Monday, February 22, 2016

Vulture-related laws are priority for Macri

PRO caucus leader Nicolás Massot says complying with Judge Griesa’s demands will be high on the party’s agenda.

Government will seek to repeal Padlock, Sovereign Payment legislation in March

With the possibility of a deal with holdout bondholders now no longer appearing to be so far away, repealing legislation that will allow a deal to be sealed with the recalcitrant creditors that have waged a years-long fight against the country will be at the top of the government’s agenda when Congress reconvenes in March.

“Our goal is to abolish the Padlock Law (Ley Cerrojo) and the Sovereign Payment Law in March,” Nicolás Massot, the leader of the PRO caucus in the Lower House of Congress said yesterday. New York District Judge Thomas Griesa said on Friday that repealing the two pieces of legislation was necessary in order to lift the injunctions that restrict the country from servicing its foreign debt normally.

According to Massot, both President Mauricio Macri and Finance Minister Alfonso Prat-Gay have stated their agreement with Griesa’s conditions and Macri is likely to make a public announcement soon regarding “the reforms that are needed to put an end to the bondholders’ issue.”

“We understand that negotiations are on the right track, with Argentina getting good terms. Both the judge and the mediator (Special Master Daniel Pollack) have a good predisposition, now it is our turn to make a move,” Massot told Rock & Pop radio.

His words came after Griesa seemed to officially change his long-time animosity towards Argentina in a ruling that praised the “sincerity and good faith” of Macri’s administration following the government’s new proposals to the small percentage of bondholders who rejected Argentina’s 2005 and 2010 debt restructuring offers.

The country’s negotiator, Finance Secretary Luis Caputo, put Argentina’s offer on the table on February 5 to pay as much as US$6.5 billion on US$9 billion of holdout claims, an improved figure when compared to the past administration, which had insisted on settling for the same terms that the remaining 93 percent of bondholders from Argentina’s 2001-defaulted debt received.

Some of the funds suing Argentina for improved terms have already accepted the government’s new proposal, but the biggest hedge funds are yet to be convinced. Representatives from the Elliott and Aurelius hedge funds have argued that the offer is insufficient, as the way in which it is structured makes it more attractive to some of the funds that accepted (such as Dart) than to others.

With Griesa’s quick promise to lift the injunction against Argentina if the country pays all the bondholders who agree to terms before February 29 and abolishes a series of local laws, the most hawkish funds would lose leverage in their struggle to get even better terms from the country.

Without the injunction, Argentina would no longer be in a hurry to close a deal, and that would give it breathing room to continue trying to push Elliott and Aurelius toward a deal in any possible negotiations.

Numbers game

The question now will be whether the PRO caucus will be able to round up enough lawmakers to abolish the Padlock and Sovereign Payment laws.

Massot noted yesterday that all the parties inside the ruling Let’s Change alliance, including the UCR and the Civic Coalition, have already joined forces to form a bigger caucus of 89 lawmakers — higher than the 83 within the Victory Front (FpV) caucus.

But Let’s Change would still need a series of circumstancial allies to pass the reforms, as a majority is only ensured with 129 lawmakers.

While some in the FpV have already hinted they oppose the deal that the government has outlined for the holdouts in New York, dissident Peronists in Sergio Massa’s Renewal Front and the Diego Bossio-led FpV splinter Justicialist caucus are seen as potential allies.

Question marks over the role of presidential runner up Daniel Scio-li also remain. While some of his key economic advisers have backed Macri’s proposal, former FpV Economy Minister Axel Kicillof has strongly criticized the proposal.

The situation is similar to that in the Senate, with Let’s Change needing to muster support from Peronist senators.

Brackets can wait

While many were expecting a reform to the income tax brackets to also be among the priorities when Congress reconvenes, Macri has put the issue in the back burner for now following his announcement to lift the salary floor from which income tax is due.

“Of course we know the reform has to be done and we want to carry out those changes. We are not saying this is over as it is and that nothing else needs to be changed, but the country cannot deal with everything at once. At this time there is no more room to move ahead in that direction,” Massot said.

The decision to postpone further reforms means that the budget will not be as affected this year, as the government tries to reduce the fiscal deficit. Central Bank money printing to aid the Treasury finance its deficit is seen as one of the key reasons behind inflation, which the government has vowed to reduce to one -digit figure by 2019.

An agreement with the so-called vulture funds will also be key to Prat-Gay’s plans.

The Finance minister is betting on a gradual approach to reduce both the deficit and inflation, as opposed to some economists to his right who call for a shock adjustment. Foreign credit, which is harder to obtain while Griesa’s injunction is still active, is key to cover the fiscal deficit in the meantime.

Herald staff