Economic minister: Argentina wants to avoid default

07/04/2014 4:58 AM

07/05/2014 5:21 AM

Argentina wants to negotiate with holdout creditors and avoid a default, said the country’s economic minister, Axel Kicillof, during a speech in Washington Thursday. Whether any talks between the government and a small group of creditors occurred Thursday remains unclear.

Kicillof and Hector Timmerman, Argentina’s Foreign Minister, were very clear in their criticism of a New York judge and holdout creditors—referred to as “vultures,”—while also saying they will negotiate with the holdouts.

“Argentina wants to negotiate in good faith,” said Kicillof in a speech that reiterated much of his speech at the United Nations last week. But “Argentina will not negotiate with conditions of extortion.”

Kicillof spoke at the Organization of American States three days after the nation missed a $539 million debt payment and went into technical default. Argentina has a grace period until July 30 to make multiple debt payments, renegotiate with holdout creditors or default for the second time in 13 years.

Kicillof’s office released a statement Tuesday stating an Argentine delegation would meet on Monday with a judge-appointed mediator in New York to discuss negotiations.

Speaking in front of a supportive crowd, Kicillof and Timerman lambasted New York district court judge Thomas Griesa, who ordered Argentina to make debt payments to holdout creditors and bondholders of restructured debt at the same time. They suggested Griesa’s order would push Argentina towards default.

"Griesa's decision is crazy because it goes against the debt deal Argentina made with 92 percent [of creditors],” said Kicillof. If Argentine complied with Griesa’s order “the volume of the debt would be the same that we had in 2001 and that brought us to default."

While Argentina renegotiated its debt in 2005 and 2010 with 92 percent of its creditors, a small group of bondholders has refused lower bond-payment terms and sued Argentina for full repayment of $1.5 billion.

Elliott Management, one of the New York-based holdout creditors, requested to meet with Kicillof in Washington Thursday. But both Argentine officials and the holdouts would not confirm if any meetings took place Thursday.

Mark Brodsky, chairman of Aurelius Capital Management LP, another holdout creditor, released a statement Wednesday saying Kicillof has avoided negotiations.

"This will be Mr. Kicillof's second speech in the U.S. in two weeks, yet both times he has refused to meet with us,” said Brodsky, referring to Kicillof speech at the United Nations last week. “Speeches won't avoid another Argentine debt crisis on July 30."

An Aurelius spokesperson had no further comment Thursday.

The holdout creditors are suing Argentina, South America’s second-largest economy, for debt purchased during the nation’s $95 billion debt default in 2001, which collapsed Argentina’s economy.

Although a default this time would not be as bad as 2001, economists project, it would cause a significant devaluation of the Argentine peso, which has already lost 24 percent of its value against the dollar this year.

The official exchange rate for the peso currently trades at about 8 pesos to the dollar, but the majority of Argentines exchange pesos and dollars at a rate close to 12 pesos to the dollar, according to the most recent figures from La Nacion, one of the nation’s largest newspapers.

A decade of legal wrangling and theatrics came to a head June 16 when the Supreme Court denied Argentina’s appeal and upheld Griesa’s ruling that Argentina must pay holdout creditors and owners of restructured debt at the same time.

Speeches aside, Argentina’s willingness to negotiate is unclear, said Jay Newman, Elliott’s senior portfolio manager, in an appearance Tuesday on CNBC. The hedge fund suing Argentina is called NML Capital and it's owned by Paul Singer. Elliott Management, owns NML, and Singer is in the board of Elliott and NML.

“There have been no negotiations,” Newman said Tuesday on CNBC. “We hope Argentina will come to the table, but so far there’s been no sign of it.”

Last week, Argentina attempted to circumvent the district court’s ruling and pay $539 million to the holders of restructured debt, but Griesa blocked the payments, saying they were illegal. Griesa also rejected Argentina’s request on June 23 for a stay to permit more time for negotiations.

The foreign credit markets virtually shut out Argentina since its 2001 default, but the country has made recent efforts with other debt deals to regain access to foreign credit. Cristina Fernandez de Kirchner, Argentina’s president, agreed to debt deals with the Spanish petroleum company Repsol and, in May, with the Paris Club of creditor nations.

Argentina has a large shale oil field called “Vaca Muerta,” or dead cow, that it hopes will be an economic boon for the country. The nation needs foreign investment to extract and exploit the shale oil.

Up until the Supreme Court’s decision on June 16, Kirchner was adamant for years that Argentina would not negotiate with the holdout creditors. Since the decision, she and Kicillof have backtracked.

Newman, the Elliott manager, said Argentina’s agreements with Repsol and the Paris Club could be templates for a deal with the holdout creditors.

Timerman, the Foreign Minister, criticized the holdouts and said Argentina would not accept a deal that was not fair to the restructured debt deals it made in 2005 and 2010. Argentine officials have said paying the holdouts in full would cause the restructured bondholders to seek similar, larger payments.

“The vulture funds never want the same as the other creditors. They want more,” said Timerman. “We are going to continue negotiating.”

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