Do not feel confused about the recent legal developments in the U.S. judicial system involving Argentina. We all are inundated with dense legal jargon and brief after brief to the Second Circuit in New York by both parties. In the meantime, we are learning new phrases and regulations such as “pari passu,” “Lock Law” and “amicus curiae.” These may be all strange concepts to investors, but the word that is very familiar to us all is “sovereignty.” That concept, and its alleged violation, is why the Argentine government is furious. Argentina wants to know the rationale behind the involvement of the U.S. judicial system and its ordering for Argentina to pay. Our initial conversations with U.S. government officials also showed that the White House is uncomfortable with that demand due to the Foreign Sovereign Securities Act.
The issue of sovereignty, in both economic and political terms, is a sensitive one for any independent country, but it has become more delicate with Argentina given recent developments. In addition to this current legal conflict over the concept of economic sovereignty, Argentina is also in a war of words again with the U.K. over sovereignty issues in the Falkland Islands. It is a difficult time for Buenos Aires. These issues will develop and form their own trajectory and both will take time. What is indisputable, however, is that Argentina will not be returning to the international credit markets any time soon. It will be missing a great opportunity, as the global economy begins to recover toward the end of this year.
BERI Report Card for Argentina in BRS 2012-III Publication (December 2012-February 2013)
PROFIT OPPORTUNITY RECOMMENDATION (POR)
3B. RATINGS ARE WEAKENING. INVESTOR CONFIDENCE DETERIORATES.
Most Probable Political Scenario: President Cristina Fernandez de Kirchner faces sustained decline in popularity due to rampant crime and steep inflation. Furthermore, her reform policies as well as attempts to modify the constitution to stand for a third term as president anger a growing portion of the public. Restrictive measures, specifically those channeled to control the media, derive criticism at home and overseas. Argentina's reputation as a potential investment location deteriorates further, as the country is unable to return to the international credit markets in the short-term.