FORGET ABOUT WTO

It’s no news Argentina indulges in protectionist policies. Predictably, a number of commercial partners exercised their right to take the matter to the World Trade Organization. It ruled against Argentina. At a time when all eyes are on the confrontation with the holdouts/vultures and Judge Griesa, a slap on the wrist on a trade issue is unlikely to trigger much excitement.

A default — be it temporary, partial or said to be non-existent — is much more of a clear and present danger than a trade controversy. The memories of 2001 are still around.

Even if the issue of default is being exaggerated — as some government members seem to believe — the confrontation between the rather picturesque New York judge and the president and her loyal followers has an epic appearance that makes it quite attractive. Griesa fits very easily in the role of the person you like to dislike. By contrast, only low-profile grey-haired bureaucrats deal with trade grievances at the WTO. Hardly an attractive target for a crusade. But foreign debt being the main conflictive element of many periods of Argentine history, Griesa and the holdout / vultures seem to be the perfect tailor-made enemy to play on patriotic sentiment. Free trade is not.

As a matter of fact, Argentina is far from having a tradition of free trade. Many local industrial fortunes and many well-paid jobs flourished behind the walls of protectionism. And although the love of imported goodies is part of Argentine culture, so were the days when prices and salaries depended only on local market conditions. Was this an impediment for the development of a viable, globally competitive, industry? Perhaps. But, at almost any moment in time, the short term benefits of protection were much more tangible — for many — than the long term benefits of competition. And Lord Keynes was very clear on this: “In the long run, we are all dead.”

There are also some practical reasons not to be too worried about the WTO. The next steps of this choreography are quite predictable. Appeals (possibly unsuccessful) will be followed by negotiations and requests for extra time to adjust. All this implies longish processes. (Lord Keynes, again.) Moreover, Argentina has a bit of a trump card. Because the bulk of exports to the main plaintiffs (US, EU and Japan) are agricultural commodities, the victors might have to think twice about imposing the sanctions allowed by the WTO because some could backfire on their own local importers.

However, before placing the country’s trade problems in the bottom drawer of government officials’ desks or at the back of the minds of politicians and commentators, there is a point to be noted. While at the WTO, Argentine protectionism is only one of many issues, it is an open wound for our next-door neighbours. The Brazilian business sector is less than happy with Argentina. But Brazil being Brazil, it has the means to contain the damage of a trade dispute. It will agitate business chambers, government officials, specialized journalists but hardly anybody else.

That is not the case with our smaller neighbours, Uruguay and Paraguay. They are much more vulnerable to the vagaries of Argentina’s trade policies. Uruguay presents the additional problem of its dependence on Argentine tourism which makes the country an unwilling partner of Buenos Aires’ foreign exchange restrictions. The popular saying is that when Argentina sneezes its neighbours get the flu. Not a fatal pneumonia, mind you. But the flu can be quite irritating. And it could be ideal as political ammunition.

In Uruguay, which is in the midst of a presidential election campaign, comments about “Pepe” Mujica’s excessive patience with Argentina are frequent enough to cause concern. In the case of Paraguay things are not much better. The recent presidential visit to Asunción did not break much ice, if one has to go by the editorial comments of the local media. Most of them focused on the country’s grievances with Argentina — trade was definitely one of them — and remarked that Buenos Aires has not yet replaced its Ambassador to Asuncion whom was called back at the time of Lugo’s ousting back in 2012.

Becoming part of the political agenda within another country is — almost always — bad news. It is difficult to counter negative views without becoming involved in local political infighting and making matters worse. And any uncontested views are likely to remain in the public’s glare. Any which way, you lose.

Ideally, Mercosur should be the supranational space where these matters could be sorted out. But it seems to have become a forum mostly limited to rhetoric. One exception were the sanctions against Paraguay on account of Lugo’s impeachment. Production of statements on several issues — like debt — has been generous. Conflict resolution within Mercosur much less so.

Do the two small neighbours need Argentina? Very much so. But nothing is cast in stone. And it would be a serious setback if one or both countries decide they are better off strengthening extra-regional alliances or prioritizing Brasilia over Buenos Aires. Argentina’s government and opposition could do worse than thinking about this in the time left free by Griesa and Co.

@andresfederman

CREDITS: BUENOS AIRES HERALD

INTERMESTIC

Some experts say that “all politics are domestic,” including those involving foreign affairs. So — at first glance — the “intermesticity” of our foreign affairs should not cause concern. However, this begs the question about how much impact of domestic politics on foreign policy is acceptable and normal, even if it is a bit of nuisance. Like the noise coming from our neighbours’ flat, beyond a certain level, the intermestic mixture ceases to be “a bit of nuisance” and turns into a big problem. And it may be worth considering if we are not already reaching that limit.

