Sat | Dec 3, 2016

Argentina enters overtime on debt impasse

Published:Friday | November 7, 2014 | 12:00 AM

Argentina enters

overtime on debt impasse

Like fans watching their favourite team move into overtime, international investors anxiously await the resolution of the Argentine debt saga.

It looked like the match was going to conclude at the end of July, but the game moved into overtime.

No one knows what to make of the referee.

Initially, he was well-disposed to the home team, but the insolence of the manager changed his disposition. Penalty after penalty was called in against the squad, only provoking the manager to be more disrespectful.

However, the team's new strategy soon became apparent. It was to tire out the attackers by moving the contest into a second overtime period.

This is also exhausting the fans and the players. The first overtime ends on December 31, when the RUFO clause expires. Due to its disastrous experience with the United States judicial system, there was no way that the Argentine government was going to take any chances on opening an even bigger can of worms.

The players in this analogy represent the Argentine economy, which is losing steam as it struggles to stay afloat. Yet, there will be an end to the epic tale. The second overtime ends next October, with the culmination of the Argentine presidential elections.

There is a great deal of anxiety in Buenos Aires, as President Cristina Fern·ndez de Kirchner runs out the clock.

The city is awash with rumours about the government's intent to restart the debt negotiations after the new year. A few government ministers have alluded to such a scenario, but a crippling paranoia about triggering RUFO, which carries steep economic and criminal implications, restrains them.

Contact with the public is limited. Once the negotiations start, they will be slow and convoluted. Not only will they focus on the total amount of the claim and the form of payment, but they will also deal with who enters the deal.

The government wants to include all of the holdouts, while the litigants want to limit it to the original group that filed the lawsuit.

A settlement of about US$1.3 billion would probably result in the full payout of the claim, while the much larger amount of US$15 billion would probably result in some form of concession.

For their part, the litigants continue to pressure the government. They are now in hot pursuit of the president's personal assets abroad.

Not only is this creating a great deal of fear among the highest echelons of power, it is creating a political headache. Newspaper articles about Fifth Avenue residences and Swiss bank accounts are giving the opposition plenty of ammunition to launch attacks.

Nevertheless, the president maintains a firm grip on the tiller. The crisis has tapped into a spring of nationalism. This means that her fears of not finishing her mandate will not be realised.

Still, the calendar marches steadily towards next year's elections. None of the candidates have started to campaign, but there has been a great deal of manoeuvring.

The contest will be a three-way match between the mayor of Buenos Aires, Mauricio Macri, the governor of the Province of a Buenos Aires, Daniel Scioli and the mayor of Tigre, Sergio Massa.

Macri comes from centre-right. He has no national apparatus, but he is forging an alliance with the Radical Party, which has a solid national framework. He is clearly the market's favorite, and he would try hard to liberalise the economy. He would also be the best choice for President Fern·ndez de Kirchner, since she would most likely remain at the head of the Peronist Party.

possible power-sharing deal

Macri would probably not gain control of the congress. Therefore, in reality, he would not be able to pass through any meaningful changes.

Scioli would probably be the president's next favourite candidate. He has been loyal throughout the Kirchners' time in office.

If Scioli won, there would probably be an eventual struggle for the control of the party. However, he would probably concede to some form of power-sharing.

Massa would be the president's nightmare scenario. Although he is a Peronist, he has created a dissident faction, and he would fight hard to drive her out of the party. He has the best economic team, and he would probably deliver many of the changes that the country needs.

Nevertheless, we cannot forget that he is a Peronist and his core constituency is the cohort of urban poor that abounds in the Greater Buenos Aires area. They are the ones who have been the main beneficiaries of the government's subsidies and largess.

It is a bit naive to think that Massa will completely turn his back on them. So, we need to be patient as the game drags into the second overtime.

We must be conscious of the challenges that lie ahead.

• Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.

wmolano@bcpsecurities.com