Argentina’s Flouted Flanking Maneuvers
Argentina shares were at the rear of the MSCI index with a 40 percent blow although bonds moved into the positive EMBI column, as a US court decision on repaying holdout creditors was delayed until March and a UN tribunal ordered release of a naval ship seized in Ghana to satisfy judgments they obtained. President Fernandez’s popularity rating improved slightly to the 40 percent level on the legal confrontation with the “vulture” funds as well as with media at home on a new asset divestiture mandate and the UK and its diplomatic allies abroad on repeated post-war claims on the Falkland islands. Separately the US and EU filed trade complaints over agricultural and manufacturing import curbs, as Spain took its fight against oil company YPF’s expropriation to the World Bank’s investment settlement body, which has already awarded multinational firms billions of dollars in compensation from last decade’s pesofication actions. With dollars again scarce and subject to unwieldy controls smaller provincial borrowers have reprised that route, as the unsolicited sovereign rating was recently lowered by S&P to “B-“ on increasing policy risks. The downgrade noted that the eventual New York appeals court ruling, which will consider application of the “pari passu” equal treatment clause, may not affect debt service but could further impede relationship normalization with private and official lenders including the Paris Club as default enters its 12th year.
The medium-term economic view foresees “deterioration” with widespread government interventions, and high inflation and “rigid” spending. Real 2012 GDP growth will be only 1.5 percent, and while foreign reserves are at $45 billion on strong beef and soy exports with just $4 billion in external payment due in 2013, liquidity could be constrained from both current account and financial market causes. Foreign investors who have bought both local and international corporate debt are closely monitoring the end-game in the Elliot Associates case, and holders who previously accepted the swap have organized as a group with their own counsel to demand an uninterrupted payment stream. The Federal Reserve has petitioned not to compromise Bank of New York Mellon’s trustee role through account release, while the State and Treasury Departments have urged that longstanding sovereign immunity practice be honored to the same end.
However the octogenarian presiding judge Griesa may have reached the limits of endurance with unsatisfied collection dictates when he initially ordered Argentina to deposit over $1 billion in escrow pending determination of the pari passu issue and sum. Awaiting the end-February hearing date Elliott has enlisted law scholars through the Washington-based Task Force Argentina advocating restructuring fairness to argue its interpretation and Argentine fund manager Puente has also entered the ring underscoring the wider damage from a ruling against the country. Meanwhile Greece’s second private sector haircut at a buyback price around 35 cents to the dollar was completed as the ECB will not countenance below par value redemption in that continent’s feuding pair.