The Donnelley printing company flare-up might well be the signal that intermesticity has gone beyond acceptable limits. Regardless of the company’s sins — which vary, or even exist, depending on the eyes of the beholder — the fact is that they do not seem to be worse than those of other companies in other industries. However, Donnelley attracted the wrath of Cristina Fernández de Kirchner, who devoted a significant portion of a national broadcast to explain in detail her views about the conduct of the company, its possible associations, and the announcement that the government will try to throw the anti-terrorist law at Donnelley. To be more precise, a criminal prosecution which would be against some of its executives. And — in line with the speech — we then had a modest dose of anti-US demonstrations. Suddenly, the printing company was made to sit in the same dock as the holdouts/vultures.

The problem is that, in the current context, when lay-offs — temporary or permanent — are part of the daily agenda, singling out a company for presidential public chiding and anti-terrorist prosecution instead of normal bankruptcy law treatment, seems a bit over the top. But if — in addition — the company is from the US, then you are on your way toward a new level of politicization of the issue. And this might not be such a good tactic. Or — to put it bluntly — it might be a mistake in terms of choice of enemy. And what — to a certain extent — worked in the case of the holdouts/vultures might not function in this case.

The problem is that — in terms of politicians, media and public views abroad — the two cases seem to differ substantially. It is relatively easy to barrage the holdouts. There is sufficient testimony from highly respected non-Argentine observers so as to support the case against them. Moreover, due to the damage that they can inflict on Argentina, the priority in the attention of the president is more than justified.

But a printing company with a payroll of approximately 400 is — in comparison — small fry. Not to mention the fact that its trade is much more palatable than that of the holdouts/vultures. And that, whatever sins they have committed seem to be within the realm of normal bankruptcy laws, including the provisions for criminal prosecution in case a fraud attempt is detected.

It has been argued that Cristina’s attitude was aimed at sending a signal to unfriendly, or unhelpful, or even hostile, Argentine business sectors. This might be the case and it might even be justified. Local politics are highly acrimonious with the country divided in two apparently irreconcilable sectors. And neither of them are using kids’ gloves. So right now, we have a land with no saints, and should not expect constructive attitudes from any of the players. However, it is desirable over none of the players trying to use the intermestic factor to up the ante beyond the borders and against the national, general and non partisan, interest.

Whatever the short term poetical gains, attacking a US company might, in this context, backfire. And the same players that support Argentina’s case against the vultures might raise their eyebrows in this new case. Moreover, many sensitive US skins might start to look — once again — into the resilient, whether justified or not, anti-US feelings attributed to Argentines. This could backfire at a time when reserves are thin. Important as the currency swap agreement with China can be in terms of short term needs, or even of geopolitics, its size is far from enough to offer a long term reserve solution. And the BRICS’ development fund which might at some stage offer Argentina financial facilities, is still a project. In short, perhaps we do not want to send the Yankees home so quickly. We might still need them.

@andresfederman

CREDITS: BUENOS AIRES HERALD

URGENT OR IMPORTANT?

When last month the US Supreme Court refused to revise Judge Griesa’s ruling against Argentina and in favour of the holdouts/vultures, the decision threw this country’s government, media and politicians into a sort of “single-issue frenzy.” The frenzy is still here and — in all likelihood — will be part of Argentina’s daily agenda until the Griesa hurdle as been removed. And rightly so, because the risks involved, transcend the figure of US$1.3 billion demanded by Argentina’s unfriendly and rebellious creditor. So it is vitally important to remove the threat.

Argentina being Argentina, the “Griesa crisis” became politicized from day one. So much so, that opposition commentators tell their audiences that President Cristina Fernández de Kirchner’s government is actually trying to push the conflict to the limit, in order to recoup popular sympathy. Be that as it may, the threat is there, and its removal is vital.

The very bad news is that, once the Griesa factor is removed, nothing will have changed for Argentina in terms of foreign economic policies and strategies. The current debt crisis is a typical example of urgency getting in the way of addressing important issues. There will probably be congratulations and celebrations. Unfortunately there is the fear that the joy will hide all the important items of foreign economic policy which are not moving forward.

One of these problems is a languishing Mercosur, which is doing quite little to fulfil its mission of optimizing trade and investment within and between its member countries as well as optimizing the relations with other economic blocs like the EU. The 46th Mercosur Summit which took place at the end of July is a good example of what is going on. Or — much worse — of what is not going on. The public has been informed that one of the outcomes of the summit was the Mercosur’s support for Argentina’s position on the Griesa issue.

Perhaps it is time to face the fact that support statements which sound well are never lacking. Especially, if you do not mind predictability, they are quite readable and make good headlines. But — unfortunately — they are not great feats.

A young graduate from ISEN (the Argentine Ministry of Foreign Affairs academy) should be able to negotiate this sort of statement with little effort. Especially because nobody pays much attention to the full text, and it is easy to play around with words in order to suit the political commitments both internal and external of those who subscribe to the document. The snag is that the document is likely to fail the acid test of effectiveness in terms of contribution towards solving the specific problem it is addressing.

