Thursday, October 2, 2014 Brazilian firms could snap up defaulted debt

Thursday, October 2, 2014

Brazilian firms could snap up defaulted debt

By Marcelo Falak
Guest columnist

Top adviser to Rousseff’s government says private sector is currently in negotiations

BRASILIA — Is the Brazilian government expecting the Argentine conflict with vulture funds to be solved during the first half of 2015? The answer given was clear and included a revelation.

“I believe so. There are initiatives in Brazil, with the private sector, that are working toward that goal — with our know-how, our supervision and our complete willingness to help,” said Marco Aurélio García, one of the most influential officials of the Dilma Rousseff administration.

As a man of the ruling Workers’ Party (PT) and very close friend of Luiz Inácio Lula da Silva, García is Brazil’s Special Adviser for International Relations. But his influence goes well beyond his opulently-named title. He is, in fact, the one who leads Brazil’s relationship with Mercosur and South America in general — meaning his voice in these affairs is actually the one of a foreign affairs minister. He’s also a renowned intellectual and one of Argentina’s best friends around these parts.

Sources from Brasilia’s financial sector allow us to confirm that these negotiations — private ones indeed — are still active. Their ultimate goal is to purchase the debt owned by vulture funds, which have already received a favourable ruling by Judge Thomas Griesa and the US Supreme Court. The main demand of those carrying out these negotiations is to receive enough guarantees on the repayment capacity of Argentina’s government.

But there’s also a condition for the Cristina Fernández de Kirchner administration: any settlement cannot include only the US$1.6 billion dollars of the case in question but also the entire “holdout universe,” a reasonable demand in order to avoid a new wave of legal action in the near future for as much as 20 billion dollars.

“As far as I’m concerned, I’ve learned about some private initiatives. The first thing I told someone who wanted to talk to me — not a government figure at all — was that I thought it was excellent, that everything that may help Argentina would have my support. But that they need to do it in silence. Because the key to these types of negotiations is to be discreet,” García added.

Rousseff’s adviser welcomed Ámbito Financiero in one of the meeting rooms of the third floor of the Planalto Palace in Brasilia. With wooden walls and floors, the most beautiful aspect of each of the halls in the enormous Government House is the view to the gardens. The Brasilia Lake is visible further away, a fancy area that has magnificent homes and expensive restaurants.

Of course, it wasn’t altruistic reasons that pushed those business leaders to approach the Brazilian government. What are those interests? First, the one that can result from them being financial intermediaries on a deal that may bring Argentina out of default. The other, to avoid the legal saga to produce greater damage to our country’s economy — something quite important given the current economic situation in Brazil.

According to Marco Aurélio García, “there’s a possibility that this issue may be solved with the end of the RUFO clause,” the one that expires at the end of this year and would allow those who accepted the 2005 and 2010 restructurings to demand the full payment of the face value of their bonds if the government offers better terms before the end of the year.

“This would seem like a good solution to us. Argentina could enter a smooth period when it comes to funds. The other problems will have to be solved by Argentines — and there’s an election coming up next year.”

‘Big mistake’

The official, in impeccable Spanish, was shocked by the harsh speech given by President Cristina Fernández de Kirchner on Tuesday, in which she referred to the escalating tension between Argentina and the United States. But far from questioning its tone, he focused on what he considered the “brutal” political mistakes by US President Barack Obama’s administration.

“We have a very clear stance about the actions of the vulture funds. They’re absurd. I believe that there was great insensitivity on the part of the US government toward Argentina. And don’t tell me it’s just a matter of the judicial branch because no, it’s not,” he said.

But what are the causes for this attitude by the US toward the country?

“Well, maybe they can say in private ‘We don’t like Argentina’ or ‘We don’t like the Kirchners,’” etc. But I don’t think that’s a good way to cooperate, neither with a small country nor with a large one like Argentina — it’s a brutal mistake. When Thomas Shannon, former ambassador to Brazil who now is the main adviser to Secretary of State (John Kerry) — came to Brazil, Chile and El Salvador I told him: ‘Look, it’s a big mistake not to include Argentina (in the tour). It could have been a perfect occasion to settle some issues, to talk in an honest way.’”

@marcelofalak