Corruption charges add to Argentina’s debt woes
It hasn’t been a good few days for Argentina’s government. First, a New York court ruled to block payments on its restructured debt, leaving the country teetering on the brink of its second default in 13 years. Then, in another judicial blow – this time from Buenos Aires – vice president Amado Boudou was formally charged in a corruption scandal.
Boudou heard about the decision late on Friday evening when in Cuba. The charge is the culmination of an investigation into Ciccone, a printing company rescued from bankruptcy and awarded a government contract to produce pesos. The vice president, charged alongside five other defendants, is accused of using middlemen to gain a 70 per cent stake in return for favours.
The bribery charge is particularly bad for the government, coming at a time when it is trying to hold the moral high ground over its restructured debt repayments. Buenos Aires has argued that it is willing to repay the debt, taking out adverts to this effect in the Financial Times, New York Times, Wall Street Journal and others.
In the adverts, Argentina complained that having bonds issued under US jurisdiction “does not mean accepting court decisions that are impossible to comply with. All the more so if any such decision violates the sovereign immunity principle effective in the US.” In addition, it has sought to deflect the blame by attacking hedge funds – which President Cristina Fernández refers to as “vultures” – as agents bent on “extortion”.
The ruling this week by Thomas Griesa, a US District Judge, makes it illegal for the country to proceed with $832m worth of payments on its restructured debt, without first settling with so-called holdout creditors who refused to take part in the restructuring. The country can still avoid a formal default by settling with holdout investors during a 30-day grace period.
Whatever happens on the issue of debut repayment, the charges of corruption at the heart of the Fernández administration have undermined attempts to maintain a moral stance on the debt issue.
Economist Martín Redrado was quoted as saying on the news portal Infobae that the ruling “affects the credibility of the country from the institutional point of view”. Meanwhile, the ex-president of the Central Bank, Javier Gonzalez Fraga, said on local radio that Boudou’s charge “fed Griesa’s vision that we’re corrupt because we don’t respect the law”.
“The appeal [against vulture funds] has lost part of its attractiveness,” argued Claudio Iglesias, director of Economía y Sociedad public opinion consultancy. “How can a nation whose vice president is suspected of corruption give moral or other types of lessons to the world?”
The president didn’t comment on Monday when inaugurating a new road project, maintaining the government’s silence. Cabinet chief Jorge Capitanich’s had earlier blamed press partiality – a common government scapegoat – while claiming he wasn’t a “criminal lawyer”.
Boudou was once seen as an heir apparent. Fernández’s right-hand man during her re-election campaign in 2011, he was promoted as the Harley Davidson-riding, guitar-playing former economy minister who could connect with Argentina’s youth. But the decision now facing Fernandez is whether to stand by Boudou or cut him loose.
What is clear is that the president is increasingly vulnerable on the home front, with the corruption charges swirling, inflation spiralling out of control and the country officially in recession. Such a confluence of domestic woes reduce her room to deflect criticism by citing external malevolence such as “vulture funds” or the territorial dispute with the UK over the Falkland/Malvinas islands.
A poll released over the weekend by Poliarquía shows that 65 per cent of the Argentineans surveyed believed that the country should accept the US court decision and pay the debt, suggesting that people are tiring of the fighting talk.
The poll also showed that only 38 per cent thought the handling of the external debt issue had been positive under Fernandez’s administration compared to 52 per cent during the previous government of Néstor Kirchner, the incumbent’s husband who died in 2010.
“The Boudou case simplifies things for the opposition,” said Iglesias. “Before they didn’t know what to do regarding vulture funds because they didn’t want to be seen as unpatriotic. Questioning Boudou’s moral conduct is much more comfortable for them. It’s also easier for the average Argentinean to understand.”
http://blogs.ft.com/beyond-brics/2014/07/01/corruption-charges-add-to-argentinas-debt-woes/
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