The Most Dangerous Politician In Latin America Has Only Become More Powerful
Since Argentina's default, the country's Economy Minister, Axel Kicillof, has only gained more power in President Cristina Fernandez de Kirchner's administration, according to reports from Argentine newspaper, La Nacion.
It was he, reports say, who persuaded the president not to listen to a group of private bankers trying to strike a deal with the hedge fund creditors whose lawsuit brought Argentina to its knees.
"Today Kicillof is the head of government. Cristina is the head of state," a source told La Nacion.
That leaves men like Cabinet Chief Jorge Capitanich and Central Bank Chair Juan Carlos Faberge — two men who were in favor of striking a deal — out in the cold.
And it leaves Kicillof — a Marxist economics professor who was instrumental in The Republic's controversial takeover of the Argentine subsidiary of Spanish energy company YPF — with more influence over the President.
The Twitterverse is even exploding with rumors of a presidential bid once Kirchner's term is over near the end of 2015.
This does not bode well for the continued Court-ordered negotiations between The Republic and the hedge fund creditors whose U.S. lawsuit set Argentina on the path to its second default in just over a decade. The creditors, known collectively as NML Capital, won a lawsuit ordering Argentina to pay them 100 cents on the dollar for sovereign bonds purchased after the country's previous default.
Argentina had been refusing to pay NML because its creditors would not take a 70 cent haircut on these bonds, as more than 90% of investors did. NML sued Argentina for its money and won.
That should have been the end. But when a payment that should have included NML's money was not made on Wednesday, Argentina went into default.
There is still time to set things right, but it's running out. Last week, Kicillof reportedly asked Fernandez to reject the deal between NML and private bankers — who may have purchased NML's bonds — calling it "a scam with depositors' 'savings.'"
New York Judge Thomas Griesa is insisting that negotiations continue, though.
But the longer these negotiations (or lack thereof) take, the more precarious the situation on the ground in Argentina will become.
"If Argentina does not settle this event of default within 60 days, it will trigger a 'cross default clause' embedded in the bond agreements and, assuming bondholders can gather a group representing 25% of each issue, will require the acceleration of payments to the 93% of bondholders that took part in the 2005 and 2010 exchanges," wrote Graham Fisher analyst and debt expert Joshua Rosner in a report last week. "If this occurs, Argentina will almost immediately go from solvent to insolvent, as the $29 billion dollars needed to meet these demands would wipe out its foreign reserves. While it is uncertain if this will happen, it does appear that exchange bondholders are already preparing to make these demands."
Rosner fears that if negotiations remain at a stalemate, low levels of infrastructural investment and "aggressive import export tax regimes" that have contributed to the Argentine economy's malaise will truly begin to cause pain.
"If Argentina continues on her current path," Rosner wrote, "it is likely that her next economic crisis will look frighteningly similar to the domestic debt crisis of 1989-1991. While few outside of Argentina remember that period and the broad suffering that it caused in the population, most Argentines remember the pain that resulted from July 1989’s 54% currency devaluation, a 200% increase in public service rates, and the countless wage controls and price guidelines."
In the past few days, the Fernandez regime has voiced many concerns — that the NML will try to force The Republic to sign a bad deal, that The Court's mediator is friendly with NML's lawyers, that Argentina is being singled out for bullying in the international community.
One Argentine judge even discounted the U.S. Court's ruling entirely, saying that Griesa was a lower-level municipal judge (never mind that the Supreme Court upheld his order). He suggested that The Republic start a new lawsuit accusing NML of extortion and bribing the Court.
In other words, the regime does not sound concerned about an impending economic collapse.
Lets hope one doesn't catch it by surprise.