A MAESTRO, like those who are honorable and brave, confronts the vultures

On March 8^th the economist Aldo Ferrer passed away at his commendable 88 years old. A maestro, like those honorable and brave, that enlightens when he expresses his ideas. We dedicate him this edition of Opinion Sur by reproducing one of his last analyses on the vulture funds.

 

 “The negotiation with the vultures, by Aldo Ferrer

The central issue in the conflict with the vultures is an answer to the following question: its resolution is indispensable or is it just convenient for the future course of the Argentine economy? In the first case, the vultures’ demand will prevail and the negotiation will just be a fiction. In the second case, the negotiation is real because there might not be agreement, if the cost of the other party’s demands is larger than the benefits. Evidence is overwhelming in the sense that vultures are a problem of secondary importance and, hence, the agreement is convenient but not indispensable. For the following reasons:

1.  In the 2005 and 2010 debt swaps, Argentina made the most successful sovereign debt restructuring ever in history, without asking anybody anything. That is, without the participation of the IMF or the consent of the financial markets. The pending debt is less than 3 billion dollars, less than 8% of the total debt that was declared in default in the 2001 crisis. The alleged increase of the pending debt up to 12 billion dollars, for accrued interests, ignores that payment to the vultures would have dismantled the debt restructuring and implied a reward for speculation and a punishment to the large majority of investors that facilitated the recovery of the Argentine economy. We would be once again as in the 2001 crisis.
2. For the past decade vulture funds, holders of 50% of the pending debt, have been litigating against the country. They planned the embargo of Argentine assets, in almost 900 lawsuits in different countries. The better known case was that of frigate “Libertad.” They were not successful in any case. The country has normal relations with the whole world. Vultures are despicable speculators in the world scenario. We operate in an international order in which US sovereign immunity sets limits to the extrapolation of the national courts’ jurisdiction over third countries. The reasonableness of the Argentine position has been supported by UN National Assembly and the opinion of the most prominent analysts in the world scenario.
3. The main problems of the economy are in the internal sphere: the commercial deficit of manufactures of industrial nature and the consequent external restriction, inflation, fiscal disequilibrium, among others. None is solved by paying the vultures.
4. The conflict responds to the lack of international norms to solve the sovereign debt defaults. The successful restructuring of more than 92% of the defaulted debt exceeds the legal limits for solving bankruptcies in national jurisdictions. The difficulties of holders of defaulted debt for receiving payments by the Argentine government are the responsibility of those who provoked the interruption of the chain of payments.
5. The assumption that after the agreement with the vultures, investments will arrive is fictional. No investor, Argentinean or foreign, who might have a good project would not do it due to the vultures’ conflict. The good “investment climate” depends on the governability of the economy, social peace, judiciary security, profitable opportunities and the rhythm of transformation of the productive structure in incorporating technology and adding value
6. Payment to vultures is not enough for rating agencies to enhance Argentina’s debt qualification, with the resulting reduction in the interest rate. It is foreseeable that they will also demand an economic and financial plan backed by the IMF. It is for these reasons that the agreement with the vultures neither solves any main problem nor guarantees the decrease in interest rates and the entry of foreign investments. In summary, the agreement is useful as it removes some obstacles, but it is not indispensable.

What should be the limits of the Argentine offer? The same as with the 2005 and 2010 swaps as stated by the previous government. It is a generous offer. It represents excellent benefits for the vultures, considering the negligible price at which they bought their titles and the costs and loss of time that the country had to endure to fight with vultures. The greater the deviation of the next Government offer from such limits, the worse the qualification that the current negotiators will deserve in terms of the defense of Argentina’s development, rights, and sovereignty. The agreement content will reveal the inspiration of the current government regarding the autonomy of the economic policy and sovereignty.

The Government must not be under any illusion that a satisfactory agreement is possible as for the “reasonability” of vultures. The rejection of the latter to the necessary public character of negotiations is a first example. To efficiently defend the country’s rights and interests, it is needed that the Government accepts the possibility of not reaching an acceptable agreement and the vultures take note that they might never collect.

The negotiation with the vultures is a first step in the definition of the international financing strategy. At the same time, the alternative is posed whether to ratify the recovered sovereignty with the cancelation of the debt with the IMF or to solicit one more time its assistance with the included conditionality. Therefore, it is necessary that the Government clarifies in detail its entire international financing policy and process it through due institutional paths.

During the “cold war,” President Kennedy stated: “Let us never negotiate out of fear. But let us never fear to negotiate.” There is no reason for the negotiators of the new Government to act “in fear.” That is, to suppose that the agreement with vultures is a matter of “life or death.” The level of the external public and private debt is one of the lowest worldwide and banks are profitable, with solid portfolios, funded in pesos, without speculative bubbles or currency mismatch. We could be stronger, if we have kept the “twin surpluses” in the budget and the balance of payments and if international reserves were to increase. Anyway, the country is still strong enough to negotiate without fear or urgencies.”

Our gratitude, MAESTRO Aldo Ferrer.

 

The Editors