Argentina’s Nicked Court Jousting Gist

Argentine debt was abandoned, erasing a 20 percent climb, as holdouts seeking full payment from the 2005 swap managed to seize a government ship in Ghana and then prevail in US Appeals Court on an earlier determination that existing bond repayments could be interrupted under equal creditor treatment. The navy training vessel Libertad was halted in Accra on a hedge fund claim for $370 million, as its interest group in Washington has secured votes against development bank loans while legal and arbitration awards are outstanding. The judicial ruling on the pari-passu clause in New York-entered bond covenants directly challenged the so-called “lock law” in the original swap refusing to honor billions of dollars in untendered instruments and the denial of the trustee money center bank to accounts. The decision was sent back for technical clarifications as the broader issues may now be taken up by the Supreme Court at Buenos Aires’ filing. President Christina Fernandez’s popular approval has plummeted to the 25 percent level, but she has ruled out compromise with the “vultures” and may now attempt to reroute transactions through protected offshore channels. Early in the fight the central bank had moved holdings to the Basle-based Bank for International Settlements to pre-empt private access. The spread over Treasuries on the 2017 issue jumped to 1000 basis points on the events, but the class had been under strain from a “pesofication” push reflected in far-reaching exchange controls and the inability of provinces to ensure dollar bond redemption after Chaco had to pay out in local currency. Sovereign, bank and corporate ratings were cut across-the-board on the squeeze which has not staunched capital flight estimated at $3.5 billion in the first half as the black market peso rate tops 6 to the dollar. Street protests and labor strikes have erupted over higher living costs as official inflation continues to be underreported at half the 25-30 percent expert estimate. Headline interest rates are near 15 percent as banks are ordered to support preferred borrowers. The primary fiscal balance has gone into the red, and agricultural producers just coming out of drought fear that the President may again try to raise their taxes in advance of upcoming elections.

After engaging in a trade spat with Brazil, the government turned its ire to neighboring Colombia which asserts a larger GDP in currency-adjusted terms. Foreign ministers took to online posts in the Financial Times to battle over relative economic size. President Santos, after cancer surgery, dispatched negotiators to begin formal peace talk with rebels, as fiscal reform may unify the foreign investor withholding tax for local bonds at 25 percent. The central bank has been on hold after reversing course to easing as regular peso intervention has increased in a battle with portfolio and direct inflows.