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Did Argentina’s CNV Pass a Law to Avoid a Bond Payment?
Did Argentina’s CNV Pass a Law to Avoid a Bond Payment?
Last Tuesday, Argentina’s securities regulator, the CNV, shocked markets by announcing Resolution 646 requiring that mutual funds price dollar-denominated assets in pesos at the official government rate rather than the market rate that is closer to the parallel or blue dollar. Despite efforts from banks and industry organizations to organize a longer time period in which to react to this change, Economy Minister Axel Kicillof refused to meet with representatives and the law came into force on Friday.
Unlike other government interventions in the parallel market, this sudden “pesofication” of somewhere to the tune of US $15 billion worth of investor assets came as a real shock to the industry — as in no one saw it coming.
So what would entice this government to force the conversion of dollar-priced assets held by mutual funds into pesos at the official rate? Mutual funds are investment vehicles created for small and medium savers. They have a low minimum entry point and up until last week were a way for Argentines to save money without squirreling away physical dollar bills in boxes buried under stairs. This measure actually hurt small savers and helped no one.
Previous interventions in the market have served to bring both the blue dollar and the bond-linked contado con liquidacion (ccl) or “blue chip swap” rates down. This shock caused bond prices to temporarily plunge and the blue dollar rate to shoot up to record highs of 16.05 ARS/USD. Furthermore, the effects on the ccl market were short lived. Before the announcement, the ccl rate was at 14.05 ARS/USD. It dropped to 13.19 before and has rebounded back to 13.85 ARS/USD. So in this case, the government temporarily brought down bond prices at the expense of small savers and the blue dollar. What gives?
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Putin Pans Ukraine’s Debt Moratorium As “De Facto Default”, Threatens Court
Putin Pans Ukraine’s Debt Moratorium As “De Facto Default”, Threatens Court
In exactly a month, Ukraine will owe Russia a $75 million debt coupon payment. Finance Minister Anton Siluanov told reporters in Moscow today that “if they miss the payment, we will use our right to go to court.” Then it got serious, as Vladimir Putin instructed Russian Prime Minister Dmitry Medvedev to assume control of Ukraine’s repayment of its $3-billion debt in Eurobonds that Russia bought in 2013, slamming Ukraine’s bill allowing them to impose a moratorium on foreign debt repayments as a de facto announcement of default. As one market participant warned, “I would wait until after June 20 to go forward with” any moratorium, as “if Russia takes Ukraine to court, that might be an incentive for other creditors to go down the same route.”
As we previously noted, on Tuesday, Ukraine’s parliament adopted a bill allowing Ukraine to freeze repayments of its foreign debt. As RT notes,
Experts agree that Tuesday vote meant a technical default for the country and would impede Ukraine’s ability to raise private investment from the EU and the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), a European source told TASS on Wednesday.“Suspension of debt payments not coordinated with creditors results in a technical default, and in the case of Ukraine, it threatens to undermine Kiev’s ability to attract private investment through EU programs,“ the source said.As part of the underpinning of Kiev’s bailout plan, the International Monetary Fund said in March that Russia would not receive the $3 billion bond repayment from Ukraine this year.
IMF is looking for cooperation from creditors to accept a restructuring on Kiev’s debt. That includes Russia.
