EspañolThe key date was January 1, 2015. This marked the expiry of the infamous RUFO clause which, according to the Argentinean government, preventing it from negotiating with creditors it had kept at arms length in the 2005 and 2010 processes of restructuring the biggest default in history, worth US $100 billion.
Speculation abounded that the government of Cristina Kirchner would reach a deal with the so-called vulture funds in early 2014, bringing to an end a judicial conflict aired in New York and recovering access to the international capital market, and securing vital supplies of the much-needed greenback.
But more than 90 days after D-Day, such a scenario continues to be a remote prospect. Argentina continues to be on the blacklist, after a US judge ordered the government to pay “holdout” funds before continuing to pay for debt restructuring. But negotiation with vulture funds isn’t part of the official agenda. To the contrary, Kirchnerista officials haven’t hesitated to brand the negotiator designated by the New York tribunal “one vulture more,” in the words of Economy Vice Minister Emanuel Alvarez Agis in April.
Since the declaration of default last year, vulture funds have become one of the principal subjects of Kirchner’s fiery speeches. Ahead of the imminent end of an era — the current president’s term will conclude on December 10 — the government has converted a conflict over debt into a national campaign: “Fatherland or Vultures,” is the stark choice offered by a campaign rolled out last year in the streets of Buenos Aires.
The ruling by US judge Thomas Griesa has prevented Argentina since the beginning of last year from paying out on new bonds issued in 2005 and 2010 without first meeting its obligations to the holdout firms, as indicated in the interpretation of the pari passu clause: all creditors must be treated equally. This situation has led Kirchner’s government to resort to various strategies to avoid get around the prohibition.
Since then, US financial firm Citibank, one of those entrusted with distributing payment for bonds in dollars governed by local law, has had to strike a balance between fulfilling Argentina’s promises and respecting the ruling of the court where its head office is based. The tension has periodically slackened when Griesa authorized the bank on three separate occasions, for “one time only,” to issue payments and fulfill its promises.
However, the passing of March 31 has left the financial giant between a rock and a hard place. If it gives in to the Argentinean government and transfers the payment of US$3.7 million demanded by the latest debt deadline, it will be put in the uncomfortable position of disobeying Griesa’s ruling. On the other hand, if it attacks the resolution it risks the closure of its operations in Argentina.
Citibank’s lawyers appear to have found an elegant exit: asking the judge to authorize the next two payments, in exchange for not appealing the resolution that establishes that bonds emitted under Argentinean law are subject to the pari passu clause. But not everything turned out as planned.
Rumblings of Trouble
The deal was signed on March 22, and the judge authorized the future payments of March 31 and June 30, although it provoked an irate reaction from Buenos Aires, which accused the bank of “violating Argentinean law.”
“It’s in principle a scam of those bondholders who trusted in Citibank, they’re going to throw bondholders in front of the train,” Economy Minister Axel Kicillof complained.
The bank had already signaled that it would refuse to continue functioning as a debt payment agent after finding itself in the middle of an “unprecedented conflict of international laws,” but the government has chosen to do everything possible to make Citibank pay for what it considers to be a betrayal.
The assault, headed by the Economy Ministry and the Central Bank (BCRA), began when a government adviser ordered the payment on March 20 that was due 11 days later. It was followed with the suspension of Citibank operations on the local capital market on March 27. But the most bitter moment of the confrontation was to come a few days later.
Suspension and Invasion
On March 30, the BCRA resolved to suspend the president of Citibank Argentina from his post. “This decision will have very serious consequences and unjustly affects one his associates and his legal representatives,” the Association of Banks of Argentina replied, widening the local repercussions. The organization complained that the government “hasn’t respected the constitutional guarantees of due process and defense in trial, given that [the decision] was taken without permitting the interested parties to make any reply.”
One week later, the BCRA turned up the pressure on the rebel bank. On Monday, April 6, it sent in inspectors to carry out “internal supervision” to “guarantee the normal functioning of the bank,” according to BCRA chief Alejandro Vanoli. “We want to known if given the leaderless situation facing [Citibank Argentina], the bank has legal representatives to ensure that there are no problems with clients and workers,” he added.
A Tale without End
The government is determined to tear up the agreement signed by Citibank with the New York court. In order to do so, on Wednesday, April 8, it denounced the bank before an Argentinean court, seeking to secure a ruling to annul that of Judge Griesa. “The deal that Citibank is applying to exit the business,” said Kicillof. “They’ve abandoned a deal which gave them $17 million a year. They found themselves at risk, but rather than standing firm, they made a deal with New York and they’re taking the road of abandonment. They’ve abandoned Argentina to the vultures.”
The bank denied breaking Argentinean law and explained that Griesa’s “order doesn’t demand that Citibank or its branch in Argentina abandon” their relationship with the Argentinean government. But within the bank, they know that their exit won’t be easy and will take a long time to achieve. In the ever-unpredictable Argentina, anything could happen.