By Federico Sturzenegger of Banco Ciudad de Buenos Aires
Last week Judge Griesa ruled that Argentina should pay to a holdout fund by the name of NML before December 15 the full amount of debt owed by the country. The ruling followed a previous one, based on the pari passu clause, which said that Argentina should pay at least something to the holdouts.
On October 26 the 2nd court of appeals confirmed the ruling but asked the judge to make a proposal on how he interpreted the application of pari passu. In turn, Judge Griesa asked Argentina to make a proposal.
A natural proposal would have been to offer to pay the same amount paid to those who had accepted the debt exchanges in 2005 and 2010. This would have been equivalent to applying a collective action clause to the holdouts. Yet the Argentine authorities, rather than making this or any other offer, just made it clear that they were not ready to pay a single cent, regardless of the judge’s decision.
This triggered an unprecedentedly harsh ruling, designed, in the words of the judge, to avoid any attempt by Argentina not to abide by his decision.
Argentina has said it will appeal but has not made clear if it will make an offer or deposit prior to December 15 the $1.3bn owed.
At this stage I see two possibilities.
One is that Argentina deposits the money pending appeal. This would open the door to similar rulings on other claims that would add up to $11bn – a large amount of money for Argentina given its shrinking current account surplus and relatively low level of reserves.
The other possibility is that Argentina ignores the ruling. This would prevent it from paying current bondholders; it would need to reroute payments in an off-contract mechanism through Buenos Aires. It is not clear whether this technical default would trigger CDS contracts.
Refusal to pay would leave Argentina shut out of international capital markets for the foreseeable future, preventing it from borrowing at rates unheard off during the past forty years. It would also, for example, deny access for YPF, the recently-nationalised oil group, to the finance needed to start reversing Argentina’s growing energy deficit.
Yet none of these costs compares with the costs that the presidency of Cristina Fernández de Kirchner is imposing on the country: its infrastructure is in a shambles, there is increasing intervention in the financial sector, the energy sector is denied access to financing, inflation is above 25 per cent and on the rise, there is a fall in the number of children going into the public education system, unemployment is growing and the economy is stagnant.
The only way of containing public discontent (this month saw more than a million people take part in anti-government demonstrations and the first general strike against the Fernández government) has been through tighter control of the judiciary and the press.
Argentines are not worried about access to international capital markets. They are worried about freedom, democracy and republican institutions.
Federico Sturzenegger is president of Banco Ciudad de Buenos Aires. @fedesturze
Related reading:
Argentina’s Fernández rages at NY ruling, FT
New York law: not what it used to be, beyondbrics
Booking bondholder flights to Buenos Aires? FT Alphaville
Last week Judge Griesa ruled that Argentina should pay to a holdout fund by the name of NML before December 15 the full amount of debt owed by the country. The ruling followed a previous one, based on the pari passu clause, which said that Argentina should pay at least something to the holdouts.
On October 26 the 2nd court of appeals confirmed the ruling but asked the judge to make a proposal on how he interpreted the application of pari passu. In turn, Judge Griesa asked Argentina to make a proposal.
A natural proposal would have been to offer to pay the same amount paid to those who had accepted the debt exchanges in 2005 and 2010. This would have been equivalent to applying a collective action clause to the holdouts. Yet the Argentine authorities, rather than making this or any other offer, just made it clear that they were not ready to pay a single cent, regardless of the judge’s decision.
This triggered an unprecedentedly harsh ruling, designed, in the words of the judge, to avoid any attempt by Argentina not to abide by his decision.
Argentina has said it will appeal but has not made clear if it will make an offer or deposit prior to December 15 the $1.3bn owed.
At this stage I see two possibilities.
One is that Argentina deposits the money pending appeal. This would open the door to similar rulings on other claims that would add up to $11bn – a large amount of money for Argentina given its shrinking current account surplus and relatively low level of reserves.
The other possibility is that Argentina ignores the ruling. This would prevent it from paying current bondholders; it would need to reroute payments in an off-contract mechanism through Buenos Aires. It is not clear whether this technical default would trigger CDS contracts.
Refusal to pay would leave Argentina shut out of international capital markets for the foreseeable future, preventing it from borrowing at rates unheard off during the past forty years. It would also, for example, deny access for YPF, the recently-nationalised oil group, to the finance needed to start reversing Argentina’s growing energy deficit.
Yet none of these costs compares with the costs that the presidency of Cristina Fernández de Kirchner is imposing on the country: its infrastructure is in a shambles, there is increasing intervention in the financial sector, the energy sector is denied access to financing, inflation is above 25 per cent and on the rise, there is a fall in the number of children going into the public education system, unemployment is growing and the economy is stagnant.
The only way of containing public discontent (this month saw more than a million people take part in anti-government demonstrations and the first general strike against the Fernández government) has been through tighter control of the judiciary and the press.
Argentines are not worried about access to international capital markets. They are worried about freedom, democracy and republican institutions.
Federico Sturzenegger is president of Banco Ciudad de Buenos Aires. @fedesturze
Related reading:
Argentina’s Fernández rages at NY ruling, FT
New York law: not what it used to be, beyondbrics
Booking bondholder flights to Buenos Aires? FT Alphaville
Demoledor.
Como se sale de esta toma de posiciones por cada uno de los actores de esta obra ?
El Sr Sturzenegger no es un funcionario mas,
es un funcionario altamente capacitado que sabe de lo que habla.
Cierto tufillo a Vulture, it’snt?
He really makes my heart bleed. You don´t find real patriots as Mr Sturzenegger and his boss Macri everiday.
God bless America.