RUFO is gone. It’s time to negotiate.
Post date : 01.06.2015 8:30 am
Over the weekend, Argentina’s Economy Minister Axel Kicillof gave a battery of interviews to media, and it was encouraging to us to note that he acknowledged that the so-called RUFO clause has expired, saying it khad been “a trap.”Kicillof had repeatedly cited the clause as the most “dangerous” barrier to holding a real negotiation, since any voluntary offer to the remaining creditors – he argued – would “trigger a cascade of claims” that different times he estimated to be between US$20 billion and US$500 billion.
This blog has written extensively about RUFO and we’ve always maintained that it was nothing more than a smokescreen – an excuse that Kicillof and others in the government used in refusing to negotiate with Argentina’s creditors.
Whatever the case, now RUFO has expired, and so there should be no barrier to negotiation anymore. Argentina’s creditors have consistently stated that a settlement could be reached in a day. So why isn’t Argentina negotiating?
In one of his interviews, Minister Kicillof noted that in his view, the expiration of the RUFO “took a huge weight off” the situation. This is encouraging. He also noted that this, however, “does not resolve other problems.” He is correct in that it does not provide a framework for a settlement—the lack of which is at the root of Argentina’s current economic problems. To settle, both parties must come to the table.
One interesting proposal for a settlement was offered last November by Argentine economist Juan José Cruces of the highly respected Tocuato di Tella University in Buenos Aires. He issued an extensive paper on his views, and summarized it in a column in La Nacion on Sunday, November 16. His main points, as he wrote them, were:
1. No more bravado: change the manner of relating to the court and obey the order that the judge has issued. Our Congress voted for budgets with deficits, which required debt issuance, and we waived sovereignty in favor of international courts because they gave more security to investors, we did it before and we do it now. However more aggressive our discourse may be, the greater our promises of future payment must be, in order to raise a certain quantity of cash to settle this litigation.
2. Settle the amount payable cheaply: show willingness to resolve the problem in reasonable terms, recognizing the rights of the litigants. Historical evidence suggests that this does not imply paying everything they are asking.
3. Settle the form of financing the amount payable cheaply: we want to take advantage of the decline in country risk that will result from the settlement; there are several possibilities for doing so.
4. Begin to negotiate on January 1, 2015, early.
5. Return to the IMF: it is the cheapest form of funding that Argentina has and can buy us a lot of credibility vis-à-vis our interlocutors and mitigate the effect of respecting the RUFO time period.
6. Execute competently: the proposal contains bold moves whose costs are mitigated and benefits are maximized if it is executed by someone who understands financial markets and the international arena, who inspires much confidence in the interlocutors.”
These ideas from Dr. Cruces are interesting for a number of reasons, mostly because they seek to promote pragmatism on the part of the Argentine government, something that has been lacking to date. Dr. Cruces specifically calls out the 2005 exchange as “aggressive” and casts doubt on it as a serious negotiating position for Argentina.
For their part, Argentina’s creditors have been pragmatic about a solution. They have pledged to accept a combination of cash and bonds under conditions that would be sustainable and affordable for Argentina given its current and future economic conditions. And many of the points laid out by Cruces would also be very consistent with Minister Kicillof’s widely hailed settlements with Repsol over YPF, and with the Paris Club.
All the analysts in Argentina and abroad agree that a negotiation relies entirely on a political decision taken in Buenos Aires to start one. One of the most notable lessons of history has been that no matter how rough the battle has been, peace is always a welcome finality. It is within reach today, no matter what the skeptics and the cynics on the sidelines are saying.
Argentina, let’s turn the page, and start talking.
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