Argentina and the Hedge Fund Vultures

Meet the billionaire hedge-fund manager at the center of Argentina’s default By Rebecca Robbins July 31 at 3:32 PM When Argentina defaulted on its debt for the second time in 13 years this week, it was largely because of the legal pressure applied by one group of investors led by billionaire hedge fund manager Paul Singer. ...  missed a deadline for more than $500 million in interest payments that were due to bondholders. ... case even more curious is its link to Singer, who has become known for picking — and winning — fights with foreign governments over his hedge fund Elliott Management’s investments. He’s tussled with Peru, taking the country to the brink of default in 2000. He’s taken on Congo-Brazzaville, pushing the country to settle after he uncovered alleged corruption within the country’s government. But he’s never gone as far as he has with Argentina, which the ratings agency Standard and Poor’s declared in selective default on Wednesday, meaning that it has the wherewithal to pay its creditors but will not agree to. Argentina’s debt troubles date back to its last default in 2001, when it gave up on its sovereign debt payments to its bondholders. As the country’s finances rebounded, the majority of the country’s creditors agreed to a restructured debt package, but a handful turned the deal down. Led by the NML Capital division of Singer’s hedge fund, a group of holdout creditors have pushed Argentina to repay them in full, $1.5 billion. (Elliott officials have also said they would be willing to negotiate the terms.) Argentina says a large payment could expose it to a cascade of claims that it cannot afford to pay. The creditors have sued the Argentinian government, scoring a victory in 2012 when a federal court in Manhattan ruled that Argentina must first pay the holdouts before paying its other bondholders, leading to the country’s default on Wednesday. Argentinian politicians and their supporters have blamed the hedge funds for refusing to compromise, but Singer’s hedge fund denied culpability for the default of one of Latin America’s largest economies and say they have been willing to negotiate a deal. ...These hedge funds say they are simply collecting on their legitimate debt holdings, but critics call them “vultures” who prey on developing countries and unsettle the global economic balance. ... While distressed-debt investing remains a niche investment strategy, it has boomed since the recession. Total assets in the 300 hedge funds that buy up distressed and restructuring debt reached about $183.8 billion at the end of the second quarter of this year, a $100 billion increase since 2008, according to Hedge Fund Research. Within the distressed-debt market, Singer is a leader. A prominent Republican donor with libertarian views, he’s never been one to shy from a fight and has been an ardent critic of the Federal Reserve. It’s unclear just how much Singer stands to make if he can force Argentina to pay up, because it’s not known how much his hedge fund originally bought the defaulted debt holdings for. But Mark Brodsky of Aurelius Capital Management, another one of the creditors holding out against Argentina, said last year that his hedge fund stands to make some $500 million in profit if it wins the dispute. Several financial historians said they can’t remember another time that hedge funds had pulled a government into default, though they noted that there was some precedent for litigation surrounding sovereign debt. “The whole affair is reminiscent of vulture investors 25 years ago who would buy up distressed debt at a deep discount and hope to profit on subsequent good news,” Charles Geisst, a finance professor at Manhattan College, said in an e-mail. “But taking a large debtor to court is a more recent development and illustrates the extent of the profit to be made if they are successful.” Although talks between Argentina and the hedge funds have been unsuccessful thus far, an accord could still be reached out of court. Citing an unnamed source, the Wall Street Journal reported Thursday that JPMorgan Chase could step in to buy the disputed bonds. ... Source - Washington Post - here.

Hedge funds buy up debts and somehow make massive profits, by look of it.

Looks like Argentina shouldn't have given up its sovereign debt to bondholders back in 2001.

Not entire clear on that, but expect they gave over their 'foreign debt payments' to hedge funds.

Argentina can pay; but payment is at issue because it exposes them to other claims.

Like the bit about hedge funds being 'vultures' preying on developing countries.  Probably accurate.


