Argentina made a deal with the Paris Club on Thursday. A mere 13 years after defaulting on them.
The scheme offers a framework for a sustainable and definitive solution to the question of arrears due by the Argentine Republic to Paris Club creditors, covering a total stock of arrears of USD 9.7 billion, as of 30 April 2014. It provides a flexible structure for clearance of arrears within five years including a minimum of USD 1150 million to be paid by May 2015, the following payment being due in May 2016…
And yes, this means something to the pari passu saga.
It means that a deal with holdouts is a matter of time.
This isn’t obvious, true. After all note that the settlement only requires one payment to former official creditors in advance of Argentina’s next presidential election, which is in October 2015. Also, overall, the Paris Club debt would be paid off over five years. (In cash or Argentine paper?)
In other words, Argentina’s economy minister went to Paris to replenish FX reserves in the long term, by inching the country toward a full return to international debt markets. But the structure of the agreement means there’ll be relatively little pressure on central bank reserves used to pay debt in the meantime.
Which is just as well, really — considering that Argentina’s central bank is being used as a piggy bank by the government more than ever.
BofAML for example notes that a record $2.2bn (in pesos) passed from the BCRA to government hands in the first three months of this year, in the form of transferred profits or short-term loans. That’s versus $815m worth in the same period in 2013.
Since BofAML also thinks that overall deficit financing by the central bank will be $15bn in 2014, even as the BCRA says that its reserves will shrug off their $15bn drop in the last year and a half and enter 2015 at above $28bn… we think something’s going to give to get that full market access at last, free of litigation.
Which brings us to the latest statement by the republic’s lawyers in order to get the US Supreme Court to take up the pari passu case. (A decision is imminent — even if the Court just asks the US government to weigh in before actually deciding a few months later.) We’ll pick Argentina’s arguments apart properly in another post later (it’s framed as a reply to the holdouts), but frankly, they’re looking a bit clapped-out.
In particular, note how big a bill that Argentina thinks it’ll be facing if the Court rejects the case, activating a requirement to pay holdouts ratably, alongside everyone else:
Contrary to Respondents’ assertions, absent relief Argentina will comply with the injunctions; though, since Argentina lacks the financial resources to pay the holdouts in full (what would amount to $15 billion) while also servicing its restructured debt to 92% of bondholders, Argentina will have to face, objectively, a serious and imminent risk of default…
Sure, $15bn sounds like lot: the miracle of post-dated interest, which is by far the majority of the holdout claims. But it’s not as big as some of the numbers which Argentina was telling lower courts last year…
The Amended Injunctions would prompt claims equal to more than $43 billion in principal and interest of defaulted and restructured debt – an amount greater than the entirety of the Central Bank’s reserves. This would create both a legal and economic impossibility and serve no purpose other than to create crisis…
Then the entirety of the central bank reserves. This was in February 2013. Arguably Argentina had a good legal point with the bigger number, in fact, as it was referring to a whole universe of bond holdouts that are watching Elliott’s success and may filetheir own pari passu claims, if they have the wherewithal to litigate. After all that is kind of the logic of ratable payment.
But the bigger number seems to have fallen away a bit. And the $15bn is an in-fullnumber, versus what a settlement might involve.
Of course to get the holdouts to talk and to create some negotiating leverage, Argentina might have to demonstrate its willingness to go ahead and default and/or swap systems for payments on its restructured bonds so that they can’t be injuncted on their way through New York.
To that end, here’s something interesting to end on: a purported letter from Argentina’s lawyers to the government which has appeared in the Argentine press. It talks about…
las opciones para el caso que el pedido de certiorari sea denegado, y… las cuestiones legales relativas al potencial arreglo de la deuda en default por fuera del litigio
Arreglo means settlement. Although we’ll leave the below as a translation exercise…
A settlement, maybe — but a tumultuous route on the way, probably.
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