Ha Ha! You Thought Argentina Would Negotiate

ReutersArgentine President Cristina Fernandez de Kirchner (L) laughs while Bolivia's President Evo Morales jokes in Cochabamba, July 4, 2013.For Argentina and its hedge-fund creditors, 2015 could've meant a new era of cooperation and negotiation, and maybe even an end to their battle over more than $1.3 billion in defaulted debt.

But after some hopeful headlines and tons of conjectures, it didn't take long for things to start looking ugly again.

Does this sound like a country that's ready to sit down at the table and negotiate with "vulture" creditors?

"The world recognizes Argentina's right to defend its finances, its people, its dignity and its sovereignty from the vultures' attacks," Argentine Minister of the Economy Axel Kicillof wrote in a long Twitter rant Wednesday night.

He said that paying the "vultures," a group of hedge funds led by Paul Singer's NML Capital, would be the biggest mistake in Argentina's financial history, and that the people who want to pay said "vultures" are the same people who want to see Argentina permanently indebted.

Given Argentina's history of tragic boom-and-bust debt cycles that have led to economic ruin, that's no small accusation to make.

"Argentina wants to pay 100% of creditors but under conditions that are just, legal, equitable and sustainable," he finished. 

At this point, however, it's hard to say exactly what that means.

Months ago, the country argued that it could not pay its holdout creditors - creditors who have refused to take a massive haircut on defaulted debt dating back to 2001 - because of a legal clause called the RUFO clause.

RUFO, Argentina argued last year, would force the country to pay out billions more to its creditors than it had to - even to those who have restructured their debt and agreed to take a haircut.

The thing is, RUFO expired on Dec. 31. But based on what Kicillof, President Cristina Fernandez de Kirchner, and other Argentine political and business leaders have said, negotiations aren't coming any time soon. At least not until a new regime is installed in 2016.

"Argentina does not need to settle with the holdouts because it already won," Federico Tomasevich, the president of Argentine investment bank Puente, said in an interview last year. "The international community is siding with Argentina on the issue of the vulture funds. The case is closed. That isn't to say we can't calmly find a give the issue a proper resolution, but that will be for the next government."

If this is what winning looks like, though, victory can't possibly taste as sweet as they say. In the last year the Argentine stock market has been on a whipsaw, falling over 18% in the last three months.

Of course, the stock market is not the economy. But that isn't doing so hot either. Argentina's inflation rate hovers around 40% and GDP contracted 0.8% in December from the same time last year (analysts expected a 0.6% contraction). Exports also fell 12% through December, according to data gathered by Argentina's statistical researcher Indec.

The country depends on commodities exports to fill its anemic coffers with dollars (the central bank's dollar reserves hit a seven-year low in October), but big consumers like China are slowing down their consumption.

So prices are low, and getting farmers to stop hoarding their goods to increase prices took some convincing from President Fernandez de Kirchner. In the last two days of 2014, Argentine farmers sold $300 million worth of grains and other agricultural commodities, Bloomberg reported. 

Still, the possibility of a painful trade imbalance looms large. Goods have already become scarce. Most recently, tampons have disappeared from the shelves of Argentine stores. Cabinet chief Jorge Capitanitch blamed the shortage on "strategies" by importers.

The World Bank estimates that when all is said and done, Argentina's economy will have contracted 1.7% in 2014 and will contract 1.5% in 2015. That doesn't seem to faze Fernandez and her cabinet. They know that paying the holdouts would restore the international community's faith in Argentina's commitment to rule of law and bring investors back to the country.

But that can all wait until next year, we suppose.

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