 

US COURT RULING re ARGENTINA - Argentina receives support from over 100 economists and prominent academics

Argentina blames US for debt woes, denies default AFP By Paula Bustamante 2 hours ago  US District Judge Thomas Griesa has blocked Argentina from paying its "exchange creditors" -- those who agreed to take a 70-percent write-down after the country's 2001 default -- without also paying two American hedge funds that took it to court demanding full payment. Argentine stocks plummeted Thursday, closing 8.43 percent down as the repercussions of the default began to set in. President Cristina Kirchner's cabinet chief, Jorge Capitanich, blamed the US government, Griesa and a court-appointed mediator for the messy legal dispute, which made Argentina miss a $539 million payment to exchange bondholders. "If there's a judge who's an agent of these speculative funds, if the mediator is their agent, what is this justice you're talking about? There's a responsibility of the state here, of the United States, to create the conditions for the unconditional respect of other countries' sovereignty," he said. He accused Griesa and mediator Dan Pollack of "incompetence" and said Argentina would take the matter to international courts. Argentina says paying the holdouts the $1.3 billion it owes them could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause. ... Argentina got a show of support from more than 100 economists, including Nobel laureate Robert Solow and other prominent academics, who sent a letter to the US Congress urging it to intervene. "The district court's decision... could cause unnecessary economic damage to the international financial system, as well as to US economic interests (and to) Argentina," said the signatories, warning the ruling created a "moral hazard" by guaranteeing creditors full payment no matter how risky their investment. With Argentina scrambling to find a way to placate the hedge funds until the RUFO clause on its restructured debt expires at the end of the year, sources close to the case told AFP that JP Morgan and other banks were in negotiations with the holdouts to buy some or all of their bonds. JP Morgan declined to comment. Analysts said the damage could still be controlled if the default was fleeting, but warned a lengthy standoff would deepen Argentina's current recession, fuel inflation and unemployment and further the country's isolation from global financial markets. Argentina's 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into crisis. Rioting left 33 people dead after the government froze savings accounts to halt a run on the banks. But analysts say the global impact of the new default will be far smaller, since Argentina has since been locked out of international capital markets. Extracts only - full @ Source - Yahoo News - here.

This sounds full-on.

Wonder if the letter to Congress will make any difference?

Don't know anything about hedge funds, so I don't know what's going on. 

But it's obvious whatever is going on is punitive towards Argentina and likely damaging to Argentina, by the sound of it.

Edward Snoweden's statement - RESET THE NET

Snowden's Statement  RESET THE NET - here

See also -  https://www.resetthenet.org/

RESET THE NET

See also - https://www.resetthenet.org/

GAZA - Rally Yemen

Pic: Rally for GAZA in Sana'a, Yemen: source: twitter

Argentina - economy info

Argentina

Interest Rate	22.50%
Inflation Rate	10.90%
Debt/GDP	45.60%
Current Account	00.90

Sticky breaking to see what the go is with Argentina defaulting on bonds. It has a very high interest rate compared to the countries that are doing OK - eg. UK interest rate 0.5%, Germany and France both at 0.15% and Australia at 2.5%.

 Inflation rate is high (as is that of Venezuela and Iran). 

Countries with low inflation include US and its allies. Debt to GDP figure doesn't seem that high. 

Not far more than Sweden.  But Sweden has a positive current account figure, low inflation and low interest rates.

The current account is a country's Goods and Services figure minus Imports (ie what it's making vs what it's spending, and a few other things in equation, I think).  Current account explanation is here.

Argentina's current account being in the negative, it doesn't have foreign wealth.  It is a borrower from foreign sources.

So what has Argentina got?  Found a cool site that lists resources - here.  Bit too involved for me, but cool info.

According to another site, country reports org - here:

Argentina - Exports
Major Exports soybeans and derivatives petroleum and gas vehicles corn, wheat	Top Export Partners Brazil .... 21.6% China ....  7.3% Chile .....  5.5% US  .......   5.5%

So Argentina's main big dollar export potential would be the petroleum and gas? However, Argentina also imports:

"machinery, motor vehicles, petroleum and natural gas, organic chemicals, plastics"

Confused now that 'petrolum and natural gas' is on the list.

