Argentina – release the Dogs of Wall Street

Elliott Management owns 27.7 per cent of AIM-listed gold miner Avocet Mining PLC.  Avocet also owes Elliott US$15.8 million dollars.  The loan was due for repayment on the 31st of December last year.  Avocet which owns the Inata gold mine in Burkina Faso and the permitted Tri-K gold project in Ebola-struck Guinea has a market cap of US$26.5million.   BMO Research had forecast full-year production of 113,000oz at costs of US$1,067/oz for Inata compared to the Company’s previous guidance of 105,000-115,000oz at US$1,000-1,100/oz.  Paul Singer’s Elliott is an interesting hedge fund to say the least as it is directly linked to the latest sovereign debt default of Argentina.

So Argentina has defaulted again after what was thought to be a solution to its woes in the form of a debt restructuring in 2005.  This time the catalyst for default is a small cadre of opportunistic “vulture” funds led by Paul Singer’s Elliott Management.  Elliott bought Argentine debt for just cents on the dollar and then inconveniently insisted on full repayment.  This has been a very successful business model with no room for the chain of misery it creates.  Elliott refused to accept the 2005 restructuring of debt accepted by the other creditors and the collision occurred in a New York courtroom.  The ruling in favour of the hedge funds prevents Argentina from regaining control of its destiny achieved by being able to restructure the debt unless Elliott receives $1.5 billion in payment for their Sovereign bonds.  This turn of events continues to shut Argentina out of global capital markets since the initial default in 2011.  During the first three decades of the 20th century, Argentina outgrew Canada and Australia in population with total income per capita.  By 1913, Argentina was the world’s 10th wealthiest nation per capita.  Argentina is its own worst enemy.  Political instability, dysfunctional institutions and merciless military rule ensured Argentina’s decline.  This latest default was Argentina’s eight since independence from Spain in 1810.

The ordinary people always end up suffering and making the sacrifice for inept governments and avaricious financial institutions as we know to our cost here in Ireland.  Vital services in health and education are compromised as finances are reallocated to repayment of a mountain of debt.  Of course Sovereigns and individuals must pay back what they owe and that is what Ireland where I live is managing to achieve slowly and painfully.  Fitch upgraded Ireland to a stable “A-” rating earlier this week.  However in the case of Argentina with its problematic political and economic past this unleashing of the dogs of war, or in this instance maybe of Wall Street, on a wounded Sovereign is a dangerous game indeed.  Argentina may well become disaffected with the West and become disillusioned with capitalism and indeed democracy.  Putin is seeking to increase his influence within the so called BRICs.  This could be an opportunity for him to spread his sphere of influence through the power of reciprocity.  I am wondering in the context of an increasing chill from the east in relations between Russia and NATO if a verdict in a New York court will nudge this economic basket-case endowed with a rich cornucopia of natural resources, which is Argentina, into the arms of the Bear.  An event or an action in one part of the world as we have seen can set in motion a completely unpredictable chain of events.  The assassination of Archduke Ferdinand was the striking of a match which ultimately led to the conflagration which became the Great War one hundred years ago.  In our time the European Union’s naïve courting of the Ukraine led to instability and the removal of President Viktor Yanukovych, Russia’s repossession of Crimea and the shooting down of a Malaysian jetliner.  The assassination of Archduke Ferdinand led to the Great War which we are commemorating at this time.

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