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Backlash of bondholders: the requirements to close an agreement

2020-02-14T10:56:52.445Z


Creditors and investment funds want Argentina to make a cash payment of US $ 10,000 million.


02/13/2020 - 23:26

  • Clarín.com
  • Opinion

Creditor banks and investment funds want Argentina to make a cash payment to move forward in a foreign debt negotiation . Through negotiators and informal conversations, they argue that if Argentina wants four years of grace in payments, they must make an important initial contribution in cash. The claim is a percentage of the total debt to negotiate and would imply a monumental figure of the order of 10,000 million dollars.

The information is held by Minister Martín Guzmán. Argentina considers that payment impossible because it would imply making a very strict agreement with the IMF to lend the money : the agreement with Mauricio Macri precisely lacks disbursement of 11,000 million dollars. The informal claim of the bondholders is a response to the latest strategy carried out by the Government and that made the negotiation red hot.

Argentina, in principle, would not be willing to make a disbursement of that magnitude. Alberto Fernández heard the figures that Martín Guzmán transmitted to him in detail. He consulted with other ministers and spoke with the dome of the Central Bank. He also discussed the urgency with Santiago Cafiero. It was the afternoon of the busy Monday and he made a strong decision.

This was communicated to his intimates: “We are going to suspend the subscription of the Dual bonus. It is unacceptable". It was difficult, because it implied a severe setback in the official strategy: the Casa Rosada wanted to rebuild the credit in pesos and had to emulate a lousy -refiled- creation of Mauricio Macri. The President made the decision because he had no choice: paying with issuance could drive the dollar crazy and generate an inflationary orgy.

That is why - in turn - he tried to put together a political “operation” to counterattack and reinstate an issue: the possibility of Argentina going into default . That threat had vanished because of the "blooper" Axel Kicillof and also by some amateurism of the current economic team. There are strong criticisms of technical decisions of the Ministry of Finance. Its owner Diego Bastourre maintained demands in the placement of the Dual Bonus, which limited the participation of bondholders who wanted to support Argentina. It was an obligation to subscribe the bond in cash: after the failure, a decree corrected the gross error of Finance forward.

The initial signals of both –Kicillof and Guzmán- were the following: Argentina will pay and will not speculate with the default . That position eliminates a key negotiating weapon for Argentina and weakens the Casa Rosada. Therefore, Alberto decided to re-strain the relationship with the bondholders and reinstate the fear of cessation of payments.

The play has serious risks. Financial uncertainty once again took away - and strong - value from all Argentine assets already heavily devalued . This was stated in a secret Wall Street report . The confidential document for powerful investors states: "The reaction of Guzmán and AF was predictable, although hardly defensible due to its serious consequences." And he adds: “They want to scare the bondholders who are confident, but the decision is full of negative effects. It is a Pyrrhic victory . That is why the "wolves" of Manhattan consider the move as "innocent" and not own experts . They are shots against the economic team.

Guzmán confirmed in Congress what Clarín anticipated: the payment proposal includes a grace period of 3 to 4 years. He said that when he said that there will only be a slight surplus in 2023 and therefore - only after three or four years - money to pay abroad. The speech was conceptual and aimed at strengthening the internal political front. The Casa Rosada reinforced the toughest paragraphs and ordered the entire Cabinet and the CGT to accompany Guzmán. But its content was poor in economic definitions. Less served to clarify what will happen in the economic future.

Nor did it reveal a great mystery: what is the monetary and fiscal program that will allow inflation to double and grow.

There are countless private projects halted by this uncertainty. Also due to the lack of officials: Kicillof does not respond to an investment proposal of 4.5 billion dollars to sell swine meat to China. Guzman's presentation at the Congress was very similar to what he did at the Council of Americas. Investors left empty handed . The "wolves" of Wall Street consider that all the negotiation is going to harden on both sides.

Bankers say they will only accept an agreement if the new bonds improve the parity of the current virtual default by 10 points. And if Argentina agrees to make a cash payment of 10,000 million dollars. They want the parity of Argentine bonds to rise from the current 45% to 55%.

In other words: they will negotiate with the usual greed and hardness. The leaders of the bondholders say that, otherwise, it could have a low acceptance and frustrate the intention of the Casa Rosada to close at the end of March. Now there is skepticism: it is said that it will be difficult to comply with Minister Guzman's schedule .

The minister set immediate dates for the selection of a “financial advisor” to help him technically with the debt. An international bank with experience is sought, to give the technical strength to the Palacio de Hacienda. Nestor Kirchner hired -in 2003- the Frenchman Lazard Frères. Guzmán announced that it will open a contest. The selection must be defined next week. But until Thursday - unexpectedly - the bases and the call to bankers were not elaborated.

The issue reflects imperfection and confusion. The rule is clear: the longer the negotiation lasts, the longer it will take any economic recovery. Alberto seeks allies for such a titanic mission: the Casa Rosada gives total priority and seeks the IMF as a partner.

The unexpected alliance has a common issue with Argentina: Kristalina Georgieva wants banks to accept a strong take-off in favor of Argentina .

The relationship is woven with patience, but for Economy it is essential: Alberto wants as a priority an agreement with the IMF . That is why Cristina's offensive against the Fund shows - doors inside - a great contradiction in the Front of All.

The vice president knows - as this Thursday was noted by the IMF - that the debt removal requested from the Fund is impossible to achieve. But among the businessmen Cristina's appearance was read as an action aimed at marking the court to the Casa Rosada. Cristina's attitudes also reopen the worst fears in bankers and industrialists. No one knows yet if Alberto's rational criteria will be imposed in the decisions or if Cristina's extreme positions are lurking.

Conclusion: by the doubts nobody invests and nobody is going to make important decisions until the political panorama is clarified.

In Alberto's environment - which put cold cloths on Thursday - they minimize "duality." They claim that the President uses Cristina's bravado to scare the creditors. The message would have been transmitted like this in Europe and also in Manhattan, to obtain support abroad. The spokesmen of the Casa Rosada affirm that the following is transmitted: if the negotiation with Alberto fails, Argentina will harden with Cristina.

Source: clarin

All news articles on 2020-02-14

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