February 22, 2016 / 4:30 PM / 3 years ago

Argentine lawmakers seen favoring deal with holdout creditors

BUENOS AIRES (Reuters) - Argentina’s Congress will likely repeal two laws blocking settlement of a court case that has hobbled Latin America’s third biggest economy by keeping it locked out of the global bond market, a key lawmaker and analysts said on Monday.

A settlement would open financing options to Argentina’s new president as he tries to straighten out the country’s fiscal mess without imposing the kind of shock spending cuts that have gotten previous Argentine leaders thrown out of office.

President Mauricio Macri was elected in November on an open-markets platform following eight years of protectionism under Cristina Fernandez, who refused to negotiate with hedge funds suing the country over its defaulted bonds.

The judge on the case wants Congress to repeal laws that allow bond payments to be processed in Buenos Aires rather than New York and ban the government from offering better terms than those included in Argentina’s 2005 and 2010 debt restructurings.

“I think we are going to have the numbers we need (to repeal the laws),” Nicolas Massot, the head of Macri’s PRO party in the lower house, told local radio, echoing administration officials.

The country has been shunned by the international capital markets since it defaulted on about a billion dollars in sovereign debt in 2002. About 93 percent of creditors accepted around 30 cents on the dollar in the two bond revamps.

But a group of creditors went to court asking for full repayment, convincing the judge to prohibit Argentina from servicing its restructured bonds until they too were paid.

U.S. District Judge Thomas Griesa in Manhattan said on Friday it would serve the public interest to lift the injunction of bond payments, provided Argentina repeals the laws and pays creditors who agree by Feb. 29 to settle.

The funds have been in negotiations with Macri’s economic team in recent weeks in New York to resolve the years-long dispute. Friday’s ruling robbed them of leverage in those talks.

In a letter to a federal appeals court filed on Saturday, Elliott Management’s NML Capital Ltd and Aurelius Capital Management, both major holdout funds, called Griesa’s ruling an “abrupt judicial ultimatum.”

“The message to non-settling plaintiffs, many of whom have had no opportunity to negotiate with anyone, is unmistakable: Settle by February 29, or else,” their lawyers wrote.

SIGNS OF THAW

Analysts agreed Macri can probably corral the votes needed to repeal both laws in the lower house by appealing to moderate members of the opposition Peronist party, leaderless since Fernandez turned the presidency over to Macri in December.

Provincial governors are expected to lobby the Senate to repeal the two laws in order to improve the country’s finances and free up money needed for roads and other local projects.

“Factional struggles within Peronism and the provinces’ critical financial situation should help Macri to get both laws repealed by Congress,” said Ignacio Labaqui, who analyses Argentina for New York consultancy Medley Global Advisors.

Griesa, once vilified by the Fernandez administration as a friend to what she called the “vulture funds” suing the country, praised Macri for his approach to the talks.

In another sign of thaw between Buenos Aires and the bench, Argentina on Monday moved to drop the previous government’s appeal of a Griesa decision that blocked Citigroup Inc from processing interest payments to holders of bonds issued under the country’s local laws.

Congress is meanwhile set to reconvene March 1, with settlement of the bond case topping the president’s legislative agenda.

Jimena Blanco, an analyst with Verisk Maplecroft in the U.K., agreed that Macri should be able to cobble together the votes needed to clinch the repeals demanded by Griesa.

“Settling with the holdouts is the only way the government can continue applying a gradual economic adjustment,” Blanco added. “Without external financing, the only option would be a shock treatment. Macri will try to avoid this by all means possible.”

Additional reporting by Nate Raymond and Daniel Bases in New York

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