All eyes of the financial markets, not only in Argentina but also in the world, will be focused today on what to tell the Supreme Court of the United States in what came to be called the “financial trial of the century”, the case of so-called “vulture funds”, requiring Argentina to pay 1,330 million and already have two favorable rulings.
The high court met on Thursday to see if he accepts or not to try the case, which has already passed two instances against the Argentine State, but only today it would release its resolution.
Beyond these two alternatives, which markets and financial analysts shuffled as most likely delay the judges decision and ask the opinion of the Obama administration (through the Treasury solicitor), or that ask the reinterpret previous legal entity pari passu clause, on which was based Griesa for sentencing.
Unless a rejection option other are favorable for Argentina. In any case, the country would gain time and decision would happen to 2015, after the expiry of the clause that forces the country to force creditors to enter the swap and the conditions of new deals up.
The amount of demand itself is not significant in perspective. The funds are on trial have 1.330 million debt (which was declared in default in December 2001). This is the amount (with some difference in interest) that the Argentine State should pay in full and in cash if they would enforce the judgment Griesa.
While there is a significant amount today to Argentina (which is taking care of its reserves, yet they do not exceed 29 billion dollars) in the context of the total debt is very low: about 0.6 percent.
But this low percentage could lead to other consequences due. The New York judge ruled that even for this is met, could impound the country funds in U.S. banks. So the amount that would be at risk must deposit Argentina in New York June 30, when the next payment is due on the Discount Bonds. In this way, the country would fall into technical default, and most likely be forced to change the address of payment of such obligations (or offer an exchange for bonds under Argentina law).
Furthermore, according to the interpretation Argentina, the country would face under the same conditions all the debt that has not yet joined the exchange. The Economy Minister Axel Kicillof, pointed out that this sum of 15 billion dollars. I mean, come seven percent of the amount of public debt.
The issue would be further complicated if the rest of the creditors, that 93 percent who entered the two exchanges and are now receiving payments normally decides to apply Rufo (acronym) clause and calls the same payment of the holdouts. This last possibility is the least likely.
The composition of Argentina’s public debt was a drastic change from the default of December 2001.
Although there was a genuine policy of “deleveraging” as the government likes to say, yes there were changes that made sustainable swaps after 2005 and 2010.
First, was reduced significantly to gross domestic product (GDP). From 166.4 percent in 2002 from 74 percent before the exchange was passed with 45.6 percent in the third quarter of 2013 (the latest data informed by the Ministry of Economy).
Moreover, lowered the share of foreign currency, net debt (excluding you have with public sector agencies) equivalent to 15.1 percent of GDP.
But also what is called debt reduction in fact was a marked change. In 2005, almost all of the debt was owed to private bondholders and international credit organizations. In 2013 the net public debt (as the government called the total least one that is funded by public sector entities, as ANSeS, the Central Bank or other) represented 60.5 percent of the total.
The relevance of financing public bodies is that they can be reprogrammed when due. Instead, the country has to cancel the rest of the obligations because, until now, there was no possibility of refinance.
What we all hope is that government attempts to normalize the international financial situation (according to Repsol, ICSID and the Paris Club, the IMF approach to monitor indicators and growth rates) allow, sometime future reissue debt markets.
For now, what was done was to pay past due payments, first with fiscal surplus and, from 2010, with central bank reserves. The private debt was reduced but increased in full: of 164,330 million (without holdouts) owed to the end of 2010, in September 2013 came to 201.009 million, totaling 212,713 with holdouts. Is 36,700 million dollars, up 22 percent, and this is not considering the effect of the devaluation of January last.
In addition, funding from public agencies created other problems that made untenable the whole process, as well noticed the Government and therefore now trying to reverse: the most obvious monetary emission (and consequently, inflation) and loss reserves.