Reuters blog archive
By Christopher Swann
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
If only the Argentine economy’s success matched that of its soccer team. The nation’s strong World Cup showing, making it into the final against Germany, reflects astute management of its big fan base and valuable on-field talent. That contrasts with a 100-year record of wasting its human and natural resources. It’s not too late: Avoiding policy own-goals could one day make Argentina an economic champion.
Argentina was always well placed to make the final stages of football’s most prestigious event. The sport is immensely popular among Argentina’s 41 million citizens. The star-studded team was the fourth most valuable in the world in terms of transfer value at $586 million – behind only Spain, Brazil and Germany. With rivals like Spain knocked out early, a Breakingviews calculator based on these metrics predicted the Argentine team would make the final cut.
The South American country’s economy could also be a world-beater. Its impressive endowment – including some of the globe’s most productive agricultural land combined with a relatively well-educated work force – helps explain why its GDP per capita ranked among the top 10 in the world in 1914.
The market's recent chatter has revolved specifically around whether the strength in the jobs figure from last week moves forward the expected timing of the first interest-rate hike from the Federal Reserve.
The answer: yes, but probably by not that much. Jobs growth of 288,000 for June was better than expected, and that 6.1 percent unemployment rate looms large for those who figured the Fed would be ready to start raising rates after at least 6.5 percent was surpassed. So we're there on that, but as Kristina Hooper of Allianz points out, the wage growth seen hasn't been terribly strong, and the types of jobs being created – a lot of which are in lower-paying industries like retail – don't portend the same kind of economic strength that might have been manifest by now in other iterations of U.S. recoveries.
Wednesday's version of reading tea leaves involves Argentina's economy minister Axel Kicillof, who will be in New York to speak to the United Nations about Argentina's debt situation. In case the U.N. missed it, Argentina defaulted a while back - 12 years ago - and they've been fighting with a group of investors on paying some of their debt since. Which is a roundabout way of saying Kicillof may not just be in New York to talk to the U.N., not when NML, Aurelius and the other holders are all also in New York too, and the judge in question, and any special envoy he introduces to try to wring some kind of compromise out of this situation. There's a big coupon payment due June 30, and the country has been prohibited from doing so unless it pays the holdouts, which it has pledged not to do, giving it a 30-day grace period before being declared in default.
So the thing to watch for is something like a clandestine meeting between all parties to find a way to reach an accord, even if it's the kind of thing that comes down to the July 30 wire - when Argentina would be considered in default again (double-secret default, as Dean Wormer would have it, and really, if John Vernon were alive, he'd have solved this mess a long time ago).
from Alison Frankel:
The hedge fund NML Capital is going to have to execute some fancy footwork to maintain its argument that Argentina is plotting to evade a ruling by the 2nd U.S. Circuit Court of Appeals that prohibits the foreign sovereign from making payments to holders of its restructured debt before paying off hedge funds that refused to exchange defaulted bonds.
As I told you last week, NML presented U.S. District Judge Thomas Griesa with what it considered smoking-gun evidence: published accounts of a May 2 memo from Argentina's lawyers recommending that the country's "best option" if the U.S. Supreme Court refuses to hear Argentina's appeal of the 2nd Circuit decision would be to default "and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts."
from Alison Frankel:
The most notorious deadbeat in the U.S. courts made an historic concession this week.
In a May 27 response brief at the U.S. Supreme Court, Argentina said that, contrary to the accusations of its hedge fund foes, it will comply with directives from the 2nd U.S. Circuit Court of Appeals to pay renegade sovereign debtholders if the Supreme Court refuses to hear its appeal. That pledge marks a big departure from the outright defiance Argentina showed last year at the 2nd Circuit, when its lawyers informed the court that the government "would not voluntarily obey" a U.S. court order it disagreed with. Even after the appeals court ruling -- which upheld an injunction that bars Argentina from making payments to holders of its restructured debt before it pays more than $1 billion it owes to the hedge fund holdouts -- the Argentine government vowed that it would never negotiate with the rapacious hedge funds. Argentina now seems to be reconsidering that vow, both outside of the courts, as Reuters reported Thursday, and within the U.S. litigation, as the May 27 filing indicates.
from Alison Frankel:
France, Brazil and Mexico told the U.S. Supreme Court this week that the 2nd Circuit Court of Appeals has endangered sovereign debt markets with its ruling last year against the Republic of Argentina. In amicus briefs supporting Argentina's petition for Supreme Court review, the foreign sovereigns argue that the 2nd Circuit gravely misinterpreted the so-called "pari passu" (or equal footing) clause of Argentina's sovereign debt contracts. By ruling that Argentina may not pay bondholders who exchanged defaulted bonds for restructured debt before it pays hedge fund creditors that refused to exchange their defaulted bonds, the amicus briefs argue, the 2nd Circuit has undermined international debt restructurings, permitting vulture investors to hold entire foreign economies hostage.
The United States made quite similar arguments, as you may recall, when Argentina's pari passu case was before the 2nd Circuit. But there's no filing from the Justice Department among the 10 new amicus briefs urging the Supreme Court to take Argentina's appeal. Does that mean Argentina has lost its most influential friend in the U.S. court system?
from Felix Salmon:
Argentina, as everybody knew it would, has gone to the Supreme Court to appeal the bad (and ignoble) ruling against the country by New York’s Second Circuit. The most likely final outcome, still, is that Argentina will default, for the reasons (but not with the timing) I gave last year. But, with this petition, Argentina now has three possible outs.
Call them sovereign immunity, pari passu, and the bondholders’ ransom. None of them is particularly likely to happen — but add them all together, and there’s still a glimmer of hope for Argentina.
from Anatole Kaletsky:
What has caused the sudden anxiety attack that overwhelmed financial markets after the New Year? We may find out the answer at 8.30 on Friday morning, Eastern Standard Time.
Almost all agree that the market turmoil has been linked to alarming events in several emerging economies -- including Turkey, Thailand, Argentina and Ukraine -- that has spilled over into concerns about more important economies, such as China, Russia, South Africa, Indonesia and Brazil.
from Global Investing:
Since April of last year, a small but growing cadre of lawyers, investors, regulators, and yes, even journalists, have been carrying around dog-eared copies of an International Monetary Fund paper (read: trial balloon) that revisits how the fund, the lender of last resort for many nations, might revamp its approach to sovereign debt restructurings.
The IMF prefaces its latest foray into sovereign restructurings by saying history shows official sector sovereign debt restructurings have been “too little too late” and when it gets involved, the public money used in a settlement too often just flows to private sector investors who take the cash out of the afflicted country.
The messy sell-off in emerging markets was stemmed overnight after Turkey surprised everyone by raising rates to 12 percent – but it didn’t last. Major averages in Britain and Germany opened at their highs of the day but have since faded, and even though the big rate increases in Turkey, South Africa and India are meant to stem capital flight, so far the market’s shooting first and asking questions later. S&P futures were up about 20 points after the Turkey rate hike – an odd move for such a localized event – and we’re seeing the reaction now, which, to quote Tom the cat about the ‘white mouse no longer being dangerous,’ “DON’T…YOU…BELIEVE…IT.” So we’re lower, and continue to head lower, and for those of you new to the markets, this is what’s called a selloff.
The big question: Will the Federal Reserve defer its tapering campaign in recognition of emerging-markets difficulty? One could say the Fed cannot be expected to act as the underwriter for global risk-taking, but you’d be laughed out of the room, given the performance of assets around the world in the last several years as the Fed went into full-QE mode.