All these mentions of default have me puzzled. Argentina has already defaulted on various tranches of debt over the last few months. I believe resurgence of the word "default," refers to a massive default of the entire dollar denominated debt series in a global negotiation. But Argentina has been in default on one several securities for a while now.
The main problem, as I see it, is Argentina is behaving like Argentina. The Argentines have gone into the negotiations with a chip on their shoulder, throwing around lots of attitude and bluster. But they don't hold the high cards in the negotiation. And this attitude has won them no friends. Creditors don't appreciate it when debtors, whom are looking to cut their principal by some $30B - $40B, act like thugs. It's in bad taste and arouses resentments. Kicillof's attempt to deliver a 24 hour ultimatum (which he then rescinded and ended up paying 100 cents on the dollar) is a perfect example of professional negotiation gone wrong.
Another problem: Argentina has failed to put forward an economic plan for recovery. No creditor is going to sign off on a multi-billion dollar renegotiation without a credible economic plan for recovery, thereby providing assurance of repayment. That Argentina has failed to provide a clear economic path forward to aid negotiations is either bad faith, incompetence or complete ignorance.
In my opinion, Argentina's posture is unproductive. I understand Alberto and Kicillof want to look tough. But in the long run, that's not going to further negotiations. The bonds under negotiation are governed by collective action clauses and other covenants. These contractual rights give creditors the upper hand against a distressed debtor. There is one tranche in particular that is not very large, under which just 33% of face value can cross block several other tranches. I believe an aggressive hedge fund owns over 33% of that tranche.
These bonds were signed by Argentine legal representatives in the state of NY under NY law. They are legally binding contracts. If Argentina does not reach a consensual resolution, then Argentina will be shut out of international markets (except for China, Venezuela and Russia - who will take large chunks of flesh while giving little in return). If Argentina is shut out of international markets - again - the entire country will seize. Just like before. Legal costs will accumulate, interest costs will accumulate. The bill for Argentina will keep growing.
Argentina can't wish this debt away. And it can't run forever. Eventually, Argentina will have to pay. The longer Argentina waits, the worse it gets. In Argentina, you can break a contract with impunity. Or you can adjudicate for so long as to render a contract meaningless. When it comes to hedge funds exercising their contractual rights under NY/US law, it ain't gonna work that way. The debt will sit there, growing larger, until Argentina pays. In the interim, Argentina will be constantly looking over its shoulder as creditors try to seize petroleum shipments or state aircraft or whatever other assets are left unprotected in the international space. Argentina holds the low cards in this game. It's time Argentina accepted that fact and began behaving that way to save its taxpayers a ton of money.
en.mercopress.com
