In the three days since the U.S. Supreme Court shot down Argentina’s final appeal of a decade-old defaulted debt case, the behavior of the country’s leaders has bordered on the erratic.
First, President Cristina Fernandez de Kirchner vowed to defy the order to pay out $1.5 billion to billionaire hedge fund manager Paul Singer, a stance her economy minister echoed when he mapped out a plan to skirt the ruling the next day. Her lawyer in Manhattan then reversed course yesterday, saying the government was willing to negotiate with creditors. That new conciliatory line didn’t last long either. Fernandez’s cabinet chief said this morning that the government has now decided against sending officials to New York for talks.
The dizzying nature of Argentina’s response reveals the crux of the problem for Fernandez: She needs to settle with holdout creditors from the 2001 default to avert triggering another debt debacle that would impair the country’s return to international markets, yet is short on the cash needed to pay up. A settlement with Singer could unleash demands from other holdouts, who together have potential claims totaling as much as $16 billion, according to Citigroup Inc. That’s equal to more than half the country’s $29 billion of foreign reserves.
“They’re acting like a wounded animal in a corner,” Jorge Mariscal, the chief investment officer for emerging markets at UBS Wealth Management, which oversees $1 trillion in invested assets, said by phone from London. “They don’t really know which way to turn that will ultimately solve their problems and save face internally. I think part of it is negotiating tactics, but I think more than anything else it’s not exactly knowing what to do.”
Restructured bonds from Argentina, the world’s biggest exporter of soybean oil and derivatives, fell today, paring a rally yesterday sparked by the lawyer’s talk of negotiations. Benchmark securities due 2033 sank 0.5 cent to 75.84 cents on the dollar as of 12:21 p.m. in New York.
“The court’s decision to lift the stay took the government by surprise and without a clear strategy,” said Maximiliano Castillo, the director of Buenos Aires-based economic research company ACM. “Evidently they’re playing an ambivalent and risky negotiation strategy.”
Fernandez’s late husband, former President Nestor Kirchner, was the architect of the hardline stance against talks with bondholders that resonated with recession-weary Argentines after the 2001 default. The nation can no longer put off Singer’s claims because the U.S. court order blocks the government from making a June 30 interest payment on the restructured bonds without paying the holdout creditors in full.
The Economy Ministry said late yesterday that with the ruling in effect, it won’t be able to make the interest payment.
Cabinet chief Jorge Capitanich said today that there’s no Argentine mission going to New York for talks and the country is working on paying bondholders under Argentine law to skirt the U.S. ruling.
Still, as part of the push to raise financing overseas for the first time since its record $95 billion sovereign default, Argentina has begun showing a willingness to settle long-standing disputes in recent months.
In May, it reached a $9.7 billion accord with the Paris Club group of creditors, three weeks after compensating Madrid-based Repsol SA (REP) for seizing its Argentine unit in April 2012. The Repsol payment was made with bonds, a strategy that Barclays Plc says could be a possibility in talks with Singer.
Singer’s Elliott Management Corp. is willing to consider accepting bonds as payment from Argentina in exchange for defaulted debt, according to a person familiar with the company’s strategy. Any decision to accept the securities would depend on the terms offered, said the person, who asked not to be identified because the information is private. NML Capital Ltd., the Elliott unit in litigation with Argentina, declined to comment on the talks.
Holding back a negotiating party from New York may be a way for Argentina to avoid violating the Rights Upon Future Offers clause included in the offer made to bondholders who accepted a 70 percent discount in restructurings in 2005 and 2010, according to Carlos Abadi, the chief executive officer of New York-based investment bank ACGM Inc.
While the clause guarantees exchange bondholders that the nation won’t voluntarily make any better offers until Dec. 31, using attorneys from its law firm Cleary Gottlieb Steen & Hamilton LLP may provide a workaround, he said.
“I think that the negotiation will be handled by Cleary on Argentina’s behalf and it is going to be limited to a ‘time and place’ negotiation,” Abadi said in an e-mail.
Argentina has a 30-day grace period if it misses the June 30 interest payment before it enters in default. That gives it six weeks to negotiate a settlement, said Siobhan Morden, the head of Latin America strategy at Jefferies Group LLC.
“Once again, it’s that push and pull of whether there are prospects for a negotiated settlement,” Morden said in a telephone interview from New York. “If they’re not sending a delegation here, there’s only six weeks, so it makes it really difficult to expect that they can be successful within that time frame, either on a negotiated settlement or a workaround solution.”