Argentina’s Ultimate Appeal Abrogation
Argentine shares continued to power ahead 30 percent on the MSCI Frontier Index after Judge Griesa’s New York Court, rating firms and trade group ISDA declared formal default as Economy Minister Kilicof’s last ditch talks with holdout funds produced no compromise to free blocked bond payments. To resume service and facilitate a deal existing exchange creditors agreed to waive potential claims under the local “lock law” if better terms were reached, but that complication will soon fade with year-end expiry. Benchmark prices were firm at 85 cents to the dollar as investors believed that private bank buyout proposals could be a mutually acceptable option, as the respective sides continued high-profile advertising campaigns in US and global outlets blasting each other’s positions. The Kirchner government’s insistence that it did not default drew a rebuke from the presiding judge who threatened a contempt citation if the assertion persisted. In the administration’s view, as popularity numbers show gains with “anti-vulture” rhetoric, his reaction confirms a bias accusation as it called on the executive branch in Washington and International Court in The Hague to “rein in” the decisions. Officials refused to intervene or let the Dutch hear the case after an earlier brief to the Supreme Court urging clarification of the Foreign Sovereign Immunities Act. The main raters assigned selective default and also downgraded corporates and provinces, as ISDA’s technical committee triggered a reported $1 billion in CDS and started the auction process clock. Bank of New York Mellon as the trustee and separate Eurobond holders further requested legal guidance in the event aftermath, as rumors continued to circulate with the disclosure of attorney scenario planning documents that a full Argentine-law platform could replace their arrangements to circumvent the ruling. Distressed fund plaintiffs Aurelius and Elliott in turn renewed a search for collectable assets abroad after an order that state banks provide listings. The economy remains in recession on 30 percent estimated inflation as the black market peso premium again widened with the deadlock and likely addition of other institutional and retail investors to the outstanding judgment. They have indicated willingness to receive settlement in both cash and new bonds as with the recent issue of compensation instruments for YPF’s nationalization. Foreign reserves have held steady toward $30 billion despite $1.5 billion in Q1 capital outflows according to the central bank. Buenos Aires has reportedly approached private and official sources for potential backup lines after completing a $10 billion swap with Beijing under a broad energy and trade cooperation agreement.
Cross-border relations with Brazil have been frayed over tariff and diplomatic disputes as a public pension fund was stuck with unpaid external bonds. After the team’s poor World Cup outing and continued stagflation, President Dilma’s re-election is in jeopardy with consensus polls pointing to a second-round runoff against candidate Neves, who has vowed a more business-friendly approach. He has however mentioned a wealth tax and currency free float to burnish fresh-idea appeal.
