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vulture fund agentina

The battle with the hedge funds spreads to real life companies.

It’s likely that time and only time will reveal the real meaning of this current moment in Argentina. How long a time? How about a year? Is that too long a time? Maybe it is if you are over-anxious to see the back of the administration of President Cristina Fernández de Kirchner, running the country since 2007.

The presidential elections will be held in 2015 and Fernández de Kirchner, who according to the Constitution is not allowed to seek a third consecutive mandate, is scheduled to hand over power to a new democratically-elected head of state by the end of next year. The elections are planned for October, 2015. The result of the presidential elections will say a lot about what is going on today.

Yet the result of any presidential election that is relatively far away is always up in the air. But the issues currently dominating the frontpages, especially the legal standoff with the holdout hedge funds in a United States court, have altered the landscape in which Fernández de Kirchner’s ruling coalition, the Victory Front, lost the midterm elections in all the major districts last year. The president seems to have realized that her personal popularity increases when she sways to the left.

Argentina has lost the battle with the hedge funds in New York Judge Thomas Griesa’s court. But the president’s refusal to reach an agreement with the hedge funds, while behaving as if she is prepared to die with her boots on, has found popular support.

That new-found popularity is not likely to work any wonders for the Victory Front (at least for its ultra-Kirchnerite wing) in next year’s elections. But it may grant the CFK administration the oxygen to see out this four-year presidential mandate with a bit more clout than could have been expected a year ago.

Still, the Victory Front’s thumping defeat in the midterm elections of 2013 has left the field packed with many competitive opposition presidential candidates.

Go ahead. Count the potential presidents that could run things in Argentina after 2015: the center-right opposition Peronist Sergio Massa, the Buenos Aires City Mayor Mauricio Macri (leader of the centre-right party PRO) and the former vice-president Julio Cobos (a Radical once allied with the Kirchnerites who is now part of the centre-left coalition, which goes by the clunky name of Frente Amplio-UNEN).

FA-UNEN is on the verge of disarray after a row in public between Senator Pino Solanas, also a presidential hopeful, and his ally in last year’s elections, Elisa Carrió. Carrió walked out when Solanas declared at a recent coalition gathering that an agreement with the “modern right,” supposedly meaning Macri, was unacceptable. Carrió has since declared that if FA-UNEN and Macri do not join forces to face each other in a primary the presidential runoff next year will be between Massa and Buenos Aires Governor Daniel Scioli, a moderate Peronist who technically belongs to the Victory Front but who is not expected to clinch the endorsement of Fernández de Kirchner.

All these are heavyweight candidates who are not Kirchnerites. Put together they had enough popularity to reduce Fernández de Kirchner to lame duck insignificance during her last year and a half in office. Yet the issues now dominating the news have granted those centrist hopefuls little joy. The hedge funds, which are depicted as “vultures,” are hugely unpopular in Argentina. The president has not stopped bashing the vultures even when Griesa, who has openly declared that he is incensed by CFK’s “inflammatory rhetoric,’’ has told the Republic’s attorneys up in New York that he is very close to declaring Argentina in contempt of court.

There was a lot of anticipation surrounding the standoff because the international news wires have consistently reported that a group of major private banks were holding talks with the hedge funds, including NML and Aurelius, to hammer out an agreement to buy out the holdout debt (estimated a 1.3 billion dollars plus accrued interest).

Aurelius on Wednesday released a statement declaring that the negotiations with the private banks (Citigroup, Deutsche Bank, HSBC and JP Morgan) had failed. The wording of the Aurelius statement was belligerent. If Fernández de Kirchner is looking for an argument then, judging by the tone of the Aurelius statement, she is going to get one. Aurelius said that the “engagement” with the private banks “has convinced us that there is no realistic prospect of a private solution.”

Aurelius did not pull any punches. ‘‘The Argentine people have already paid a dear price for their leaders’ hubris,’’ Aurelius said. ‘‘With Argentina yet again defaulting on its bonds, we fear the worst is yet to come,’’ the hedge fund added.

