecting political endorsements from different groups (Mercosur, Unasur, OAS, etc) condemning the 'vulture funds' and in support of restructured debt agreements, did not manage a similar statement from BRICS summit in Brazil, to which Cristina Fernandez was especially invited.

Not even a promise of credit support from the newly created BRICS financial institutions. Dilma Rousseff, the host of the summit said the BRICS banks would only lend to member countries and will not compete 'but complement IMF and the World Bank'.

Judge Griesa is back at court this week and has summoned on Tuesday the holdouts, the indentured trustee New York bank and the restructured bond holders who have to be paid in Euros in Luxembourg or in sterling in London. Griesa froze all payments until there's an agreement with the holdouts but creditors in Euros and pounds are demanding payment. This is what will be addressed on Tuesday.

Analyst Morales Sola mentions another even worse consequence: if 25% of restructured bonds manage to agree they could cancel long term servicing of the bonds and demand advanced full payment. This obviously is unsustainable for Argentina which does not have the funds. This could also impact on Brazil and Venezuela that have accepted Argentine bonds in exchange for dollars or to pay for imports.

“Reluctance to dialogue is a bad image for a country with already a bad image and before a Judge that waited six years for a solution between the litigating sides”, points out Morales Solá who also recalls that in a default situation, not even the World Bank or the Inter American Development bank can be expected to extend loans to Argentina.

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  • Pete Bog

    “Likewise President Cristina Fernandez has refused point blank to talk, dialogue or sit next to the holdout hedge funds”

    Whilst insisting dialogue must take place between Argentina and the UK over the Falkland Islands.

    Practice what you preach.

    Jul 21st, 2014 - 08:28 am 0
  • Britworker

    They only want to talk to people who are going to tell them what they want to hear

    Jul 21st, 2014 - 09:09 am 0
  • Skåre-Vuggevise

    In the words of Madame Déficit herself, Marie Antoinette, who single-handedly ruined France's finances: “Let them eat cake”.

    Let the Argentinian economy default and cement the country's status as a pariah nation. There is no point in further delaying the inevitable.

    No-one trusts Argentina and no-one is going to come to their aid, so why pretend that there is hope where there is none?

    Do I feel sorry for Argentina? Of course not .. they continue to vote for these profligate cretins to run their country for them, so they have made their own bed.

    Jul 21st, 2014 - 09:14 am 0
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