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Argentina Blames U.S. For Debt Woes, Denies Default

Argentina Blames U.S. For Debt Woes, Denies Default

Buenos Aires (AFP) – Argentina blamed the United States for the legal battle that forced it to miss a debt payment and, despite ratings agencies’ declarations to the contrary, denied being in default.

Ratings agency Fitch declared Argentina in “restrictive default” Thursday after 11th-hour talks failed to resolve the country’s dispute with two U.S. hedge funds that refuse to accept a write-down on their Argentine bonds.

Fitch’s label echoed the “selective default” declared Wednesday by Standard & Poor’s. Both terms indicate that Argentina has defaulted on one or more of its financial commitments but continues to meet others.

U.S. District Judge Thomas Griesa has blocked Argentina from paying its “exchange creditors” — those who agreed to take a 70-percent write-down after the country’s 2001 default — without also paying two American hedge funds that took it to court demanding full payment.

Argentine stocks plummeted Thursday, closing 8.43 percent down as the repercussions of the default began to set in.

President Cristina Kirchner’s cabinet chief, Jorge Capitanich, blamed the U.S. government, Griesa and a court-appointed mediator for the messy legal dispute, which made Argentina miss a $539 million payment to exchange bondholders.

“If there’s a judge who’s an agent of these speculative funds, if the mediator is their agent, what is this justice you’re talking about? There’s a responsibility of the state here, of the United States, to create the conditions for the unconditional respect of other countries’ sovereignty,” he said.

He accused Griesa and mediator Dan Pollack of “incompetence” and said Argentina would take the matter to international courts.

Argentina says paying the holdouts the $1.3 billion it owes them could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.

The U.S. State Department said it opposed the court ruling but called on Argentina to get its books in order.

“They’ve made some good progress towards meeting their obligations, and we believe it’s in their interest to normalize relations with all of its creditors,” said Deputy State Department spokeswoman Marie Harf.

Kirchner denied her country was in default, reiterating that it had transferred the payment in question and condemning the tactics of the hedge funds, which she calls “vulture funds.”

“We live in a profoundly unjust and profoundly violent world and this is also violence. Like missiles in war, financial missiles also kill,” the president said in a nationally televised address.

“I want all Argentines to remain very calm, because Argentina is going to use all the legal instruments our contracts give us.”

The Bank of New York confirmed Buenos Aires’ payment to the exchange creditors was still sitting in the U.S. bank’s account at the Argentine central bank, frozen there by Griesa’s ruling.

Amid the back-and-forth, some in the financial world called for a simple yes or no on whether the country had defaulted.

The International Swaps and Derivatives Association, a trade organization for participants in the derivatives market, said it had accepted a request from Swiss bank UBS to rule whether Argentina was in default or not.

A default would activate insurance contracts on the relevant debt.

Argentina got a show of support from more than 100 economists, including Nobel laureate Robert Solow and other prominent academics, who sent a letter to the U.S. Congress urging it to intervene.

“The district court’s decision… could cause unnecessary economic damage to the international financial system, as well as to U.S. economic interests (and to) Argentina,” said the signatories, warning the ruling created a “moral hazard” by guaranteeing creditors full payment no matter how risky their investment.

With Argentina scrambling to find a way to placate the hedge funds until the RUFO clause on its restructured debt expires at the end of the year, sources close to the case told AFP that JP Morgan and other banks were in negotiations with the holdouts to buy some or all of their bonds.

JP Morgan declined to comment.

Analysts said the damage could still be controlled if the default was fleeting, but warned a lengthy standoff would deepen Argentina’s current recession, fuel inflation and unemployment and further the country’s isolation from global financial markets.

Argentina’s 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into crisis. Rioting left 33 people dead after the government froze savings accounts to halt a run on the banks.

But analysts say the global impact of the new default will be far smaller, since Argentina has since been locked out of international capital markets.

AFP Photo/Daniel Garcia

Argentina Blames United States, ‘Incompetent’ Judge For Default

Argentina Blames United States, ‘Incompetent’ Judge For Default

By Sonia Avalos

Buenos Aires (AFP) — Argentina blamed the United States Thursday for the legal battle that forced it into its second default in 13 years, accusing the judge and mediator in the case of “incompetence.”

The country officially went into default Wednesday night after the failure of 11th-hour talks with two U.S. hedge funds refusing to accept a write-down on their Argentine bonds.

