Argentina’s deadline to pay its creditors came and went Monday — but the country still has a 30-day grace period to figure out how and, particularly, who it’s going to pay in order to stave off its second default in 13 years.
As the date approached, Argentina pulled out the stops, threatening to bring charges against the judge in their case to the International Court of Justice at The Hague. It also took out full-page ads in the New York Times and the Financial Times on Monday to publish official screeds — all in upper case — lambasting the hedge funds suing them.
For over a decade, several “vulture funds,"so-called for their tendency to prey on weakened governments, have strung along the Buenos Aires government and 92 percent of its bondholders who agreed to restructure their loans after Argentina defaulted on nearly $100 billion in debt in 2001. The vulture funds refused to accept less than 100 cents on the dollar for their bonds, despite buying them for pennies. According to government figures, the largest, NML Capital, stands to make 1,600 percent, should its gambit succeed.
There are several far-fetched but technically possible ways for Argentina to get out of the standoff.
Last month, the Supreme Court refused to hear Argentina’s appeal of a 2012 lower court decision that ruled that the country could pay the restructured bondholders only if it paid the holdouts as well.
Argentina claims that paying the holdouts in full would eat up roughly half of their $30 billion foreign reserves and make it impossible for them to service the remaining bondholders. Either way, the country would be on the path to default.
Last week, Argentina sent $539 million in interest payments to their New York bank, intending to pay off the restructured bondholders. Thomas Griesa, the New York judge who ruled against Argentina in 2012 (and, based on court transcripts, not a fan of malbec and empanadas) called the move an “explosive action” and refused to allow the disbursement.
Adding to Argentina’s woes is last Friday’s indictment of Vice President Amado Boudou, who is charged with corruption and bribery linked to the acquisition of none other than a company that prints the rapidly depreciating Argentine peso.
Elliott Management, the parent company of NML Capital, has claimed Argentina isn’t willing to negotiate. On Monday night, however, the government in Buenos Aires announced that it would send a team to New York on July 7 to meet with Daniel Pollack, a lawyer delegated to oversee potential talks.
Yet even if Argentina were to reach an agreement with the holdouts, it would likely trigger claims from those who have already settled, possibly forcing Argentina to pay those bondholders more — a series of events almost undoubtedly resulting in default.
'More or less anything is possible. My inclination is to bet that Argentina is to default again.'
“Reaching an agreement to pay everything at the end of the month is unlikely,” Martin Wolf, chief economics commentator at the Financial Times, told VICE News. “It is an incredibly difficult situation and no one seems to know what’s going to happen.”
There are several far-fetched but technically possible ways for Argentina to get out of the standoff. One particularly outlandish theory is that it could allow a default on July 30, let the vultures profit from their insurance for such an event (via the infamous credit default swaps of 2008) then settle with them the next day for less.
Argentina could also simply claim it has held up its end of the bargain by ordering their bank to pay bondholders, but that outside forces stymied them. Or, to circumvent Griesa and the US banking system entirely, they could mail a half billion dollars in cash to bondholders.
“More or less anything is possible,” said Wolf. “My inclination is to bet that Argentina is to default again.” Griesa’s decision faces challenges not only from Argentina, but also from investors who claim the judge overstepped his jurisdiction by looping in bonds issued in Europe.
Restructured bondholders spoke to VICE News with an expressed weariness about the court case, which encourages vulture funds at the expense of investors who already settled. There’s a grudging respect, however, for Elliott Management CEO Paul Singer, based on the assumption that he, as a financier operating on pure rational self-interest, has no choice but to maximize his gains.
Even at the World Cup, the Argentines can’t seem to avoid the world of international finance. Today, the Albicelestes achieved a narrow extra-time win over Switzerland, titans of banking and Alpine mattress for the hidden, tax-free cash of the rich. And, if the US beats Belgium this afternoon, they will face Argentina next.
Whatever the outcome of Argentina’s tribulations, Griesa’s decision will encourage more vulture funds to try to take advantage of similar situations, frustrating more investors, and leaving more countries to just take out their anger on the sports field.
Follow Samuel Oakford on Twitter: @samueloakford
Image via Flickr