NEW YORK, June 27 (IFR) - The battle between Argentina and
holdout investors escalated this week as each side staked out
its negotiating position before the clock starts ticking on
Monday on a 30-day grace period that could end in default.
By depositing money on Thursday to make the required payment
on the restructured bonds on June 30, the South American nation
said it was expressing a willingness to pay.
But some brinkmanship was also at work, as the sovereign
knows that a US court ruling requires it to disburse funds to
both holdouts and restructured bondholders if it wants to avoid
a technical default.
Argentina has few cards to play but that is not stopping it
from baring its teeth, with Economy Minister Axel Kicillof
defending his government's position at the UN in New York and
garnering support from other LatAm countries in the process.
The government also embarked on an aggressive ad campaign in
the US and Spanish papers, making its case against litigant
holdout investors. One declared: "Argentina wants to keep paying
its debt and they are not allowing it to."
The United Nations Conference on Trade and Development also
chimed in, voicing its disapproval of US court rulings that
favour litigant investors over Argentina.
The UN body called the recent rulings a setback for debt
restructuring and warned that more holdout investors were likely
to take an aggressive stance in snatching the assets of
"The rulings have made future debt restructuring much more
difficult as debtors are left with only moral suasion and
foreign relations as weapons to encourage creditor
co-ordination," UNCTAD said.
But US judges have been less than sympathetic, giving
Argentina little room to manoeuvre and supporting holdout
creditors that argued last week that a stay requested by the
sovereign was unnecessary.
"Although Argentina claims that a stay would facilitate
negotiations, just the opposite is true," lawyers representing
the holdouts wrote in a letter to US District Judge Thomas
"While granting a stay is not necessary for negotiation, it
would serve to create more time for Argentina to develop evasion
plans, which it has repeatedly demonstrated its willingness to
Griesa agreed and declined Argentina's petition for more
time to negotiate. The sovereign's hand was further weakened
later in the week when a US federal court decided not to allow
payment to restructured bondholders on Monday, and Judge Griesa
told Bank of New York Mellon to return the money to Argentina.
Despite the looming possibility of default, investors are
taking the deadlock in their stride. Bond prices barely budged
on Thursday as markets bet that the government would eventually
cave into holdout demands rather than risk the economic, not to
mention political, costs of failing to make a bond payment on
its restructured debt.
By letting the country go into default and leaving the
incoming government to clean up the mess, President Cristina
Fernandez de Kirchner risks exposing herself to political
attacks once she relinquishes power after the elections next
year, said a New York-based trader.
"The political risks for Cristina are enormous," he said.
"The view is that the incoming administration would go
after Kirchner on allegations of corruption and she would end up
in jail. There is zero political support for a default, given
the very real pain suffered during the last one."
A version of this story appears in the June 28 issue of IFR
(Reporting by Paul Kilby; Editing by Matthew Davies)