Argentine stocks plummeted 6.42 percent at the open Thursday, as the repercussions of the default began to set in.

Argentine President Cristina Kirchner’s cabinet chief, Jorge Capitanich, blamed the American government for the default, brought on by a U.S. court ruling that blocked Buenos Aires from servicing its restructured debt without also paying the hedge funds the $1.3 billion it owes them.

“If there’s a judge who’s an agent of these speculative funds, if the mediator is their agent, what is this justice you’re talking about? There’s a responsibility of the state here, of the United States, to create the conditions for the unconditional respect of other countries’ sovereignty,” he told a press conference in Buenos Aires.

He accused U.S. District Judge Thomas Griesa and court-appointed mediator Dan Pollack of “incompetence” and said Argentina would take the matter to international courts “to exercise its rights before the international community.”

Kirchner was due to give a nationally televised address Thursday evening.

Griesa, meanwhile, set a hearing on the case for Friday at 11 a.m., a court spokesman told AFP.

Ratings agency Standard & Poor’s had already placed Argentina in “selective default” before the unsuccessful end of Wednesday’s marathon negotiations between Argentine Economy Minister Axel Kicillof and hedge funds NML Capital and Aurelius Capital Management.

The talks’ failure caused Argentina to miss a payment of $539 million on the debt it restructured after its 2001 economic crisis.

Griesa barred the country from paying “exchange creditors” who accepted a 70-percent write-down on their bonds without also paying the so-called “holdouts” the full $1.3 billion it owes them.

Argentina says paying the holdouts could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.

Hedge fund NML said Argentina bore full responsibility for its own default.

“During this process, the (mediator) proposed numerous creative solutions, many of which were acceptable to us. Argentina refused to seriously consider any of them, and instead chose to default,” a spokesman said.

But Argentina complained that the creditors — which bought defaulted Argentine bonds at knockdown rates, then sued for full payment — had refused to compromise.

“What we offered them in terms of profit was 300 percent. It was not accepted, because they want more, and they want it now,” Kicillof said.

The economy minister slammed S&P’s downgrade, arguing Argentina could not be regarded as being in default since the money for the repayment was in a U.S. bank account but frozen by Griesa’s court order.

“Argentina paid. It has money. It is going to continue to pay. The one who is responsible for this situation is Judge Griesa,” he said.

The Bank of New York said Thursday that it continued to hold onto Argentina’s $539-million debt payment, saying it was sitting in the U.S. bank’s account at Argentina’s central bank because of Griesa’s ruling.

– Aftershocks of 2001 –

Wall Street and the Buenos Aires stock exchange opened sharply lower Thursday following news of Argentina’s default.

Argentine stocks tumbled 6.42 percent, while the Dow Jones Industrial Average, S&P 500, and Nasdaq were also down.

Argentine press reports, however, suggested an alternative solution was being prepared in which a coalition of Argentine private banks would buy some or all of the outstanding debt.

Argentina got a show of support from French Finance Minister Michel Sapin, who said he was “extremely shocked” by the outcome of the legal battle.

“This undermines a decision taken in everyone’s interest” to restructure Argentina’s debt, he said, warning the court ruling would jeopardize future debt restructuring for countries in crisis.

Analysts have warned the default will deepen the economic malaise gripping Argentina, exacerbating its already unruly inflation — prices rose 15 percent in the first half of the year — and perhaps forcing another devaluation of the peso, already devalued 20 percent in January.

Argentina’s 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into an economic and social crisis it is still battling to overcome.

But the global impact of the new default will be far smaller, since Argentina has been locked out of international capital markets since its 2001 default, analysts say.

AFP Photo/Stan Honda

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5 Reasons The GOP Caved On The Debt Limit

John Boehner

RIP, debt ceiling crises.

It’s obvious that Republicans have lost their old passion for holding the global economy hostage. Their final demands would have required Democrats to agree to increase spending in the near term in exchange for raising the debt ceiling.

In 2011, the GOP introduced the “Boehner rule,” which required — for the first time — that any raise of the debt limit be matched by cuts to the deficit. Their resolve triggered a small financial panic and the party won the automatic cuts in the sequester.

The GOP quickly folded on raising the limit in early 2013, but during the government shutdown it offered an insane menu of demands to the president in exchange for agreeing to pay the bills Congress already voted to run up. Republican leaders caved and set themselves up for another standoff in early 2014, which led to the most recent cave.

