This is not going to be tidy.
Yes, Argentina has said that it is willing to negotiate with a group of hedge fund managers that have been suing the country for full payment on Argentine bonds dating back to the country’s last financial collapse in 2001. With interest, it’s about $US1.7 billion.
And yes, the two parties — NML (the hedge funds) and Argentina — met yesterday in the office of Judge Thomas Griesa, the judge whose order that Argentina pay the hedge fund managers in full was essentially upheld by the Supreme Court on Monday.
But there are still a few very ugly loose ends to tie up here. One of them being the little matter of a $907 million payment due June 30th that Argentina owes exchange bondholders, the 92% of investors holding these bonds who did take a haircut on the same debt that NML owns. Because Judge Griesa lifted the stay on payment put in place during Argentina’s appeal to the Supreme Court, that payment calendar is back in motion.
And Argentina needs to figure something out as soon as possible, for according to Judge Griesa’s order, it cannot pay exchange bondholders without paying the holdouts as well.
That means there needs to be some fast talking, but Jorge Capitanich, the head of Argentina’s cabinet, has said the country will not send a delegation to New York City to negotiate. On that news, Argentine bonds reversed the gains they made Wednesday on the news that the country would negotiate.
Perhaps this is what Judge Griesa was talking about when he said at the meeting: “Really a promise of good faith from Argentina gives me little confidence that the country will make its payments.”
He also said that President Cristina Fernandez de Kirchner’s fiery language regarding the “vulture” funds does not help matters either.
So what are Argentina’s options? (Aside from changing the jurisdiction of the bonds from the U.S. to Argentina, a cockamamie scheme concocted by Finance Minsiter Axel Kicillof that Griesa shot down yesterday.)
- Argentina can appeal to the Supreme Court, the highest Court in the land is unlikely to play that game, and it is Judge Griesa who has control of the stay on payment anyway. So this would be a waste of time. Additionally, according to NML the stay has BEEN over.
- Argentina can ask NML if they can come up with a payment plan. It has $US28 billion in reserves in its Central Bank right now, and perhaps it feels a close to $US2 billion payment all at once is a little hard to scrap together.
Another option that Weidemaier didn’t point out, but is always implicit in this story, is that Argentina can also decide to defy the Court and potentially set off another bomb in its own economy. What the professor did say is that the best thing the country can do is try to find a way to keep the stay going and buy more time to come up with a plan.
But who knows if Judge Griesa is down for that. (Likely, he’s not.)
What we do know is that Argentina has $US28 billion in its Central Bank right now. That’s it. If it manages to show international markets that it is negotiating in good faith, it can likely raise more money by issuing new bonds. Right now it can’t, uncertainty over this case has made that impossible.
Like one Argentine bond trader told Business Insider — “the disaster window is always open.”
Keep that in mind.