Argentina reached a landmark deal last Monday to pay off bondholders with whom it has been deadlocked in negotiations for more than a decade, reflecting hopes that the country will finally be put on a path toward a new, globally integrated future.
The ongoing negotiations with these “holdouts,” hedge funds that refused to take losses during previous restructuring after Argentina defaulted on $100 billion in debt in 2002, have cast a pall over Argentina’s interaction with the world economy for years.
Visiting the capital of Buenos Aires in late February, Global Atlanta saw newspapers enthralled with each development in the negotiations, and the theme loomed large in interviews with executives who expressed hope that Argentina’s slate would finally be wiped clean.
That’s the intent of newly elected Argentinean President Mauricio Macri, who came into office in December pledging to remove this stumbling block for foreign investment early in his term. The court-appointed mediator in the dispute, Daniel Pollack, announced last Monday in New York that Argentina had agreed in principle settle the debt for $4.65 billion in bond yields, 75 percent of the total the hedge funds say they’re owed.
The deal’s enactment now hinges on whether Argentina’s legislature can repeal laws that prevent the government from disbursing payments to the holdouts, which the administration of former President Cristina Fernandez de Kircher labeled “vultures” and “financial terrorists.”
A New York judge removed an injunction in February that prevented Argentina from paying individual bondholders until a deal with the holdouts had been reached. This week Argentina announced that it would issue three bonds totaling $11.68 billion to close this chapter for good, though there is some concern as to the appetite for Argentinean debt in global markets, even at the proposed 7.5 percent interest rate.
Ms. Fernandez, the wife of her preceding president Nestor Kirchner, had doubled down on the fight with the holdouts rather than complying with a New York arbitration tribunal’s judgement against the country. Some say her combative stance was a political tactic, part of a brand of populism that used American capitalism as a foil to play on the local population’s fears.
While taxi drivers still complain about persistent inflation and protestors lined the streets last week to decry issues like the detainment of an indigenous activist and a row with Monsanto over soya bean seed royalties, Global Atlanta encountered optimism among executives that Argentina is entering a new era.
Earning its way back into the good graces of creditors is the first step toward the longer-term strategy of building infrastructure and kick-starting the economy, said Laurence Wiener, partner at Wiener Soto Caparrós, in an interview with Global Atlanta.
“This government needs money badly. They need to shore up their reserves, so they need to tap the debt markets, and Argentina is attractive: Other than what they’re arranging, it virtually has no debt,” Mr. Wiener said.
Once that’s in place, the country look for infrastructure to international bodies like the International Monetary Fund, the World Bank and the Inter-American Development Bank, along with other institutions that shied away from the country while it stood in the shadow of the debt crisis.
Roberto Curilovic, business development director or Aeropuertos Argentina 2000, the privately held airport operator in Argentina, said access to credit has been all but cut off in the last decade, leading to less than optimal conditions in the aviation sector.
That’s evident in the case of the two main airports in Buenos Aires, the capital — the closer-in Aeroparque, which handles most domestic traffic, and Ezeiza International, which is a 45-minute hike outside the city.
Planners would have preferred to build another runway at Aeroparque to handle more inbound visitors, but the airport reached capacity just as the country defaulted on its debts, leaving it unable to get loans for expansion. That required a reshuffling of resources to Ezeiza, a less-than-ideal location at a former air force base.
“Usually in Argentina we think in the short term. This is a problem. We also think in terms of political needs,” Mr. Curilovic told Global Atlanta in an interview.
He noted that AA2000 also faces the prospect of negotiating with 12 different labor unions, underlining the fact that some of the most persistent business challenges in Argentina haven’t changed. Despite the fact that Mr. Macri has removed currency controls, let the peso float openly and opened many previously forbidden product categories to trade, stringent labor laws and heavy bureaucracy remain.
“Argentina is going in the right direction, but it’s going to take a long time to change,” says Guillermo Wasserman, an Argentinean attorney with Wasserman West in Atlanta who cautions that there is no “silver bullet” for an economy that still faces some political uncertainty.
Mr. Macri’s honeymoon period — his first 100 days riding high on electoral momentum — is nearing an end, and his Cambiemos coalition lacks a majority in either house. The path toward real reform could be paved with compromise, and the success of policies in a place like Argentina can really only be judged in epochs, not months, Mr. Wasserman said.
“This is a marathon, and for the first 10 meters, they have had a great outcome in terms of what they’re trying to achieve and communicate: the perception that Argentina is now a more integral to international trade and part of the global economy. But they may get a lot of internal pushback,” he said.
Still, the attorney recognizes that the debt deal was a watershed moment for a country spinning its wheels under a more populist model. He likened it to a terminal patient who goes into the doctor and finds out that there is a chance, however tenuous, for life-saving surgery.
“At least now there is a possibility of recovery, whereas if Argentina continued on this path it would be doomed to be left out of the global picture,” Mr. Wasserman said.
Norberto Pontiroli, chief international strategist in the new government, says Mr. Macri has always been upfront with the people that transformation won’t happen overnight, a quality he developed dealing with challenges as mayor of Buenos Aires. Inflation is one example: Mr. Macri has pledged to bring it to single digits in his third year.
“It’s a matter of how you talk to the people, if you tell the truth or if you lie,” Mr. Pontiroli said, asserting that the gestures of today — welcoming heads of state like Francois Hollande of France and the upcoming visit of U.S. President Barack Obama this month — are important signals to investors and citizens about what the government is trying to achieve.
Argentineans are watching and waiting, letting excitement build while tempering it with the reality of their tumultuous history. One retired diplomat described the current climate as “hopeful, not happy.”
Santiago Pordelanne, general manager of Atlanta-based Equifax Inc.’s Argentina, Paraguay and Uruguay operations, said multinationals seem to be scouting opportunities in the market where his company has operated for more than 60 years. Firms are also beginning to take a longer horizon in their investment planning, said Mr. Pordelanne, a former telecom executive.
“That, of course, gives you the opportunity to think that we are going to face better times than in the past.”