Economía, Gestión K, Inglés

Some simple numbers to evaluate Macri´s offer to vulture funds

An interesting article published by the official website of the Clarin Group on February 5, during negotiations with the vulture funds, revealed that according to “official sources” Macri’s government had “proposed a rebate around 40 percent on interest return to creditors” and that the strategy “aims to get a larger discount in exchange for paying cash.” Another website published exactly the same figures on the same day. Both qualified the offer as “aggressive”.

The mystery was unveiled the following day, when finally the official offer signed by Macri became public. Reality was disappointing: payment would be in cash but the “discount” came to only 25 percent. Thus, Macri´s offer is to pay in cash $ 6.5 billion on Griesa´s sentence. In one day 1.1 billion were lost, again according to official sources. True, no one was using the “aggressive” adjective to qualify the final offer anymore, although the official media did not dare to call it for what it is: “shameful”. Some might call it “generous” but generosity is exercised with one´s own money, and in this case, it is the money of all argentines. In any case, as we will prove, it would not be “aggressive” get a discount of 40 percent.

Many will remember the difficult conditions in which negotiations with the vulture funds were carried out in July 2014. The US Supreme Court had rejected the case of Argentina against the vultures, creating an enormous pressure for Argentina to pay what Griesa had determined.

If we did not, it was said that the country would fall into default as 2001, country risk would soar and creditors would ask for accelerating the entire foreign debt, including restructured debt. As we argued then, none of that happened.

Moreover, under those conditions, Argentina besieged by warnings and threats of all kinds, the vulture funds took an offer to the table. The offer was to give us a discount of 15 percent with payment in long-term bonds, instead of cash. Our government remained strong, and later on another offer was presented through third parties with an even greater discount: 30 percent and bonds. Vulgarly, they would take payment on paper slips rather than hard cash.

Why was the offer rejected?

First, we should clarify on what amount was based the discount offered by the vultures. When Nestor Kirchner negotiated with creditors overcoming default, he offered 35 cents on the dollar. Now Nestor´s was really an aggressive offer, but responded to criteria easy to understand. In a similar fashion, when the US company Enron went bankrupt, creditors received between 14 and 18 cents per dollar. In the case of Argentina, creditors had lent the country during the decade of the 90s at extremely high rates, in a sort of financial casino. Interest rates had been so high precisely because they entailed a certain risk of default. Neoliberalism over-indebted the country and then could not pay. When the default occurred, it was only fair to “share” costs. The agreement was accepted by 93 percent of creditors, who thus made sure that Argentina could pay their commitments, as duly did in the following years. As Nestor said, he had to grow in order to pay. And so it happened.

If Nestor offered 35 cents on the dollar, Griesa intends for Argentina to pay $ 4 for every dollar.

But also, keep in mind that the vultures had paid just 25 cents for every dollar, because they never lent Argentina anything , but bought titles after its default and even after the debt restructuring with the express purpose of finding a judge who would rule in their favour. 

Griesa meets that goal and gives them a profit of 1,600 percent. With the discount offered by the government of Macri it would be reduced to … 1200 percent! Nonsense.

In short, with Macri´s proposal vultures would cash in 6.5 billion when they had bet about 500 million, that is $3 for every dollar. Evidently, rather than paying for the trial of the century, the government of Macri would be validating the scam of the century.

What is the risk of paying vultures “what Griesa says”, quoting our president? 93 percent who took structuring in good faith, agreed to a 65 percent discount. If Argentina lifts its latch legislation and does pay the vultures what they ask with a small discount, it would not be at all surprising that shortly other bondholders demand the same treatment. Nor would it be unusual for another judge, more competent than Griesa, to rule that treatment should be equitable among creditors, hence multiplying all the debt of Argentina by two or three. Therefore, the only agreement with vultures that does not compromise the country’s future is for them to accept the same offer that 93 percent of creditors did. It is by no means a bad deal. Considering the interest accrued over the years, vulture funds would receive a 300 percent gain over what they actually paid for the bonds.

It is worth quoting the opinion of an “expert” who in 2013 filed a brief as amicus curiae supporting Argentina at the US Justice against the decision of Griesa: “How fair can be for the vultures (holdouts) to get a better deal, even one penny more than what has already been distributed (93 percent)?.”

The author of the paper is none other than the current finance minister, Alfonso Prat-Gay, who back then criticized any arrangement that were to recognize for vulture funds more than for the restructured creditors. Today he claims otherwise, but he was right back then: overpay is not fair nor convenient and it is extremely risky.

Probably the reason for such an unfavourable negotiation for Argentina is Macri´s undisguised hurry to reach an agreement, which is not exactly a good negotiating strategy. The more desperate he looks, the more they ask from him. Vultures, however, know and can wait. The sad thing is that the rush to negotiate stems from a much deeper and risky reason: Macri´s plan seems to be to indebt the country again. Maybe that’s why he appointed many officials of foreign banks. Taking debt again is now possible precisely because after 12 years of effort, Argentina has reduced its debt stock so drastically. With work, with industry, with growth, with inclusion, without debt. Keeping those rights up it seems to be, for some, a heavy legacy.

* Former Minister of Economy and current congressman for the FPV.

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