DON'T CRY FOR US shouts Argentina as it teeters on the brink of default

The country is on the brink of default, but thinks it can avoid it if the US eases pressure on it, as it pointed out in SHOUTY CAPITALS.

by Emma Haslett
Last Updated: 31 Jul 2014

Personally, if MT had a $1.3bn (£764m) payment due today, it would have spent the weekend looking for spare pennies down the back of the sofa. Argentina, on the other hand, spent the weekend composing a VERY SHOUTY, very dense ad, accusing the US of everything from behaving in a WHIMSICAL AND ABSURD MANNER to WRONG AND UNFAIR DECISIONS. Here it is in its full glory.

You can see why the Argentines are trying to take their minds off things: today, the country will (technically) enter default (it has a 30-day grace period which should allow it to avoid default proper). A ruling made on Friday by a judge in New York said the $832m it’s due to pay to its creditors today is illegal because it doesn’t include $1.3bn it owes to ‘holdout’ creditors.

The dispute goes back to 2002, when Argentina last defaulted on a $100bn debt. At the time, it tried to restructure – but some creditors were unimpressed, and chose instead to enter legal proceedings. Fifteen years on, the country is still embroiled in legal disputes with those holdout creditors, and under Friday’s ruling, making a payment on its restructured bonds would be illegal unless it also pays off that $1.3bn. Which it almost definitely can’t afford.

In the ad, the ‘PRESIDENCY OF THE NATION ARGENTINE REPUBLIC’ singles out the man who made the ruling, US district judge Thomas Griesa.

‘HIS TRUE INTENTION [sic] ARE CRYSTAL-CLEAR: TO PUSH ARGENTINA INTO DEFAULT SO AS TO DESTROY THE… DEBT RESTRUCTURING AGREEMENT’.

Bizarrely, the whole thing is headlined ‘ARGENTINA PAYS’, but at the beginning makes clear that actually, it’s only deposited $832m. ‘IF THE MATURITIES IN ARGENTINE PESOS ARE ADDED, THE PAYMENT MADE TODAY EXCEEDS ONE BILLION US DOLLARS,’ it says. Hmm. Not sure that’s going to swing it, if we’re honest.

This has provoked furious debate about what should happen next. Some point out that, just as individuals are allowed to enter bankruptcy proceedings and start afresh, countries should be given leniency if they’ve borrowed too much. It’s not like lenders aren’t rewarded for the risks they take: if bondholders were uncomfortable, they should have spotted when yields started to creep up and got out.

Others point out this is the second time in 15 years Argentina has entered default, and that it needs to learn its lesson. Whatever the solution, yields on Argentine government debt suggests investors aren’t panicking yet: although yields on two-year bonds rose 75% on Friday, it’s still at just under 10.5%. It’s not good – but it’s not disastrous.

At least creditors will be pleased to see Argentina isn’t frittering away its cash on frivolities like sub-editors. MT spotted at least three mistakes. That kind of austerity is positively Osbournian.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today