Mercosur seems focused on a number of “institutional” issues like new memberships like Venezuela, or the expulsion ad re-admission of a country facing constitutional problems, which was the case of Paraguay. But not on addressing the nitty-gritty issues which affect jobs and trade in its member countries. The Paraguayans complain about Argentine protectionism, the Uruguayans have their own grievances and then there is always the looming problem of the trade between Argentina and Brazil. The list of shortcomings is obviously much longer. And they do not need large and costly summits to be sorted out. Instead, they need the dedicated work of specialists from the ministries that — in each country — deal with these problems.

So perhaps, it is time for regional governments to realize that, while emergencies like Griesa need urgent attention, there are important and very strategic issues that need hard work and a signal of commitment from political leaders showing that they can manage the emergencies like Griesa together with day to day progress of institutions like Mercosur.

@andresfederman

CREDITS: BUENOS AIRES HERALD

SOUND AND FURY

The times when secrecy was the trademark of diplomacy are thankfully gone. Public and open diplomacy are, today, a way of showing (but not necessarily achieving)  more transparency and accountability in international relations. Obviously, a number of issues require secrecy because of sensitivity or operational considerations. But that list is getting shorter.

However, in light of what happened last week in the Holdouts/Vultures/Griesa saga,  it seems that some situations involving debt negotiations should be added into the list of items not to be discussed publicly.

Quite clearly, the ruling of the US Supreme Court, refusing to revise Judge Griesa's decision against Argentina, opened a Pandora box which transcends Argentina, Cristina, and Griesa, let alone the U$S 1,340 million claimed by the creditor that everybody loves to hate.

The systemic difficulties created by Griesa's ruling have been remarked by a number of players whose views and ideologies are far from anti-capitalistic. And the fact that there is a vacuum in international financial regulations, when it comes to define aspects of debt restructuring in the case of sovereign states, has been remarked by many authorized voices.

In all likelihood this vacuum  will be thoroughly examined in a not too distant future by all the interested parties. And some changes, that will avoid deadlocks like the one Argentina is facing now, will be put in place.

Unfortunately, whatever changes are to be implemented in the future, they will not be applicable retroactively. So the Argentine government is faced with the unfortunate task of navigating through unchartered and complicated waters. Especially when it comes to the -apparently unquantifiable - risks of the "Rights Upon Future Offers” (RUFO) clause that could be triggered if Argentina complies with Judge Griesa's ruling on payment to holdout creditors - before 31 December 2014 - of a sum larger than what it had  agreed with those creditors that accepted a restructuring.

The other  -equable unquantifiable - risk faced by Argentina emerges if its refusal to comply with Griesa's ruling, stops payments to those creditors that entered the 2005 and 2010 debt restructurings. They might claim that their credits are defaulted and -with 25 % of the outstanding creditors voting in favour - demand an acceleration of payments. In short: "damned if you do, damned if you don't".

In fact, there is no certainty about the judicial implications of any of these occurrences. One of the lessons left by the recent events in the US courts, is that half of the legal library contradicts the other half. And that you run a fifty-fifty chance of crashing into a judge that agrees with the less favourable half.

So it is not surprising that the President repeats over and over that there is no default. Rather than trying to use narrative to hide fact (as she is frequently accused by opposition columnists when she denies default) she might be exercising an extreme but necessary prudence. If the head of state herself goes on record accepting that there is a default situation, the consequences could get complicated.

But perhaps, her words - and those of her ministers - would be of more value if they were less abundant. This has nothing to do with the laws of supply and demand but with the need to ascertain who is who and who does what.

It so happens that Ministers, let alone the President, might be making a mistake by permanently addressing -or even personalising - on Judge Griesa or his appointed Special Master Dan Pollack. Ministers and Presidents do not address individual judges. With all due respects to Griesa, -and to put it bluntly -CFK, Kiciloff et al  are way above his pay-grade. So his natural interlocutors should be the lawyers representing Argentina or -in the context of the tribunal - one or more representatives of the Argentina government. Engaging in an exchange with this particular judge has the immediate effect of having him entering into what seems, but is definitely not, a dialogue amongst peers. In the specific  case of Griesa, things are worst because His Honour seems to be enamoured of his role  as a media contender.

Experts in political marketing might suggest that the President's exchanges keep her in the public eye  at a time when she is fighting  a political battle aimed at appointing a possible successor for the 2015 elections.  But this line of reasoning cuts both ways. Out of conviction or political need, many in the opposition seem to be advocating for a quick settlement of the Griesa ruling without much concern about the RUFO clause. And every time that CFK or one of her Ministers, attack Judge Griesa some members of the opposition feel compelled to reply with a contrasting view, thus competing for space and coverage with the President by getting hold of a "sexy issue" like the possibility of default.

For better or worst, Argentina's traditions and institutional arrangements allow the opposition to limit its commitment in the grand national issues to views and criticisms.  They do not involve taking responsibility. And opinion is free. But if limited to sound  and fury , not too useful.

@andresfederman

CREDITS: BUENOS AIRES HERALD