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Lets Make A DealThis is the second chapter of the Argentine Default saga. The situation up to this point is as follows. Argentine went into default in or about 2001 and in 2005 and 2010 they “made an offer that bond holders could not refuse” … if you know what we mean. The “offer” was somewhat of a sweet deal for Argentina since it allowed for a debt reduction of about 60+ % (depending how you calculate it). Approximately 93% of the bondholders accepted the deal which included payment in New York. However, the other 7% of bond holders did not accept (the holdouts) and have been suing Argentine ever since. Lately they won in NY and then in US at the Supreme Court. Check mate.

As Argentine continued to ignore holdouts while paying other bondholders, a US judge decided to stop all payments to all bondholders until the holdouts are paid. The judge could do so because the payments were to take place in NY. As the first step in this new comedy, Argentine sued US in The Hague (see Argentine Default Jaccuse ). This, of course, did nothing exactly as we predicted.

The plot thickens

Now Argentine has submitted a new law to its parliament (to be rubber-stamped - see attached) enabling a game changer. In direct violation of the original debt restructuring terms Argentina unilaterally declares that it will pay bondholders in Argentina (not in NY) but not holdouts. Of course, Argentina is still offering the original debt restructuring deal to holdouts but nothing more. The government histrionics and propaganda machines are working overtime in Argentina attempting to “demonstrate” just how unjust and heartless the situation is. This is, of course, bull-shit. Legally speaking the holdouts are right however inconvenient this may be for Argentina. The debt-restructuring process was voluntary. If people chose not to restructure, they were in their right to do so.

The proposed law was called “Law of Local Sovereign Pay of Exterior Debt”. Nothing terribly wrong so far… or is it?

The devil in the details

There are just a few “tiny” problems with this law. They are (in no particular order):

  • Payment will take place in Argentina. Oh… did we mentioned that Argentina is an economic basket case and laws, rules, regulations and promises are usually not worth their wealth in the toilet paper they are usually written on.
  • Payment will take place through new “entities” that will be created for this purpose by the Ministry of Economy. OK. And what exactly are these “entities”? Nobody knows. How reassuring. Don’t you worry, we will pay you it’s just that we don’t know yet how… but don’t you worry.
  • There will be new bonds issued under Argentine jurisdiction exhibiting the same conditions as the original ones… for those wishing to make the exchange. Hummm... Do we smell yet another offer that bondholders “could not refuse”? Besides, having something under Argentine jurisdiction is like asking Donald Duck to be the judge. Local so-called “justice” is a joke. The entire system is deeply corrupted either economically or politically or both. There is no chance in hell any juridical outcome will favour bondholders.
  • Lastly, holdouts are being graced (yet again) with a deep, deep discount for their own benefit and good. Heah… right! Again, holdouts have been suing Argentine for almost 10 years now. Does anybody believe they will be stupid enough to make such a lousy deal now that they have so thoroughly won in US? Not a chance in hell.

Moving on

And so this new Argentine “move” is much ado about nothing, yet it is funny to see the whole of the Argentine government issuing such deluded statements as the one that follows: during the last decade Argentine experienced “years of de-debting but also development because all this was not paid with peoples’ hunger”.

This is really funny considering that Argentine is the throws of an economic collapse. Inflation rates are in the area of 40% per year; imports have been artificially slowed down to a trickle, exports are heavily controlled and taxed and general taxation levels are probably at the highest since… ever! Sure… sure… there is no peoples’ hunger… whatever.

The forecast

We will now put forward our inconsiderable powers of deduction, crank-up our crystal ball and read the teal leaves to provide you with an exclusive advance of the results of this new saga: some desperate SOB’s may take Argentine on, but in general terms, not a chance in hell! Particularly the holdouts. We acknowledge that this will spoil the suspense, but what the heck!

The conclusion

Argentine is broke. Bankrupt. Kaput. It is an economic basket case without any solution for as long as governments exist. Yet, the show must go on. And so it shall. Don’t you dare changing the channel as this comedy shall is not yet at its end.

Note: please see the Glossary if you are unfamiliar with certain words.

Download this file (Proyecto_de_Ley.pdf)Proyecto_de_Ley.pdf[ ]211 kB
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