Think it might be best to just try to find the 'why is Argentina in default' information in a news article, because my snooping's getting nowhere.

At this rate, I'd take days to make out what's going on -- and I haven't got days, I'm starving now.

US AID TO PAKISTAN - PAKISTAN STAND ON FOOD SECURITY - WTO TRADE FACILITATION AGREEMENT

US ECONOMIC ASSISTANCE and MILITARY AID TO PAKISTAN Commenced shortly after the country’s creation in 1947 US obligated nearly $67 billion (in constant 2011 dollars) to Pakistan between 1951 and 2011 2009 US renewed commitment to Pakistan US approved the Enhanced Partnership for Pakistan Act  (commonly known as the Kerry-Lugar-Berman bill, or KLB) Act authorized a tripling of US economic and development-related assistance to Pakistan, or $7.5 billion over five years (FY2010 to FY2014). Between FY2002 and FY2009, only 30 percent of US foreign assistance to Pakistan was appropriated for economic-related needs; the remaining 70 percent was allocated to security-related assistance. Since the KLB authorization (FY2010 through the FY2014 budget request), 41 percent of assistance has been allocated for economic-related assistance. [So that would mean military assistance exceeds economic] US aid pledged to Pakistan remains significant compared to funding for other development initiatives.  US $1.16 billion request for foreign assistance to Pakistan exceeds requests for: Global Hunger and Food Security initiative ($1.06 billion); Millennium Challenge Corporation ($0.90 billion); Global Climate Change initiative ($0.48 billion).  US $1.6 billion request for foreign assistance to Pakistan: not far behind the requested $1.36 billion for the World Bank’s International Development Association (IDA) which makes loans and grants to the world’s 81 poorest countries and is the single largest source of development finance in these locations. Source:  Greenbook - obtained from site:  CGDEV.ORG Pakistan is the fourth largest recipient of US assistance, trailing Israel, Afghanistan, and Egypt.  US has pledged seven times more aid to Pakistan than to Bangladesh, a neighboring country with a comparable population size and similar development needs. US largest contributor, nearly a third of total Official Development Assistance (ODA) to Pakistan (30 projects total commitment $5 billion), followed by: World Bank’s International Development Association (21 percent of total ODA); Japan (14 percent); United Kingdom (8 percent); and EU Institutions (4 percent). Asian Development Bank (ADB) is Pakistan’s biggest multilateral partner, providing assistance of $4.4 billion from 2009 through 2012. IMF disbursed credit worth $5.2 billion to Pakistan from FY2008 to FY2010 following the 2008 economic crises.  In 2011 the Government of Pakistan decided to end the IMF program, but following the country’s civilian election in May 2013 the new government, led by the Pakistani Muslim League (Nawaz), has entered into a new provisional agreement with the Fund worth $6.6 billion for a bailout package for FY2013-2016.  Although the IMF and Pakistan have an ‘unhappy history’, the new government is said to have little choice due to its balance of payments crisis and sharply declining foreign exchange reserves. Extracts Only -  Source -   http://www.cgdev.org/page/aid-pakistan-numbers

In an earlier post - here - it was noted that a World Trade Organisation (WTO) 'Trade Facilitation Agreement', freeing up trade to bring TRILLIONS into the world economy, is being negotiated.

India, Cuba, Bolivia and Venezuela are seeking to increase public stockholding for food security.

WTO stipulates no more than 10%' value of food/grains production to be allocated to 'public stockholdings'.

However, this is based on calculations dating back to 1986-1988 and therefore not in step with inflation figures.

