LATIN AMERICA

Fernández gets tough on negotiations with “vulture funds”

The country will not sign any other agreement, she warned in a speech on Tuesday

Cristina Fernández at the opening of a Buenos Aires factory.
Cristina Fernández at the opening of a Buenos Aires factory.R. FERRARI / EFE

Argentinean President Cristina Fernández de Kirchner took the opportunity of an appearance at the opening of a motorcycle plant to offer her version of how things will play out in the next few days. “Will Argentina default on its loans? That is the question that has been looming over the nation and its financial centers for weeks. And now, the president has answered: “I want to tell all Argentineans, I want to tell them that Argentina is not going to default. Do you know why? Because of a very simple, vital, elemental reason so obvious that I shouldn’t have to say it. Why do you think we will not default? Because those who default are those who do not pay and Argentina paid.”

When Fernández said the country has already paid she meant – besides other debt-cancellation deals – that her government deposited $539 million in the Bank of New York Mellon to pay various creditors who accepted the 2005 and 2010 exchange bonds for debts the country racked up after the 2001-2002 economic crisis. Argentina suspended payments on $81.8 billion, the biggest default on record. Since the government could not meet its debt obligations, it offered creditors distressed exchanges – new bonds with more than a 60-percent discount on the original amount owed. Most – 92.4 percent – of its lenders agreed to take the discount. Fernández calls them bondholders “of good faith.” A portion of the $539 million sent to Bank of New York Mellon belongs to them. But, Judge Thomas Griesa will not allow these creditors to collect before Argentina pays the three litigant funds their $1.5 billion ($1.33 billion plus interest).

The country’s grace period to comply with the court order and thus pay “the vultures” and the bondholders “of good faith” will expire on July 30.

Cristina Fernández

“So, they will have to invent a new name,” Fernández said. “I don’t know what it’ll be because the classifiers, the investment banks, the gurus, the academics always find some terminology to dress up what is really happening. But they will have to find some new terminology that defines the situation when a borrower pays and someone blocks the money from getting to a third party, those third parties here being the holders of the 2005 and 2010 exchange bonds who were acting in good faith.”

That someone who blocked the money from getting to the third parties is the 84-year-old federal judge for the Southern District of New York, Thomas Griesa.

On Tuesday, Griesa denied the Argentinean government’s appeal for a moratorium, an extension on the deadline to make payments to the “vultures.” The judge told the American attorneys who were defending Argentina: “In my view, every single problem you’ve described is susceptible to be handled in a settlement.” If the parties do not reach a deal, “there will be a default and that is about the worst thing that I can envision. I don't want that to happen. Real people will be hurt by that. Not vultures being hurt but real people will be hurt.”

Griesa has appointed a mediator, Daniel Pollack, and he has ordered the parties to negotiate. The next round in this court battle will take place on Thursday in New York, when the representatives of the investment funds and the Argentinean government sit down with Pollack.

Until now, their talks have been a series of non-negotiations. The funds and the government have accused and discredited one another through statements to the press in Argentina and in the United States. Against this backdrop of rhetoric, Cristina Fernández told journalists at the factory: “They want to scare Argentina, saying that if we don’t do what the vulture funds want they won’t invest and we won’t have access to financing. And I say, since 2003 to this date, when have we ever had access to international financing?”

The litigant funds responded to Fernández immediately on their English-language website, factcheckargentina.org. “President Kirchner and her government fail to realize that merely having a strong desire or intention to do something does not solve real-world problems. Argentina owes it to its citizens and to its creditors to start taking its potential default seriously.”

After her speech, in which she said that the country would not default on its loans and that some new terminology would have to be invented to describe the situation, the hashtag #PoneleNombreAlDefault, meaning #GivetheDefaultaName, was among the most popular trending topics on Twitter in Argentina.

Translation: Dyane Jean François