Kiciloff claims ‘absolute support’ from G20 and IMF over Argentina default
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Emerging Markets

Kiciloff claims ‘absolute support’ from G20 and IMF over Argentina default

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Still smarting from defeat in the US Supreme Court over the bond holdouts, Argentina’s economy minister Axel Kicillof insists the recession-hit country is in the right and is turning down offers of money

Argentina remains defiant in its guerrilla war against the bond holdouts who forced it to default on its sovereign debt for the second time in 15 years, saying it had obtained the support of the international community during meetings in Washington.

“We have had the total, absolute support from the G20, the G24, the Inter-American Development Bank, the International Monetary Fund — an absolute support for the Argentine posture against the New York court,” Axel Kiciloff, Argentina’s economy minister, told Emerging Markets. “Argentina is not the problem — the problem lies in the vulture funds.”

In August, Argentina was forced into default after the US Supreme Court upheld claims by investors which refused Argentina’s debt restructuring that it would be illegal for Argentina to pay restructured bondholders if it did not also pay the holdouts.

Kiciloff denied that Argentina was running out of funds, even though the country is deep in recession and falling commodity prices are sapping exports. He said several banks and investors had offered Argentina funding, despite its pariah status.

“There have been offers all the time. But we will not accept any of them,” said Kiciloff. “There is no need to access international capital markets now.”

His statement surprised analysts. “The higher morality of his position is not apparent to me,” said John Welch, emerging market strategist at CIBC.

Another emerging market analyst described Kiciloff’s stance as “quite foolish” because the terms the banks were offering must be better than the 25% Argentina pays on domestic borrowing.

Argentina blamed the negative “microclimate” against Argentina on financial speculators. But independent analysts urged Argentina to solve the holdout problem.

“I understand it [Argentina’s problem] is complicated because default issues with holdouts are irritating,” said Augusto de la Torre, chief Latin America economist at the World Bank. “But it is worth trying to assign a priority to deal with this issue and find a way to re-establish access to international financing.”

“Markets have very, very short memories, but you have to regain the markets,” said Eduardo Levy Yeyati, managing partner at Elipsys, a Buenos Aires-based consultancy. “Once you regain access to the market, it may not take more than a year to achieve a recovery,” he said. “Markets are very liquid and they want to lend.”

PRE-ELECTION STANCE

Appointed in November 2013, Kiciloff has tightened his grip on policy in Argentina. Late last month, Juan Carlos Fabrega was sacked as president of the Central Bank of Argentina and replaced by an official closer to the economy minister.

“The government is avoiding any fiscal and monetary adjustment, attempting to muddle through using the dollars available until the October 2015 elections,” said Martin Castellano, senior Latin America economist at the Institute of International Finance.

“The next administration will likely have access to credit to finance an adjustment, but will need to adopt deep corrections relatively fast to unwind well-entrenched imbalances, which will require skilful political leadership among a highly fragmented opposition,” he said.

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