Since Argentina defaulted on its debt to a group of bondholders this summer, a doomsday scenario has remained in play — the fact that holders of defaulted bonds could call for an acceleration of their payments.
In other words, they call in all their money at once.
It’s been months since then though, and that hasn’t happened. No one’s called anything in. And now Argentina is crowing about it a little.
Back in October some government officials thought that “Argentina should pay the holdouts according to a U.S. judgement and settle at whatever price, because they feared the acceleration of payments, but that hasn’t happened,” said Argentine Cabinet Head Jorge Capitanich in a speech Friday.
This swipe didn’t come out of the blue. At Thursday’s Dealbook Conference in New York City, hedge fund manager Paul Singer — the CEO of the hedge fund suing Argentina for $US1.7 billion in debt — reiterated his belief that Argentina was being irrational in its refusal to negotiate a settlement with his fund, and a number of other Argentine debt holders.
“They have elevated that commercial dispute into a dispute… about national dignity,” Singer said. “Given that, it’s impossible to predict what they will do on January 1st. It makes every degree of sense in the world for them to sit down with us… and make a deal.”
January 1st is when a legal clause the Argentine’s have said makes it impossible to negotiate with the holdouts until the end of December expires. That’s not news. Nor is it news that Singer feels this way.
However, this non-news sent Argentine politicians into hysterics, thus Capitanich’s more colourful statements during his Friday speech.
“We are not willing to be extorted by creditors privileged with a shameful court ruling that has been generally condemned by the rest of the world,” he said.
The thing is, it’s getting down to the wire. And what was missing from Capitanich’s speech was any mention of the upcoming deadline. Or any plan of action for the coming year.
What we do know is that Argentina is going to try to raise money to pay its $US12 billion debt is in 2015 on the local market — meaning that it doesn’t need the international financial community’s blessing (or a resolution to this case) to get more dollars. Analysts think that only strengthens Argentina’s negotiating position.
It “would enable the CFK administration to continue to play a hard hand and renege on the holdouts proposed claims,” says Oxford Economics Senior Economist Aryam Vasquez.
So it doesn’t sound like January 1st is going to be the day everyone sits down and comes to an agreement, legal clause or no. One Argentine investment bank head said that negotiations needn’t happen because Argentina had already won the dispute, and that the next administration would have to deal with this issue when President Fernandez was out at the end of 2015.
Meanwhile the country’s inflation rate is hovering around 40%, the black market peso (the blue dollar) is swinging wild — down 8 cents on Thursday, up 15 cents on Friday to 12.85 official pesos to the blue dollar.
The Argentine stock market, the Merval, is getting pounded — down 16.6% in the last month.
Hedge fund Fir Tree Partners shut down their Argentina fund earlier this month after gains of 20%. It’s a signal that they believe things are only going downhill from here.
That runs counter to what some hedge fund managers, like Fortress Investment’s Mike Novogratz have said all year — that Argentina is so bad it’s good, and that soon its credit problems would be resolved, opening the flood gates for investment.
If the RUFO clause is missed, that puts Novogratz’s vision farther away. The situation gets messier, and it gets harder to see exactly when this would turn around.