Gulp. Reports said that the deal fell through because there were no certainties for the private banks that Argentina would eventually offer a guarantee of payment. Initially, the hedge funds were looking to get 80 cents for every dollar of debt they owned from the private banks. But when another week turned the banks were offering no more than 50 cents. The “vultures” could be heading for trouble if the creditors who accepted the swaps of 2005 and 2010 decide to “accelerate” the scheduled payments. Acceleration could see the vultures not collecting a cent to the dollar -- let alone 50. But for now they are not in the mood for a deal. NML has also declared that there is no imminent agreement with the private banks.

Acceleration could be tempting also for Argentina because it could lead to yet another swap offer that could place the payments out of the reach of Griesa’s court. The legal battle is not over.

A US appeals court on Friday agreed to hear on September 18 a complaint by Citibank and Argentina concerning future payments to holders of certain US dollar-denominated restructured bonds after Griesa allowed a one-time payment.

The weakness of Griesa’s ruling is that Argentina has not been, at least yet, punished. Yet there seems to be no end to the confrontation. It is, if anything, escalating and getting uglier.

A Nevada judge has ruled that NML, the hedge fund controlled by the massively-rich US libertarian Paul Singer, has a right to seek out assets held abroad purportedly by the ultra-Kirchnerite businessman Lázaro Báez.

The Nevada judge, one Cam Ferenbach, has said that there is every reason to believe that Báez has embezzled the Argentine state to the tune of 65 million dollars. Potentially, the Báez connection according to Singer’s fund could lead to a fortune that really belonged to the late former president Néstor Kirchner and his wife, the current president of Argentina.

Jorge Capitanich, the president’s Cabinet chief, has meanwhile set off some legal fireworks of his own by describing the hedge funds as an “international mafia,” a term that has been also used by many commentators abroad to describe them.

How could the conflict escalate even further? The president’s stance is that the vultures are out to discipline Argentina for daring to try to live in the global capitalist system without fully embracing the neoliberal economic policies that dominate the industrialized world.

That closing line in the Aurelius statement, the one which says that the “the worst is yet to come,” was an invitation for Fernández de Kirchner to continue with the argument that has enhanced her popularity.

The confrontation continued on Thursday when Fernández de Kirchner made a public appearance in Government House. The president, to put it mildly, was not in a business-friendly mood. She took issue with the swift bankruptcy declared by the local branch of the US printing firm RR Donnelley (it has 400 workers in Argentina and prints well-known glossy magazines here).

RR Donnelley, Fernández de Kirchner said, had connections with hedge funds of the sort engaged in litigation with Argentina in the United States. (The company last night denied the allegation.) The president announced that her administration is pressing charges against RR Donnelley executives under the recently-approved Anti-terrorist Law for allegedly trying to “alter the financial and economic order” with its bankruptcy, presumably in a bid to terrify the population at a time Argentina is at war with the hedge funds.

The Anti-terrorist Law is controversial because progressive groups had complained that it would be used to clamp down on social protests. Instead, the president bragged on Thursday, the government is using it to press charges against a capitalist company. Argentina will also take the case before the US Securities and Exchange Commission (SEC).

Much of the opposition is fuming. The critics say that the move will do nothing to woo investments. Radical Senator Gerardo Morales said CFK’s government was getting close to embracing “Venezuelan populism.” Critics also claim that the president is only posing as a leftist while her real intent is corrupt.

The government is also submitting a draft bill to Congress to reform an anti-hoarding law approved in the seventies (a bid by then president Juan Perón in 1973-74 to battle inflation and price increases.)

Inflation officially clocked in at 1.4 percent in July and even government supporters are admitting that it is likely that, for the first time in a decade, salaries will lose out to the price hikes this year.

The reform to the anti-hoarding law will do away with prison sentences for business owners. But the government-sponsored draft allows for the regulation of the market by the state. If approved it will allow the government to regulate profit margins, set reference prices and, according to the business sector, force manufactures to make products at a loss. Argentina’s top business forums have declared that the draft bill is “unconstitutional.” A meeting between Domestic Trade Secretary Augusto Costa and leaders of the Argentine Industrial Union (UIA) on Thursday failed to sort the conflict out. The draft bill has been submitted to the Senate.

The opposition has announced that it will try to shoot down the Anti-terrorist Law in Congress. But the Kirchnerite Victory Front, despite its defeat last year, not lost control of the Lower House nor the Senate. That bit of landscape remains unaltered.

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