In Paul Singer Versus the New Argentina, the Bad Blood Remains

ARGENTINA-ELECTIONS-MACRI

Mauricio Macri

Photographer: Juan Mabromata/AFP via Getty Images
  • Government says Singer-led creditors are dragging their feet
  • Argentina is said to reject non-disclosure agreement

In a break with his predecessor, newly elected President Mauricio Macri has restarted negotiations with Argentina’s disgruntled creditors. But so far, the acrimony that’s marked the decade-long impasse persists.

Last week, Foreign Minister Susana Malcorra accused bondholders led by billionaire hedge fund manager Paul Singer of dragging their feet to profit from accruing interest on the almost $10 billion of defaulted debt that Argentina says it owes. The comment came after the court-appointed mediator asked the government to delay making a proposal until the week starting Feb. 1 and the two sides were said to be at odds over whether to make the negotiations public.

Alfonso Prat-Gay in Davos
Alfonso Prat-Gay in Davos
Photographer: Jason Alden/Bloomberg

Finance Minister Alfonso Prat-Gay said in an interview in Davos on Jan. 19 that the process should be transparent and that it’s “not our fault” if the talks stall.

The rocky start signals the negotiations are likely to be fraught with tension despite Macri’s efforts to differentiate himself from former President Cristina Fernandez de Kirchner, who vowed never to pay creditors she dubbed “vultures.” The clashes are also helping derail a rally in Argentina’s bonds fueled by optimism that Macri would resolve a dispute that’s kept the country out of international debt markets since 2001.

“The difference between Cristina and Macri is not negotiating versus negotiating -- but negotiations are not necessarily amicable,” said Alejo Czerwonko, an emerging-markets strategist at UBS Wealth Management. “They have completely opposing interests so they need not be friends. They simply have to find a way to solve this problem together.”

Delaying the talks simply to increase the interest due would be unlikely, Czerwonko said. Yet the longer the issue drags on, the better the bargaining position for the holdouts since Argentina needs to resolve the issue to be able to return to international capital markets.

Macri, 56, has been keen to emphasize how different he is from Fernandez, whose refusal to abide by a U.S. court ruling that required Argentina to repay its creditors pushed the country into default for the second time in 13 years.

In a Jan. 22 interview at the World Economic Forum in Davos, Macri said the combative rhetoric used by Fernandez “doesn’t help” and acknowledged that the creditors’ claims are legitimate. Still, he said Argentina would seek a “realistic, reasonable settlement.”

“We don’t accept the level of penalties the judge has decided but we want to discuss that,” Macri said. “We want to finish all our conflicts of the past.”

Argentina is refusing to sign a non-disclosure agreement that would prevent the parties from publicizing details of their plans before an agreed-upon time, two people with knowledge of the matter who participated in the meeting said Jan. 14. The holdouts won’t submit their proposal until Argentina signs the agreement.

Stephen Spruiell, a spokesman for Singer’s Elliott Management Corp., declined to comment on the talks and the proposal.

Officials are resisting signing the non-disclosure agreement because of an Argentine law that prevents the country from proposing terms to the holdouts that are better than those the nation offered creditors in restructurings in 2005 and 2010, Prat-Gay said. Congress doesn’t reconvene until March.

“We have to be very careful about what we can and cannot do,” he said. “So it’s better for the whole process to be fully transparent.”

Charles Blitzer, a former International Monetary Fund official with experience advising on sovereign-debt restructurings, said in a Jan. 22 op-ed in the Financial Times that past debt negotiations owe their success in part to confidentiality from both parties and mutual agreement before releasing information to the public.

“The need for confidentiality is obvious as it is impossible to have the necessary give-and-take in the public spotlight, with the fear of press leaks or attacks from political opponents,” he wrote. “The use of an NDA is essential in this circumstance.”

Prices of Argentina’s defaulted bonds due in 2033 have dropped 3.6 percent since touching a nine-year high on Jan. 5, data compiled by Bloomberg show. 

“The expectation was that there was this momentum that would lead to solutions and achievements in fairly rapid succession,” said Michael Roche, a strategist at Seaport Global Holdings LLC in New York. “The nitpicking on matters by the holdout litigants has taken the wind out of their sails.”

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