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Disquieting levels of mala praxis
La Nacion
January 13, 2010

Carlos Pagni
LA NACION

When historians reconstruct, decades from now, the cycle that began with the 2001 crisis, they will find two ineludible issues: the demand from Argentine society that politics recovery their quality and the need to go back to connecting the economy to the international financial networks. To regenerate the public sphere and connect the country to the global market would be the unmistakable challenge of any government that would have to operate in this historic period.

In tight of that agenda, the storm set off by the government when it decided to pay off current debts with Central Bank reserves synthesizes a terrible balance. On one side, the President ended up being trapped in an institutional conflict that set the other two branches of government against her. On the other, the New York courts embargoed a country that, over nine years, has not been able to exit the default. If measuring its behavior by those two imperatives, one could suppose that the time of the Kirchners in power will be evaluated, when history decides, as a regrettable failure.

If, viewed in slow motion, the national journey doesn't turn out stimulating; the day to day also offers its frustrations. Yesterday another one was known: the term of Amado Boudou became, if seen optimistically, quite damaged. The minister that promised, taking advantage of the superficial voracity of financial traders, "the return to the markets", explained yesterday the decision by Judge Thomas Griesa with arguments that turned Guillermo Moreno into an orthodox. For him what happened is that a serial embargoer (Thomas Griesa), combined with a popular official infiltrated by the vulture funds in the government (Mart n Redrado), added up to a plot which was mounted by the Vice President, the opposition in Congress, Judge Mar a Jos Sarmiento and the media to ruin his great work: the debt swap with the holdouts.

The President exaggerated the minster's version. In place of crashing into a system of local or international rules, she believes she is being stopped by a conspiracy. A simple explanation to not but the disquieting levels of mala praxis into debate which her administration has exhibited in recent weeks. Cristina Kirchner accused Julio Cobos of planning a precipitous exit of her government, and the courts for making rulings at the request of the pallid opponent which is to say Oyarbide, but in reverse. She also fumed against the press.

The same information could be organized better in another way. Griesa is far from being implacable against Argentina. When N stor Kirchner paid the IMF with reserves, the judge also declared an embargo. But the government alleged that that disbursement was backed by law, didn't minimize the autonomy of the Central Bank, and settled a debt with between the bank itself not the Treasury and a multilateral organization not commercial creditors. Griesa lifted the embargo.

Mrs. Kirchner's policy was different. She, who had promised not to emit decrees of necessity and urgency (DNU), signed one to pay debts of the Treasury with Central Bank reserves, and another to expel the head of the entity, who'd questioned the measure's legality.

Warning

A memo put together, at the request of the Central Bank, by the firm of Sullivan & Cromwell in New Yrok, warned about the risks that the Casa Rosada faced. The holders of unpaid bonds, which were suing before Griesa, are Treasury creditors and, as such, would demand that the judge assure their right to collect. Yesterday, what had to happen came to pass. Those holdouts, who have been suing since 2001, got a ruling in their favor from the intention of the government to pay other debts with those resources. They are, also, strengthened: their principal animators - -Robert Shapiro, Nancy Soderberg belong to the heart of the Democratic Party. Will that be why Arturo Valenzuela came to denounce legal insecurity? Nectar for the conspiracy theorists.

The more immediate consequence of the embargo is political: Redrado managed a ready and able endorsement for his position. Now, when he speaks of "defending the interests of Argentines with my convictions," he can add "those who fired me allowed the vulture funds to end up with our money." Unexpected switch of roles with N stor Kirchner, which will complicate the line of argument of the government block, above all in Congress.

Griesa's decision could reverberate also around the local courts. The risk would, if the DNUs are validated, increase the drainage fo the reserves by the holdouts litigating in court, going from hypothetical to real. The judges that have to evaluate those decrees will not deciding what could occure, but above all, maybe, what is continuing to occur.

But the most unsettling effects of Griesa's pronouncement will be felt in the economy. It's possible that, from this embargo forward, the swap Boudou negotiated with theholdouts will be postponed, or worse, suspended.

In principle, those who hold defaulted paper from Argentina will be asking themselves, beginning yesterday, if it's not better to just bet on Griesa's rulings instead of continuing to wait for the Kirchners. However, the more negative consequence of what happened in New York is that whose who thought of participating in the accord will begin to hear that the court will also embargo the new bonds that the government will deliver. The experts didn't find a way yesterday that allows for taking up this restructuring outside of Griesa's jurisdiction. The price of Argentine bonds, which the minister boasted about yesterday, have been sustained because financiers were trusting that arrangement.

If, because of the new embargo, Boudou isn't able to achieve his august return to the markets, the Kirchners will have to rewrite their strategy through 2011. The swap was to be the precursor for the placement of new bonds with investment banks. If it is postponed for too long, delicate difficulties will appear for financing the extraordinary public spending. The fiscal complications could be accompanied, according to experts who last night were reformulating their scenarios for 2010, by an incipient flight of capital. The interest rate could rise a bit and the economy grow less than forecast. And it's already known that this news means for a government that, perforated in its popularity, one can manage political discipline by delivering money.

Immediate aim

Griesa's decision blankets over a less visible, but more immediate, aim. It raised the worry with which the government block is viewing the political acrobatics of its chiefs. Yesterday morning, various officials that work in the circles of power evaluated the convenience of initiating conversations with the opposition, above all with the Radicals, to settle down the storm. Cobos, who the President almost, or not almost?, accused of plotting a coup, and the Senate UCR chief, Gerardo Morales, sent signs of a good predisposition to the Casa Rosada. Aggressive officials, like An bal Fern ndez or Florencio Randazzo, looked at them with interest.

But the Kirchners rejected any attempt at dialogie. "There is nothing to agree on, we will continue in the courts," they were sent to say, through Carlos Zannini, with no olive branch extended. It's a weak strategy for a simple reason: in the most intimate of those in power, they are every day less able to understand it.

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