While India is staying strong in the negotiations, asking for a permanent solution on food security, US Secretary of State, John Kerry is unsympathetic and playing games with peoples lives:

Secretary of state John Kerry, before starting for India on Wednesday morning, had expressed the hope that India’s opposition to TFA would wither away, adding that this was a test case for the country’s commitment to advance liberalisation of global trade and investment.  [source - here]

Hmmmm ... let's see, 'test case' for 'liberalisation of global trade' VERSUS 'food security' ... and John Kerry's hoping these countries' food needs are just going to 'wither away'?

Never mind food.  Let's make PROFIT and let's sell WEAPONS.

China and Pakistan, also parties to the proposed agreement, are ready to sign the WTO trade agreement set before them.

China, I figured, is cashed up.  Oddly, it's not very community minded for a communist nation (or are they no longer communists?).

What's Pakistan's story?

Pakistan looks like it's 'owned' by 'US and company', judging by the amount of US financial support it has received and continues to receive, as well as financial support from US allies and the IMF.


What I found shocking is that the amount of US support Pakistan has received is almost as much as the US contribution request for World Bank's allocation to 81 of the world's poorest countries!

Apparently, large portions of the US aid in Pakistan go on military spending.

The guess is that the US supplies Pakistan with arms, so the money would go from the US public purse back to back to US private military manufacturing companies.

What I'm unclear about is what is a freebie and what is repayable by Pakistan.

It looks like there may be non-reimbursable portions of US aid, which is what?  Is that non-repayable?

Well if 'reimbursable' is repayable, non-reimbursable must be non-repayable. 

Until 1990, the United States provided military aid to Pakistan to modernize its conventional defensive capability. The United States allocated about 40% of its assistance package to non-reimbursable credits for military purchases, the third-largest program behind Israel and Egypt.

The remainder of the aid program was devoted to economic assistance.

Sanctions put in place in 1990 denied Pakistan further military assistance due to the discovery of its program to develop nuclear weapons. Sanctions were tightened following Pakistan's nuclear tests in response to India's May 1998 tests and the military coup of 1999. The events of September 11, 2001 and Pakistan's quick agreement to support the United States led to a waiving of the sanctions, and military assistance resumed to provide spare parts and equipment to enhance Pakistan's capacity to police its western border. In 2003, President Bush announced that the United States would provide Pakistan with $3 billion in economic and military aid over 5 years. This assistance package commenced during FY 2005. [source - US Dept of State - http://www.state.gov/outofdate/bgn/pakistan/47936.htm]

Receipt of non-repayable money sounds pretty good.  Send some my way.  LOL.
 
As for the Nuclear weapons?  We're all doomed! 

Anyway, that's a bit of a fill-in on Pakistan, which might be handy if you're anything like me and clueless about what's going on.  LOL.

Argentina - Defaults on Debt Repayments on Bonds - 'Vulture' Hedge Funds

Argentina Defaults: Three Points

July 31, 2014

... Argentina failed to reach an agreement with several hedge funds holding its bonds and it defaulted on its debt payments. First, S&P  lowered the country’s rating to “selective default,” which means that Argentina had failed to make some interest payments on its bonds. Then, Argentina’s economy minister ... Axel Kicillof, said that the “vulture” hedge funds had declined to accept Argentina’s offer to swap out their bonds for new ones, and that he was therefore heading home.

http://www.businessweek.com/articles/2014-07-31/argentina-defaults-three-points

Default is a major disaster for a government, but not much will happen right away now that Standard & Poor’s has declared Argentina to be in “selective default.”

S&P (MHFI) took the action today after Argentina’s talks with holdout creditors continued past the end of the 30-day grace period for a $539 million bond payment.

Defaults are usually bad for bond prices. But prices for Argentine bonds soared today ... because investors are increasingly optimistic that Argentina will strike a deal with its creditors. ...
 
http://www.businessweek.com/articles/2014-07-30/what-happens-now-that-argentina-is-in-selective-default

This sounds exciting. 

I've not read up on bonds, but there's a link - here - for anyone that's keen.

Looks like Argentina's borrowed money that it can't pay back.

Doesn't sound too good.

Too tired to try to figure it out beyond that.