International central securities depositories like Euroclear and Clearstream are intended to facilitate money movements around the world. Now Argentina, trying to pay bondholders in defiance of a US court ruling, has asked Euroclear and Clearstream to help pay the interest on its debt which is due today, Tuesday.
The response so far has been underwhelming.
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According to the Financial Times, Euroclear declared it won’t touch Argentina’s money without permission from the U.S. courts—because only a week ago a New York judge forbade Euroclear from processing Argentine debt payments.
And Clearstream said on Monday that it would not do business with Citi Argentina, after local authorities suspended Citi’s custody and brokerage licences as a result of the stand-off.
Both Clearstream and Euroclear have already stopped B2B service on nearly $10 billion in Argentine bonds, which the local government has issued in exchange for actual U.S. dollars.
So there’s no way out. Argentine President Cristina Fernández de Kirchner and her Economy Minister Axel Kicillof have reached the end of their rope in their war against U.S. hedge funds, most notably Paul Singer’s Elliott Management Corporation and the hedge funds it controls.
This story is dramatic enough as far as Argentina and U.S. markets are concerned, but it becomes even more dramatic in view of the rising number of debtor states—Greece and Spain come to mind—who are seriously contemplating telling the nice financial institutions that lavished so much money on them to go to hell.
This is precisely what Kirchner and Kicillof did last year, when they offered to pay the $100 billion they owe Singer et al, except not in dollars.
And so today, Tuesday, could go down in history as the day Argentina went back on the road to becoming a pariah state one more time, with cruel consequences for its people.
The origins of this crisis date back to the end of Argentina’s military dictatorship, in 1983. The generals left the country with a whopping $45 billion in foreign debt—they started huge projects they never fisnished, they went to war against Great Britain over some islands, don’t ask. Actually, the debt itself came to only $8 billion, but with interest and fees and whatnot, it added up.
A succession of Argentine governments tried for almost 20 years to come out from under this burden, while production was down, inflation was up, and folks were rioting in the streets. So in 2002 they had no other choice but to default on their debt, which by then had ballooned to $82 billion.
Easier said than done. The impact of that default was horrifying, as hundreds of thousands lost their jobs, became homeless, scavenged the streets. No one would buy Argentine products abroad, no one would fly Aerolíneas Argentinas.
You don’t mess with the IMF, and don’t mess with Paul Singer and Elliott Management.
In 2005, Argentina began a process of debt restructuring, which has been marred from day one by disputes with lenders. The country simply didn’t have the kind of wealth a satisfactory debt payment deal required, and so, in the summer of 2014, when eight years of partial debt payments resulted in Argentine debt still ballooning to $100 billion, the current government decided on a new approach.
They would pay back every cent they owe, they declared, but it would be through Argentine banks, and with Argentine money.
Some lenders took the offer, but Paul Singer refused to be played for a sucker and enlisted the aid of the American courts, and they, in turn, supported the U.S. hedge funds against the foreign borrower. In a sense, these cases have endowed a NY court with some governing powers over a foreign country.
In that capacity, NY Judge Thomas Griesa has been deftly blocking all of Argentina’s maneuvering to get by without handing over the money it owes, cash would be fine, thank you very much.
Earlier this month, the judge blocked the Argentine government’s plan to issue new debt (you have to pave roads, fix bridges) by declaring that bonds issued under local Argentine law—denominated in dollars, by the way—are part of that other debt, the global debt, the one the judge said must be paid up before another penny is borrowed.
Tough judge. Tough day for Argentina.