“We don’t have 218 votes,” Boehner said in a press conference on Tuesday. “When you don’t have 218 votes, you have nothing.”

The Speaker announced that he will vote for a clean debt limit raise that will last until 2015, well after the midterm elections. And he would try to find enough Republicans to help him pass the bill.

He then left the press conference singing “Zip-a-Dee-Doo-Dah.” Within minutes, a conservative group was already calling for Boehner to be replaced.

It’s a wonderful day for Democrats, who have broken the GOP’s willingness to resort to extraordinary levels of brinksmanship.

Here are five reasons the GOP caved.

AFP Photo/Jim Watson

President Obama Refused To Negotiate

Obama

The president’s regret over the first debt limit crisis has shaped his second term. While he has shown that he’s willing to deal with the right and strike deals that do not please his base, he has refused to negotiate “with a gun to his head.”

This tactic revealed that Republicans were holding the gun to their own heads, with the public prepared to blame them if a default actually happened.

AFP Photo/Jewel Samad

Speaker Boehner Doesn’t Have 218 Votes For Anything

Michelle Bachmann

The Speaker has said again and again that he would not bring any bill to the floor that did not have a majority of his caucus supporting it. And again and again, he’s brought bills to the floor that did not have the majority of his caucus supporting them.

His allies say that the problem isn’t his leadership, but a group of House Republicans who only fear primary challenges from a wing of their own party — Tea Party, evangelical or business establishment — they don’t represent.

“Right now, Jesus himself couldn’t be the Speaker and get 218 Republicans behind something, so I think Speaker Boehner is trying his best to come up with a plan that can get close to that,” Rep. Patrick J. Tiberi (R-OH) recently said.

Boehner faced down a minor coup to maintain his speakership in early 2013. If he doesn’t have 218 votes for any debt limit deal, will he still have his job in 2015? And since he knows his party probably needs immigration reform to survive, why not just put the Senate’s bipartisan immigration bill up for a vote and actually accomplish something in his tenure?

AFP Photo/Chip Somodevilla

The Deficit Has Been Cut In Half

Budget deficit

President Obama’s re-election also complicated the GOP’s plans in that he was able to end some of the Bush tax breaks for the richest. This combined with economic growth and some cuts has the deficit falling, possibly at the fastest pace ever. With the media unable to swell the right’s arguments with reports of exploding trillion-dollar deficits, Republicans have lost the momentum it takes to threaten another global economic disaster — even if 85 percent of the people who watch Fox News have no idea the deficit is actually shrinking.

Graph source: Sunlight Foundation, White House Office of Management and Budget

Graph credit: Alyson Hurt and Tamara Keith/NPR

Republicans Want To Make This Election About Obamacare

Obamacare Jobs

Republicans are confident that they are headed for control of the Senate and gains in the House because Obamacare is, in their minds, falling apart. Forget that vast majorities support keeping the law and fixing it. Forget that Republican alternatives have nearly all the problems that they’ve been complaining about in the president’s health law. Forget that a recent Congressional Budget Report showed the law lowers the deficit and the unemployment rate, and will get 13 million insured this year. According to the GOP, it’s bound to destroy Democrats.

The party’s strategists are sure the reason the government shutdown was a bad thing was because it took the focus off Obamacare. Now even Tea Partiers agree, 2014 will be about the Affordable Care Act — because that worked so well in 2012.

AFP Photo/David McNew

The Tea Party Is Delusional, Not Irrational

tedcruz

Senator Ted Cruz (R-TX) did America a favor by taking the Tea Party mentality to the extreme.

He said, “We’re going to shut down the government and President Obama is going to get blamed for it.” Instead, Republicans took the blame and now have a brand even more damaged than when George W. Bush left office.

This slap to the face actually woke up Tea Partiers who — it turns out — aren’t irrational, according to The New Republic‘s Noam Scheiber:

The shutdown demonstrated that the Tea Partiers are, for the most part, delusional rather than irrational: They can be forced to reconsider a particular tactic if you persuade them it’s politically catastrophic. It just requires an epic level of public anger to break through their epistemically stunted consciousness. The Tea Partiers had basically believed that the country backed their monomaniacal fixation on repealing Obamacare, and their jihadi plan for getting it done. The shutdown, or at least the endless shutdown-inspired hand-wringing on Fox News, managed to disabuse even them of this belief.

