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Montag, 16. Dezember 2013

Lead Articles: El Cronista: “The Paris Club demands cash payment of almost US$2 billion to negotiate” Ambito Financiero: “Preparing to pay US$750 million for the Discount coupon”


El Cronista
The Paris Club demands cash payment of almost US$2 billion to negotiate
Germany, the main creditor, is taking the hardest line, say negotiators.  The cash payment is holding up the negotiation, because the reserves are falling.  Kicillof refused a proposal.
 
Monday, December 16, 2013
 
By Esteban Rafele
 
The member countries of the Paris Club are demanding cash payment of 25% of the debt to accept refinancing the rest of the payments that remain in default since 2001, according to what El Cronista learned from three sources that had access to the details from the start of the negotiation between the government and the creditors.
 
Thus, the country will have to pay some US$1.8 billion in cash if it wants to move forward in the negotiations.  The amount represents a quarter of the debt without interest, US$6.9 billion.  The interest and penalties raise the debt to almost US$9 billion.  That was the last number consolidated between the government and the creditors, while two years have passed since then.
 
The US$1.8 billion in cash is holding up any attempt at an agreement, a task that President Cristina Fernández put in the charge of the future ambassador to the European Union and the head of the Debt Renegotiation Unit, Hernan Lorenzino.  That money would have to come out of the dwindling reserves of the Central Bank, which on Friday closed at US$30.558 billion.
 
However, the Paris Club dropped its pretenses.  A participant in the first negotiations with the group of creditor countries recalled that initially the interlocutor, Pedro Solbes, demanded US$4 billion in cash.  “The creditors, after 12 years of default, surely will demand a significant cash payment, of between 20% and 30%,” said Javier Alvaredo, economist of the consulting firm ACM and the chief of staff of the Palacio de Hacienda during the mandate of Miguel Peirano.
 
Lorenzino traveled last week to Paris to make efforts.  Before, on Friday the 6th, he’d met with Economy Minister Axel Kicillof.  The Argentine proposal, which according to the Economy Minister was not formalized, contemplates a payment with bonds, in line with what was done to pay the contrary sentences in the ICSID and what was offered to Repsol to settle the claim over YPF.  In the ex-minister’s circle they wouldn’t comment about the talks.  Kicillof led El Cronista know that there is “nothing at all” in an allusion toward an eventual payment proposal.  
 
Germany, which has 30% of the debt, is the most difficult country to convince and the one that is pressing the most for a significant cash payment.  It is also demanding that the country accept the review by the International Monetary Fund (IMF) to refinance the debt.
 
The United States is Argentina’s best ally in this context, but only holds 7% of the debt.  The Obama administration already made it known that it sees the efforts with good eyes that the country is making in the ICSID and with Repsol and even recommended to the Supreme Court of its country to reverse the sentence that obliges the payment of US$1.5 billion to the vulture funds.  But, while Argentina doesn’t make progress in the Paris Club, the United States will not change its votes against it in the World Bank and the Inter-American Development Bank (IADB).  “The U.S. Treasury doesn’t have autonomy to restructure its debt without sending it to Congress,” said Alvaredo.
 
Overall, both an eventual offer of bonds to the Paris Club as a proposal to Repsol depends on the lawsuit in the United States.  An eventual attachment on payments would complicate the efforts.
 
 
Ambito Financiero
Preparing to pay US$750 million for the Discount coupon
The goal of the Central Bank is to maintain US$30 billion in reserves  
 
Monday, December 16, 2013
 
by: Pablo Wende
 
A series of measures adopted by the BCRA allowed the reserves to end last week with a positive balance, something that hasn’t happened since July.  The stock ended at US$30.558 billion, recovering some US$75 million in five days.  And it’s likely that in the coming days this trend will be accentuated.  But nothing is forever: in reality, the monetary authority has to strengthen in every way possible its volume of reserves before the end of the year, now that on December 31, the government will have to pay US$903 million on interest for the Discount bond.  Of course, since part of this payment is in pesos, the impact on hard currency will come to around US$750 million.
 
The Discount is one of the bonds with the greatest volume that the Argentine government issued.  It appeared in the swap of 2005 and was issued in an additional, much smaller amount in the reopening of the swap of 2010.  And they are issued in three currencies: pesos adjusted by inflation, dollars and euros.  The payment of these latter two is what directly impacts the reserves.  This bond has an additional attraction, as now part of the interest have been capitalizing, but starting next year the coupon will pay 8.28% annual total.  This is becoming one of the highest paying dollarized bonds in terms of annual interest.  It is only surpassed by the Global 2017, which was issued with a coupon of 8.75%.  
 
The new tandem made up of Jorge Capitanich, Axel Kicillof and Juan Carlos Fábrega decided to seek to reverse the drop in reserves, after a gap of almost US$13 billion over the course of this year.  In that sense, they adopted a series of measures that began to have impact and which will be felt with much more strength this week:  
 
·         The Central Bank will issue a Letter in pesos adjusted to the official dollar for the grain producers.  The companies are committing to bring in between US$1.5 and 2 billion, through an export pre-financing scheme.  Fabrega’s idea is that some US$400 million come in each month.
 
·         YPF today will close its bond placements, which will extend to up to US$500 million and the rate could land just above 9% annual. These funds will have to come in through the official currency exchange market, by which they are resources that will also be bought by the BCRA.  
 
·         Chevron already started to bring in, on a daily basis, the US$940 million remaining in making the first investments in Vaca Muerta, in partnership with YPF.  This flow of dollars – which will be maintained at least over this entire week – is precisely what allowed the Central Bank to end last week with a positive reserves balance.   
 
·         At the same time, the BCRA intervened actively in dollar futures, aggressively lowering the price of shortest term contracts, for example for February and April 2014.  It also allowed the banks to increase their exposure in currency exchange futures.  Thus, it sought to diminish the demand of dollars on the “spot” market and that those seeking currency coverage do so through futures contracts.  
 
It is supposed that with this artillery, the Central Bank will maintain at least a favorable trend in the reserves for the next ten days, with which it will diminish the impact of the payments that must be made a the end of the year.   In the past quarter, the payment of the Discount was felt on June 29 and July 2.  But it was partially compensated by strong purchases of the monetary authority and a rise in the minimum dollar holdings, product of the hard currency being deposited in local accounts, in the case of Argentine investors.  The strengthening of the reserves includes other options, for example to offer a more attractive instrument in dollars for savers, with a better interest rate than what is currently being presented by the banks (0.5% annual).  And at the same time to halt the parallel dollar continues the sale by state entities (ANSeS, BCRA) of bonds in dollars to maintain the “contado con liquidacion” dollar rate under control.  The criticism of this scheme is that it offers an artificially low exchange rate that ends up financing the flight of capital to more sophisticated players through the bond market.
 

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