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LATIN AMERICA

Argentina has less than a day to avoid defaulting on its sovereign debt

Economy Minister Kicillof exhausts negotiations with “vulture funds”

Francisco Peregil
Economy Minister Axel Kicillof arrives at the Manhattan office of court-appointed mediator Daniel Pollack on Tuesday afternoon.
Economy Minister Axel Kicillof arrives at the Manhattan office of court-appointed mediator Daniel Pollack on Tuesday afternoon.DON EMMERT (AFP)

Argentina waited until the last minute of its grace period to avoid a default on its debt before Economy Minister Axel Kicillof made a surprise trip to New York on Tuesday afternoon. That morning, a three-person delegation from Argentina met with Daniel Pollack, the mediator assigned to oversee talks between the government and the litigant investment funds. The representatives of the so-called “vulture funds” were present at the afternoon gathering where Kicillof finally spoke to them face-to-face. The meeting lasted four and a half hours and the minister said negotiations would resume on Wednesday July 30, when the grace period is due to expire at midnight. “We are still working on it and we are taking into account the seriousness of the issue,” he told the press. “But you understand that I cannot give you any information.”

There was hope that a deal would be reached and that Argentina would avoid a default. But after Kicillof’s remarks, mediator Daniel Pollack published a statement saying: “The issues that divide the parties remain unresolved. Whether and when the parties will meet tomorrow [July 30] remains to be determined overnight."

No one wants Argentina to default. Judge Griesa ordered the parties to negotiate. He has warned the government’s lawyers that those who will suffer the most will not be “the vultures” but real people. Suspension of payments does not benefit the “vulture funds” either. A default could lead to a delay sine die on their $1.5 billion. Nor does it benefit Argentina. This default may not be as traumatic as the one that followed the 2001 crisis, but, once in default, no one knows exactly when a country will get out. It would certainly worsen Argentina’s economic recession and limit access to international financing. No one wants a default but perhaps no one wants to make the effort required to avoid one either.

The issues that divide the parties remain unresolved” Daniel Pollack, the court-appointed mediator

As the meeting went on, most media outlets in Argentina were reporting that Kicillof had taken an offer to New York. The nation’s private bank association, Asociación de Bancos Privados de Capital Argentino (Adeba), allegedly offered the litigant creditors $250 million as a deposit if they would ask Judge Griesa to extend the deadline for full payment until January 2015. In that case, everyone would win. The funds would receive $250 million out of the $1.5 billion owed to them and the government would buy time – enough time for the Rights Upon Future Offers (RUFO) clause to expire. RUFO provisions give the creditors who accepted repayment at a discount rate after Argentina restructured its sovereign debt in 2005 and in 2010 the right to rescind on that cut if any other investor were to get better conditions before January 2015.

Kicillof neither confirmed nor denied these claims.

The minister made this surprise trip to New York from Caracas where he and President Cristina Fernández were attending the Mercosur summit. Meanwhile, a three-person team was negotiating on Argentina’s behalf.

The parties took a break at 3pm (4pm in Argentina). Kicillof and his team arrived at Pollack’s office in Manhattan at 6.35pm. Everyone attempted to radiate an air of tranquility but the clock was ticking loudly. The meeting resumed and continued until midnight.

Kicillof’s trip to New York promised a happy ending but there were warning signs along the way. Hours before the minister landed, Fernández criticized Judge Griesa, saying: “What do we all expect to find in a judge? We expect someone who is impartial, neutral and who rules according to the law. That is not what’s happening here.”

More information
Argentina: days away from a default
The US judge who has taken Argentina to the brink of default
Argentina to negotiate payments on “vulture funds” with US lenders

Now, the Argentinean government has exhausted its 30-day grace period and opposition leaders are especially uncomfortable with the administration's strategy. Some analysts, however, express awe at how calmly the government is handling this delicate situation. Jorge Fontevecchia, director of the bi-weekly magazine, Perfil, wrote: “Maybe everything will be fixed on July 31 and the inflexibility that Griesa, the government and the holdouts “vulture funds” showed was just a negotiation tactic. But, in any case, the one who stands to lose the most is Argentina and it shows a boldness that in some way reflects every one of us. It is worth nothing that the country that faced hyperinflation is the same one taking a risk that could lead to two defaults.” This nation has a “high tolerance for anxiety after suffering many terminal crises. In the end, it’s our normal state and one in which we have survived for many decades.”

Cristina Fernández’s popularity grew as she got tougher in her statements against the “vultures.” Most Argentineans are on her side. Some economic consultants, however, favored fulfilling debt obligations. “If you accepted the referee and the rules of the game, then you have to comply with the judge’s decision,” said Dante Sica. Fernando González, the director of the business news magazine, El Cronista, said: “If the option is default (classic, tactical or however they want to call it), the consequences would be even worse because Argentina will be back in a club that tripled the poverty rate, the club of countries that do not uphold their commitments.”

Translation: Dyane Jean François

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