Photo: jbouie via Flickr

House Republicans Make Their Regularly Scheduled Threat To Destroy The Global Economy

House Republicans Make Their Regularly Scheduled Threat To Destroy The Global Economy

House Republicans will huddle at their annual retreat next week to decide what will they demand in exchange for raising the debt ceiling.

If the limit on how much the government can borrow to pay off debts Congress has already voted to incur is not raised by late February, the U.S. will default purposely for the first time in American history, triggering a financial crisis that many experts feel would be at least as devastating as the economic meltdown of 2008, which put millions out of work and destroyed trillions in wealth.

The government shutdown in October dominated the discussion during the weeks leading up to the last debt limit crisis. Republicans released a comical list of demands. The White House offered nothing, and that’s essentially what Republicans accepted when they folded on the government shutdown.

Earlier in 2013, Republicans demanded that the Senate pass a budget in exchange for raising the debt limit. The Senate agreed and House Republicans followed the strategy of Senator Ted Cruz (R-TX) and refused to go into conference with Democrats in the upper house — 18 times. And that’s how we got the shutdown.

Of course, you only have to feed a stray once to keep it scratching at the door. In 2011, House Republicans successfully used the debt limit to extract the automatic cuts known as the sequester, while triggering a near-panic that erased some 1,200 points from the Dow. Because the House has folded twice since then, Wall Street now takes the GOP’s threats as seriously as a Sarah Palin presidential bid, even when America was just hours from a default in October.

House Speaker John Boehner (R-OH) seems to have taken the reins of his caucus after the shutdown disaster and has since passed a two-year budget with little drama over the objections of the outside groups that backed Cruz last year. But the man who negotiated that deal — Rep. Paul Ryan (R-WI) — was one of the driving forces behind the 2011 crisis and is saying the House will demand something in exchange for raising the debt limit. The chairman of the Budget Committee has keyed in on the so-called “Obamacare Bailout,” which not a bailout at all, but a complex set of mostly deficit-neutral mechanisms that could help insurers if they are forced to take on too many sick customers, or could help cut the deficit if they don’t.

The problem for the GOP is the same mechanism exists in Medicare Part D, which was signed into law by George W. Bush and passed by Republicans — including Paul Ryan.

Still, Republicans plan to dare the president to default “to preserve a massive bailout for insurance companies” knowing that what they’re saying is “one enormous lie.”

Will Republicans give in when they recognize that the president will not cave to their demands, as he has vowed not to over and over again?

New York magazine’s Jonathan Chait believes they will.

Chait — who called the last debt ceiling standoff a domestic “Cuban Missile Crisis,” which the president won —  notes that the House GOP’s argument has devolved from sanctimonious prattle about the debt to a straight-up demand for scattershot “concessions,” which only makes sense if they want to destroy the economy and need some incentive not to do so.

“But you can only try this bluff once,” Chait wrote. “The only way it could still work would be if Obama either paid a ransom or Republicans shot the hostage. Once the mark knows you’re bluffing, it’s over. You can’t do it again. Nobody is falling for this.”

The GOP’s debt scaremongering made a little sense in 2010 when the deficit was over $1 trillion and the long-term debt projections were skyrocketing — though threatening default increased the deficit and an actual default would have exploded it astronomically. But the deficit has been cut in half, mostly thanks to the end of some of the Bush tax breaks for the rich, and any threat of a long-term debt “crisis” may be disappearing, thanks to Obamacare.

debt share gdp

Now the GOP’s theatrics just play into the notion that they blind obstructionists. And if they go too far, they could actually blow the 2014 elections.

Speaker Boehner needs his bluff to be taken seriously by only one constituency — a majority of his caucus.

The 50-70 members of the “suicide caucus” who are more aligned with outside conservative groups than the Speaker are already furious about the budget deal. They’re plotting a rebellion over piecemeal immigration reform that Boehner is preparing to take up, and they’re even planning on joining a retreat organized by Heritage Action that will immediately follow the one being held by leadership.

Boehner has to appear that he’s willing to default up until the exact moment when the pressure from the business community forces him to cave. And hopefully then there will be enough Republicans behind him when he does, so he can prevent a needless catastrophe at the last possible moment.

Photo: Gage Skidmore via Flickr