LatinFinance - March/April 2015 - 60
an independent economist, says the swap,
along with recent local sales of dollar-linked
bonds, are signs that the government
is willing to borrow again after years of
focusing on debt reduction. The previous
strategy of financing the fiscal deficit with
central bank reserves and of printing pesos
cut the debt-to-GDP ratio to 33% in the
second quarter of 2014 from 139% in 2003.
But the move fed inflation, which shot up
to 40% in 2014 from an average 25% annual
rate between 2010 and 2013 and mostly the
single digits in the six years before then.
By changing tactics to replace inflation
with debt, Dujovne says, the government
could revive investor confidence. He
suggests Argentina could "sell a reasonable
amount of debt without settling with
the holdouts if the bonds are priced
realistically".
In the meantime, Martín Polo, an
economist at Analytica Consultora, expects
the government to rely on dollar inflows
from crop exports and to restrict imports
to sustain dollar reserves. A catch is that
a 30% drop in global soybean prices,
Argentina's biggest export, since last May
likely will continue reducing exports that
peaked in 2011. Limits on imports could
cause shortages, job losses and public
scorn - as occurred during a recent scarcity
of tampons. Polo expects Argentina's
economy to shrink 2% this year, a second
straight year of recession.
If matters worsen, Fernández may
be forced to negotiate with the holdouts
against her wishes. "She can't hand over a
country in flames to the next government,"
says Rodrigo Olivares-Caminal, a professor
of banking and finance law at the Centre for
Commercial Law Studies at Queen Mary
University of London. "She might be held
legally accountable."
Or the restructured bondholders could
force a settlement by demanding an
acceleration of the maturity of their bonds,
which is their legal right. That could push
the country to default again, this time on all
of its bonds.
In fact, Olivares-Caminal expects the
risk of acceleration will mount as nervous
bondholders worry about being paid
during the last days of the party that's run
Argentina since 2003.
Politics at play
Sergio Berensztein, a political analyst, says
all three frontrunners in the presidential
race are more conservative than Fernández
and "know that Argentina has a lot more
60 L ATINFINA NCE.COM - March/April 2015
RODRIGO OLIVARES-CAMINAL
QUEEN MARY UNIVERSITY
OF LONDON
"SHE CAN'T HAND
OVER A COUNTRY IN
FLAMES TO THE NEXT
GOVERNMENT"
to gain by returning to the global capital
markets than by remaining out of them."
Sergio Massa, a congressman who
has broken ranks with Fernández since
working as her cabinet chief in 2008 and
2009, can count on 28% of the votes,
according to a January poll by Carlos Fara
y Asociados. Buenos Aires Mayor Mauricio
Macri can expect 20.7% of votes. Both,
says Berensztein, would push for a quick
resolution with the holdouts.
Buenos Aires Governor Daniel Scioli,
who's trailing in the polls with 18.7% of
the vote, could take longer to press for
settlement, especially if Fernández retains
some power in his administration in
exchange for her electoral support.
Scioli wants Fernández's endorsement,
says Francisco Resnicoff, a political analyst
at Cefeidas Group, an international advisory
firm. Despite recent issues, her party
oversaw a 2003-2011 economic boom.
But Scioli is also forging ties with the
leaders of Peronism, a political movement
to which he, Massa, and Fernández all
belong. This support will help him defend
his campaign against any attacks by
Fernández, Resnicoff says.
Scioli may also want to distance himself
from Fernández after she was implicated in
January of trying to cover up Iran's alleged
involvement in the 1994 bombing of a
Jewish community center. Alberto Nisman,
the prosecutor who was considering
seeking her arrest, was found shot dead
four days later, sparking protests and
demands for political change.
A subsequent poll by Management & Fit
revealed 84% of respondents believe the
president's already dismal approval rating
would decline as a result of the accusation
and death.
Macri, the only pure anti-Fernández
candidate, could benefit if the controversy
swells and economy worsens, Resnicoff
says.
But no matter who wins, the next
government is widely expected to pursue
moderation rather than the extremes of
belt-tightening in the 1990s and excessive
public spending since 2003.
