Home' Trinidad and Tobago Guardian : December 17th 2015 Contents BG18 REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 17 • 2015
The drama that is Argentina ver-
sus American hedge funds
could be set to start up again
in full force.
Mauricio Macri this month replaced Cristina
Fernandez de Kirchner as president, after run-
ning a pro-business, free-market agenda meant
to end the country s status as an international
Of course to do that it has to clear up its
old debts with a bunch of holdout hedge funds,
but it has already dropped a very clear hint
that it s not going in that direction.
According to Bloomberg and media outlets
within Argentina, Argentina is trying to go
directly to international banks to raise between
US$5 and US$10 billion. That has the hedge
fund holdouts worried, according to a source
familiar with their thinking.
"It s looking like politics as usual in Argenti-
Macri said he would take the country off
its dual exchange rate structure and right its
economic ship; a 180-degree turn from the
previous administration. But that s not what s
happening, according to the person.
"I would not expect the tiger to change its
stripes very quickly," the source said.
For Argentina to get back into the world s
good graces, it has to pay back all of its loans,
and this person says that Macri has "made
absolutely no progress whatsoever on resolving
the situation" since he was elected.
What Argentina must resolve is the matter
of almost US$2 billion in debt the country
owes investors after they purchased its debt
following Argentina s 2001 default. While most
investors took a haircut on that debt, a group
of holdouts---led by Paul Singer of Elliott Man-
agement---did not. Argentina, in turn, refused
to pay them and has been locked out of inter-
national credit markets ever since.
The holdouts have pursued this matter in
court and won at every significant turn, but
that hasn t changed the Argentine government s
stance on the "vulture funds." Meanwhile, the
economic situation in Argentina has worsened.
Its inflation rate is second only to Venezuela s,
and the country s Central Bank reserves are
at their lowest level in nine years, according
That s why Macri entered the presidency
with a strong mandate for change. The market
hoped that change would come as soon as
"The Government s honeymoon can be
short. Thus they will need to seize the day
and act decisively," wrote economist Claudio
Loser in a recent note.
If Argentina settles with the holdouts, it
can raise money from creditors all over the
world, but it should do this before its economic
situation at home spins out of control, Loser
The hard way
Instead, Argentina is trying to go directly
to international banks to raise funds. The prob-
lem with that, though, is that getting a loan
from the banks without settling with the hold-
outs is going to be really expensive.
"This deal is exceptionally expensive to
Argentina," said the source familiar with the
holdouts, adding that it was "probably an
overall rate of 12-20 per cent for several billion
dollars. That s much more than even the Kirch-
ner administration would tolerate."
Analysts at Graham Fisher & Co concluded
the same thing and urged Argentina not to
take an expensive, potentially harmful deal
because of its refusal to settle with the hold-
"Sources suggest that some of those foreign
firms are recommending that the Argentines
take on large debts ahead of any settlement
so that Argentina would somehow be in a
stronger position to approach holders of
defaulted debts. This approach is neither fiscally
or legally sound," said the report.
"Attempting to access capital markets via
foreign banks, ahead of a resolution, would
only serve to complicate matters," the report
added. "First, the debt will naturally have
unfavorable terms and be more expensive than
post-resolution capital. Second, it would risk
embroiling the new government in the legal
problems created and perpetuated by the
Kirchner regime and would be a counterpro-
ductive approach for a new administration
seeking a fresh path."
Naturally, the holdouts want to be paid
before such complications arise, and the fact
that they would even run the risk seems like
a red flag, according to the person familiar
with the holdouts, who added:
"It is a huge mistake to start your admin-
istration this way, to signal to the world that
you re going to be too cute about the rules."
Sometimes when you re too cute for too
long, things start to get ugly. Bloomberg
Fulfilling a campaign promise to overhaul
Argentina s agricultural sector, President Mauri-
cio Macri on Monday announced the elim-
ination of export taxes on key products, a
move that will also have a deep impact on
how Latin America s third largest economy is
Macri made the announcement while meet-
ing with farmers in Pergamino, about 135 miles
(220 kilometres) northeast of Buenos Aires.
Starting Tuesday, export taxes will be elim-
inated on corn, wheat, meat and fish. Export
taxes on soy beans will be lowered from 35 to
"Without the agricultural sector, the country
can t move forward," Macri said in comments
that were broadcast live.
The South American nation is one of the
world s breadbaskets. However, the sector
struggled amid frequent fights with former
President Cristina Fernandez over the last
eight years. She kept export taxes high to stim-
ulate local consumption and keep the prices
of bread, corn, meat and dairy products low
The taxes were also a key part of financing
her government, which spent heavily on social
welfare programs for the poor.
Farmers argued that the taxes put a cloud
over the industry and led to distortions in crop
rotations and production. For example, because
of low profits with corn, many farmers used
more of their fields for soy beans, which
brought in more money.
The high taxes also led to massive hoarding,
something that Fernandez s administration
struggled to crack down on. Some economists
estimate that the current amount of hoarded
crops represent about US$13 billion in exports.
Macri said farmers no longer would "have
an excuse" to wait in hopes of better prices.
He also promised to crack down on those who
continued to hoard.
"We must stop being the world s barn to
become the world s supermarket," said Macri,
who ran on free-market principles and defeated
Fernandez s chosen successor in elections in
Macri, who was inaugurated last week, is
betting that opening up the sector will bring
more badly needed revenue to state coffers
than the high-tax model implemented by Fer-
nandez, who argued the rural sector could and
should pay a huge share of funding govern-
But for much more money to come in, econ-
omists say the agricultural changes must be
coupled with deeper, across-the-board reforms,
such as eliminating restrictions on buying US
dollars that has created a booming black mar-
ket.Currently, Argentina s official rate is around
nine pesos to the dollar. On the black market,
a dollar has fetched as much as 16 the last
Problems in currency exchange markets
have made operating difficult for farmers, who
must deal heavily in dollars to both export
crops and import heavy machinery. During
the campaign, Macri promised to lift the
restrictions. Late Monday, he told a group of
business leaders that his government would
move toward lifting restrictions this week, but
did not provide details. Macri also announced
the lifting of restrictions on many non-agri-
cultural products, arguing that such measures
ultimately hurt Argentine competitiveness.
"The word today is hope, not happiness,"
said Fernando Boracchia, vice president of a
large rural association who also raises sheep
on 550 acres outside of Buenos Aires. "These
changes won t mean anything if they don t
come with a fix for the exchange rate problem."
Elimination of export taxes puts Argentina on new course
steers clear of debt
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