EVEN when Argentina defaulted on July 30th, for the second time in 13 years, some nonetheless hoped for a negotiated settlement between the government of Cristina Fernández de Kirchner and its “hold-out” creditors. Those hopes are fading. Ms Fernández seems to be calculating that the political benefits of recalcitrance outweigh its economic costs.
The default was prompted by a ruling in a New York court in 2012 which barred Argentina from paying bondholders who accepted the country’s 2005 and 2010 debt restructurings without fully remunerating those hold-outs (Argentina prefers to call them “vultures”) who rejected the deals. Argentina ended up paying neither, tipping it into default. Ms Fernández has now proposed allowing holders of the restructured bonds to swap to new bonds governed under local law. The Senate will begin to debate a bill to that effect on September 3rd.
Even if the country’s legislators sign off on the idea, as they are likely to, the plan will be hard to execute because it would require the co-operation of financial intermediaries that might thereby run afoul of America’s courts. But Ms Fernández is unlikely to care—her aims seem more political than practical.
First, passing such a law would prove that she is still in charge of the political agenda in spite of spiralling inflation, recession, and an ongoing corruption probe into her vice-president. Second, says Ricardo Rouvier, a political analyst, it would reinforce her message that Argentina is willing to continue paying its exchange bondholders. Third, the bill allows her further to build a Manichean political narrative around the choice purportedly facing Argentina—“homeland or vultures”.
The president is blaming almost all of her country’s woes on the hedge funds she says have forced her country into the red. When RR Donnelley, a US-based printing company, filed for bankruptcy and wrapped up its local Argentine operations last month, Ms Fernández threatened to slap it with criminal sanctions, claiming it was an attempt by vulture funds to incite fear. Her chief of staff insisted the vulture funds were also behind a massive general strike on August 28th.
This strategy has given the president a lift in the polls, without supercharging her ratings. “In the past three months presidential approval has increased from 30% to 42%, but the balance is still negative,” says Hugo Haime, a pollster. The bond-swap bill has also placed those hoping to run for president in 2015 in a quandary: vote against it and be called a vulture-lover, vote in favour and mute hopes that the country will normalise once a new president is in office.
The contenders for next year’s race have jumped in different directions. Mauricio Macri, the reformist mayor of the City of Buenos Aires, quickly insisted that his party would not vote for the bond-swap measure, and that Argentina should pay its debts. Congressman Sergio Massa, the opposition candidate with the highest popularity ratings who sells himself as a moderate reformer, took a day to announce he would also vote against the bill. Daniel Scioli, the governor of Buenos Aires province and a member of Ms Fernández’s party, stuck to his boss’s line and slammed his opponents, writing on his website: “Some have unfortunately already announced that they will vote against [the bill], and now I ask voting against this—what does that mean? Voting in favour of what? Of the vultures.”