"Argentina needs serious money, but
none of the candidates are going to take
it in exchange for austerity measures that
will bring unemployment," says Ezequiel
Bidau, a financial advisor at Miami-based
ACP Securities who recently relocated to
Argentina and is advising Massa.
He says this centrist belief could drive
negotiations with the holdouts. "You have
to sit down with the holdouts, but you
can't pay any price. It has to be good for the
country," Bidau adds.
To date, the plaintiffs are demanding
what a US court said they are entitled to:
around $1.5 billion in cash for the face value
of their defaulted bonds, plus penalties and
past-due interest.
One impediment for meeting their
demands was a clause in the contracts of
the restructured bondholders that gave the
92.4% the same treatment as the holdouts
if Argentina upped its offer. That would
saddle the country with at least $120 billion
in additional debts, says Kicillof. While the
clause expired at the end of 2014, Kicillof
started 2015 off by saying that repaying
more than the original offer would still be
"a financial error".
Observers view his strategy as trying to
limit their demands and those of another lot
of holdouts who have claims on far more.
Olivares-Caminal thinks all the holdout
creditors could accept a 30% discount
to preclude Argentina from leaping to a
full-fledged default that would postpone
a settlement on their judgment for at least
three years.
A settlement could allow Argentina to
return to the international capital markets.
"Once Argentina does settle with the
holdouts, Wall Street will change its tune
on Argentina," predicts Walter Molano,
author of In The Land of Silver: 200 Years of
Argentine Political-Economic Development.
"Instead of being the black beast that it has
been for the past 12 years, it will become the
darling." LF
http://www.LATINFINANCE.COM
LatinFinance - March/April 2015
Table of Contents for the Digital Edition of LatinFinance - March/April 2015
Contents
LatinFinance - March/April 2015 - Cover1
LatinFinance - March/April 2015 - Cover2
LatinFinance - March/April 2015 - Contents
LatinFinance - March/April 2015 - 2
LatinFinance - March/April 2015 - 3
LatinFinance - March/April 2015 - 4
LatinFinance - March/April 2015 - 5
LatinFinance - March/April 2015 - 6
LatinFinance - March/April 2015 - 7
LatinFinance - March/April 2015 - 8
LatinFinance - March/April 2015 - 9
LatinFinance - March/April 2015 - 10
LatinFinance - March/April 2015 - 11
LatinFinance - March/April 2015 - 12
LatinFinance - March/April 2015 - 13
LatinFinance - March/April 2015 - 14
LatinFinance - March/April 2015 - 15
LatinFinance - March/April 2015 - 16
LatinFinance - March/April 2015 - 17
LatinFinance - March/April 2015 - 18
LatinFinance - March/April 2015 - 19
LatinFinance - March/April 2015 - 20
LatinFinance - March/April 2015 - 21
LatinFinance - March/April 2015 - 22
LatinFinance - March/April 2015 - 23
LatinFinance - March/April 2015 - 24
LatinFinance - March/April 2015 - 25
LatinFinance - March/April 2015 - 26
LatinFinance - March/April 2015 - 27
LatinFinance - March/April 2015 - 28
LatinFinance - March/April 2015 - 29
LatinFinance - March/April 2015 - 30
LatinFinance - March/April 2015 - 31
LatinFinance - March/April 2015 - 32
LatinFinance - March/April 2015 - 33
LatinFinance - March/April 2015 - 34
LatinFinance - March/April 2015 - 35
LatinFinance - March/April 2015 - 36
LatinFinance - March/April 2015 - 37
LatinFinance - March/April 2015 - 38
LatinFinance - March/April 2015 - 39
LatinFinance - March/April 2015 - 40
LatinFinance - March/April 2015 - 41
LatinFinance - March/April 2015 - 42
LatinFinance - March/April 2015 - 43
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LatinFinance - March/April 2015 - 46
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LatinFinance - March/April 2015 - 68
LatinFinance - March/April 2015 - Cover3
LatinFinance - March/April 2015 - Cover4
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