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The Revenge of the Vulture Funds: Virulent Rhetoric Is No Quick Fix

By | [email protected] | June 21, 2014 11:06pm

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Impending doom is back to haunt us in the form of the much-reviled “vulture” funds and, apparently, the Argentine government is not going down without a very public fight. At least in the media, that is. But in the midst of a financial crisis, Cristina’s attempt to rally the support of a politically polarized population through anti-vulture fund rhetoric has ruffled feathers up north.

Things are not looking good: in just a couple of days, the US Supreme Court declined to consider Argentina’s appeal of New York District Judge Thomas Griesa’s ruling that would force Argentina to pay the bondholders (A.K.A. “vultures”) who had rejected Argentina’s suggested debt restructuring processes. And since the international community has some major trust issues with the Argentine government, the Court of Appeals for the Second Circuit in New York lifted thestay” that it had placed on a lower court’s order that Argentina pay bondholders unwilling to restructure or compromise.

Simply put, the country has to pay some big bucks in a short period of time, and Judge Griesa isn’t very fond of being challenged on national television the Argentine ways. Yes, the funds are predatory in nature, but the administration’s statements against them are partly responsible for Griesa’s growing impatience, and consequent unfavorable rulings.

President Cristina Fernández de Kirchner’s Cadena Nacional address on Friday made it perfectly clear that her administration has finally come to understand the severity of the situation, and surprisingly, she asserted that Argentina intends to somehow pay back the bondholders in full. But while it takes two to tango, so far it seems like Griesa, and Kirchner have been dancing to the tune of two different songs. As immoral as the funds may be, there is no disputing that Argentina owes these bondholders money, and Griesa is determined to enforce repayment. The Argentine government, on the other hand, has turned the whole thing into a circus aimed at proving to the Argentine population that this administration won’t be pushed around by a country that they have framed as a symbol of oppression in political rhetoric for some time now.

This rhetoric may have been meant more for a domestic than international audience, but Griesa and global financial markets have been paying attention. Even after Cristina’s surprising conciliatory speech on Friday, Griesa ordered the Argentine government to pay holdout hedge fund bondholders in the US, not here, as Economy Minister Axel Kicilloff had suggested Argentina may try to do in a speech earlier this week.

I guess he wasn’t impressed by our “willingness to negotiate.”

NEGOTIATE, YOU SAY?

From the beginning, the Kirchner administration has implemented a rebellious and confrontational rhetoric that further damaged Argentina’s already-shaky standing in the international community. Recently, while the government finally successfully negotiated a deal to settle out debt with the Paris Club, it publicly boasted about the fact that the agreement was reached without the intervention of the the International Monetary Fund.

In the crusade against the funds, the government followed a similar tactic, with the exception that in this case, its implications could be much more damaging for Argentina.

For example, it was only last October that then-Economy Minister Hernán Lorenzino said that Argentina would “never pay the vulture funds,” and that “whoever thought otherwise got it all wrong.”

Yes, that kind of rhetoric was effective at home, especially after the bondholders decided to take matters into their own hands and managed to seize the Argentine frigrate “Libertad” in Ghana. And yes, while Paul Singer sounds like a despicable human being, Kirchner’s confrontational methods did little to help Argentina’s cause. One day after the US Supreme Court refused to review Argentina’s appeal, Griesa told the lawyers representing Argentina that he didn’t want us “to laugh at another of his court rulings.”

Now, after her speech on Friday, Cristina seems to be taking her first steps in a more sensible direction. Last weekend, while attending a G77 + China summit held in Santa Cruz de la Sierra, Bolivia, Cristina gave a conciliatory, if not extremely bitter, speech, as she was already aware of the decision the Supreme Court’s decision, which was to be made public the following day.

While speaking before dozens of presidents of like-minded countries, Cristina said said:

“I know our brother (Bolivian president) Evo Morales makes a distinction and strongly criticizes and condemns capitalism, but I say that what is happening in the world is not capitalism, at least not the capitalism that David Ricardo and Adam Smith wrote about, it is a total and absolute distortion.”

Cristina then moved on to give examples of how Argentina has been systematically paying its international debts in due form. Then came yesterday’s Cadena Nacional to commemorate a new anniversary of Manuel Belgrano’s death, in which she said that not only was Argentina willing to negotiate, but also that they were willing to pay the bondholders in full. She even avoided referring to them as “vulture funds.”

BEAUTY IS IN THE EYE OF THE BEHOLDER 

Regardless of your opinion of the funds, Argentina must start to behave more predictably and responsibly when it comes to respecting international agreements if it desires a favorable outcome of this crisis. By all means, if Argentina wants to pit itself as Bolivarian heroes against a Goliath-sized enemy, they have found a good one, but practically speaking, it is in everyone’s interest to resolve this quietly and respectfully.

And the consequences won’t just be international in scope. Kirchner’s administration has already experienced the unintended consequences of its virulent rhetoric: In 2008, a drafted bill that looked to increase farming export duties resulted in the most polarizing crisis of the administration, causing Cristina’s approval ratings to plummet and the political opposition to unite against her. This time around, the government can’t afford that.

A more conciliatory tone has already produced some benefits. On a national level, the government has managed to obtain the support of most political parties in both houses of Congress to negotiate with the holdouts, and even the largest union organizations have put their differences aside to rally behind what has now indeed become a national cause. On an international level, Argentine stocks skyrocketed after Cristina’s announcement that she was willing to negotiate with the bondholders. See? Progress.

 

AND THE WINNER IS…?

 

There’s probably more than one way to avoid  default in Argentina. But if we are aiming for the best outcome possible, the administration had better continue to drastically modify its communication tactics before it is too late; the words they choose to communicate with the Argentina people have a strong impact on the way this case is handled, and there is too much at stake to continue these chest-beating techniques. 

Until now, any possible conciliation could be seen as a sign of defeat in the eyes of the constituents and the rest of the world. Instead of maintaining a cool head and finding a rational solution to the conflict, the administration has focused on increasing domestic support through uniting behind a foreign enemy, putting the blame on others and thinking that in the end, Argentina will somehow emerge victorious. 

The Argentine government has to stop reducing every conflict to “us versus them,” and focus on making our country look like a reliable, sensible nation.

My grandmother used to say that being a good person it’s not enough; you also have to look the part. This administration has some serious acting lessons to take.