As Cristina Fernández de Kirchner sashays out of the Casa Rosada today, there can’t be too many people happier than Paul Singer. Singer has led a group of investors known as vulture funds against Cristina in a legal battle over Argentina’s sovereign debt for over a decade in US federal court in New York City. The only person I can think of who might be happier is Thomas Griesa, the court’s judge, who has consistently ruled in favor of the vultures, only to see the Kirchners flip him their own brand of bird.
President Mauricio Macri, Kirchner’s replacement, made opening Argentina’s economy to foreign investors a central part of his campaign, and as such, he has a decidedly less hardline stance against the vulture funds (as did his opponent in the campaign, Victory Front’s Daniel Scioli). Even before he assumed office today, Macri sent his finance secretary, Luis Caputo, to reignite negotiations and get the ball rolling on finally settling this mess.
On Monday, Caputo met with Daniel Pollack, who Griesa appointed in June 2014 to mediate the stalemate between the vulture funds and the Kirchners. Pollack issued a statement describing the meeting as “introductory,” with more substantive talks to be held at a date yet undetermined.
The departing administration accused Pollack of being biased, and throughout negotiations, asked that the former Wall Street lawyer be removed. Former Economy Minister Axel Kicillof wouldn’t even meet with Pollack earlier this year because he did not consider the arbitrator to be valid.
Macri, on the other hand, has long been in favor of finding a common ground with the holdouts. In June 2014, Macri stated that, “Now we have to go, sit in Griesa’s court and what he ends up saying, we have to do it. If not, we will go into default.” He was criticized for what some saw as selling out to foreign, adverse interests, and his rhetoric changed a month later, saying that Argentina should “comply with the judicial ruling, even though it disgusts us.”
In August 2015, Macri clarified that given the opportunity to negotiate with the holdouts, he wasn’t going to be soft with the other side. “It’s something I know how to do…. Ask Real Madrid how much they paid for [Boca Juniors midfielder Fernando] Gago in that negotiation. Record price.” The President has obviously realized that his public statements on the debt dispute had to start with something better than, “Please take all of our money.”
Any substantive talks are likely to revolve around one thing: how much. Pollack’s latest statement puts the total amount of debt owed at approximately US$10 billion. The agreed amount to be paid out by Argentina will have to be low enough to make Macri look good to his constituency and high enough to make the vulture funds look good to their investors.
However, as my colleague Bianca Fernet astutely pointed out, Argentina’s Central Bank (BCRA) is running dangerously low on cash reserves and has nowhere near enough to pay the full amount anytime soon. As a Macri aide pointed out, “Every extra dollar for the holdouts is one dollar less for our investment projects.” A possible solution would involve allowing Argentina to pay the debt in installments over time, partially in cash and partially in new bonds.
The benefits to resolving this issue for Argentina include regaining access to capital markets, which will allow the government and private companies to borrow money at lower interest rates.
The vulture funds have previously won multi-million dollar judgments against the governments of Peru and Democratic Republic of the Congo. If he is able to leave the negotiating table with more than just scraps, Macri will have an early, visible accomplishment for his administration as he prepares for what will surely be a challenging first year as President.