Somewhere in all the talk about vulture capitalists and corrupt governments, of sovereign nations and free markets, the true meaning of this battle between Argentina and a group of hedge fund creditors was completely lost.
It stopped being about the money.
Maybe, to some, it never was.
Follow us here for a minute: Argentina has the over $US1.3 billion necessary to pay the NML Capital — the group of hedge funds led by Paul Singer that have been suing The Republic for almost a decade.
And Paul Singer, ideally, simply wants to get paid.
So for the love of pragmatism, why can’t this deal get done?
Ego. This is about ego.
“The public roadblocks thrown up by both sides… are designed to back the other party into a corner,” said William Brandt, the President of Development Specialists Inc., one of the U.S.’s premier bankruptcy and restructuring experts.
Argentina said it couldn’t pay the “vultures” at NML because paying before 2015 would trigger the RUFO — Rights Upon Future Offering — clause in its bond contract. Triggering that clause would entitle all bondholders would be to the same payment (100 cents on the dollar) as NML, even though 97% of bondholders have taken haircuts on that debt of up to 70%.
If RUFO would hold true, triggering it would open Argentina up to $US15 billion worth of payments.
But it likely wouldn’t hold true. The language in Argentina’s own contract says that The Republic cannot voluntarily negotiate better terms with other bondholders. But paying NML is not voluntary. It’s Court ordered.
Plus there are other RUFO work arounds.
You see, ideally, the other bondholders — the ones who have taken a haircut on their debt — want to get paid too. Already, some have volunteered to waive their right to RUFO to get a deal done.
Bondholders have also asked presiding Judge Thomas Griesa to grant Argentina’s request for a stay on payments — a request the Judge has already once rejected — until a negotiation is reached.
Judge Griesa kicked that request over to NML, saying that the holdout creditors should decide whether or not the stay should be granted. NML said no.
“If there’s once shortcoming in Singer’s personality and business style it’s that he doesn’t know when to accept victory,” said Brandt who has sat across the negotiating table from Paul Singer before. “A wise course of action would be to let your opponent up from the mat and not dance on their grave.”
Singer did win the lawsuit, after all.
The problem with all the posturing, is that’s not only ridiculous, it’s also dangerous. The longer NML and The Republic argue, the worse Argentina’s economy gets. Today alone the Argentine stock market is sinking like a stone. The peso is depreciating against the dollar too, hastening a painful devaluation that could’ve waited until the country’s inflation rate — the second worse in Latin America after Venezuela’s — was under better control.
In a note published Thursday morning, Goldman Sachs cut its Argentine GDP growth forecast to -1.3% for 2014 and -1.4% for 2015.
“The impact on the economy will gain in importance the longer it takes to solve this situation,” Goldman wrote. “Without any prospect of the central government being able to tap international markets in an electoral year, the continuous monetization of a (likely) growing fiscal deficit would increasingly fuel inflation and exchange rate pressures. Facing mounting pressures and a significant amortization of its own short-term debt… the Central Bank may have to resort to a significant correction of both interest and exchange rates (as already occurred in 1Q14), although it is likely to be constrained by political resistance due to the incipient economic recession.”
Argentina’s leaders have said time and time again that the world stands with it. That poor countries are subject to a systemically unjust financial system. And until Thursday morning, The Republic might have gone on saying that without any question.
And then an editorial called ‘The ‘Vultures’ Are Not The Dramatic Ones’ appeared in Uruguayan newspaper El Pais:
“It’s clear that our neighbouring country’s drama is not being caused by the ‘vulture funds Has anyone ever heard of another country having a problem like this one? Even fragile, small countries like Uruguay, countries that have gone through a few financial crisis’, have negotiated a with our creditors reasonably and with civility, and we have lived through those times without so much kicking and screaming.”
The editorial goes on to say that Argentina’s problem is part psychological. The Republic and its citizens live under the impression that the world is out to get them — that they, despite their riches, they are forever on some heroic quest to fight the powers that be.
For this delusion to persist, there must be a “power” to fight. There must be a straw man to divert the people’s attention from the fact that some of these problems are of their government’s making.
Now Paul Singer is giving diversion to Argentina on a silver platter.
What a perfectly nasty pairing.
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