Tuesday, March 31, 2015

Argentina In Last-Ditch Move To Pay Bond Holders

March 30, 2015 7:41 pm

Argentina in last-ditch manoeuvre to pay bondholders

View of an Argentine National flag at the Perito Moreno Glacier in Los Glaciares National Park, Santa Cruz province, Argentina on March 17, 2014. AFP PHOTO / MARIO GOLDMAN©AFP
Argentina is struggling in last-ditch efforts to use the byzantine global payments system to distribute money to bondholders in defiance of a US court ruling.
Euroclear and Clearstream, the European-based central securities depositories, have been asked by the government to help pay interest due on Tuesday after Citibank Argentina, the local custodian bank, was permitted to process the payments.
However, both have indicated that investors are unlikely to receive the money.
Euroclear says it will comply with Argentina’s request to make payments only if given authority to do so by US courts, as it has on two previous occasions. Last week, a New York judge, Thomas Griesa, barred Euroclear from processing any debt payments by Argentina.
Clearstream confirmed on Monday that it had put a stay on ties with Citi Argentina after local markets authorities suspended Citi’s licences for its custody and brokerage businesses owing to the stand-off. Both Clearstream and Euroclear have already shut trading bridges on almost $10bn of Argentine bonds issued under local law.*
The dispute highlights how few options remain for Buenos Aires to avoid paying hedge funds on their bonds. It also shows how widely Judge Griesa’s ruling is being felt across international markets, with banks and market infrastructure operators caught in the middle of a fight over legal jurisdictions.
The protracted battle between Argentina and so-called vulture creditors dates back to 2001 when the government defaulted on $100bn of debt. Most bondholders accepted a swap on their investments in 2005 and 2010, losing money in the process. But a small group of hedge funds led by Elliott Management’s NML Capital are fighting for full repayment.
The “holdout” creditors took the case to New York, where Judge Griesa ruled in their favour, preventing Argentina from making interest payments on any bonds unless it also repaid hedge funds in full. The ruling led to Argentina’s default last July — its second in 13 years.
Since then, the Argentine government has been attempting to circumvent the ruling with limited success.
One route by which payments could still be made is to move funds in Citi Argentina to Euroclear’s account within a custodian bank.
From there, the payments could be transferred to European central securities depositories. These unglamorous market utilities finalise trades and hold securities on behalf of customers.

Cristina Fernández holds out for victory in debt battle
Argentina’s waiting game in its war with bondholders is exacting a heavy price
However, there are signs that the US court intends to prevent all bond payments by Argentina.
Earlier in March, Judge Griesa dashed government hopes of issuing new debt by declaring that Argentine bonds issued under local law and denominated in dollars were considered external debt and were covered by the injunction preventing payments. He ordered all participants in the payments process not to help Argentina in financial transactions.
There are now questions about whether this decision might affect the payment of Boden 15s, local law bonds, due in October.
Bondholders with Argentine debt issued under foreign law argue that their debt should not be included in the US court decision, but remain in stalemate. The High Court in London recently agreed that certain bonds were governed by English law, but did not rule that the bank handling payments should pay the bondholders.
* This article has been amended to clarify that Citi’s licences for its custody and brokerage businesses were suspended. The article previously said it was Citi’s domestic banking license.

Thursday, March 26, 2015

National Security Archive's Carlos Osorio Honored for Human Rights Work in Argentina

National Security Archive's Carlos Osorio Honored for Human Rights Work in Argentina:

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Petrobras-Linked Brasil Builder Files For Bankruptcy

March 26, 2015 5:34 am

Petrobras-linked Brazil builder files for bankruptcy

Brazil's government-run oil company Petrobras' logo is displayed at Petrobras headquarters on February 4, 2015 in Rio de Janeiro, Brazil. The chief executive of the Brazilian oil giant, along with the entire board of directors, resigned in the midst of a major corruption scandal. (Photo by Mario Tama/Getty Images)©Getty
Brazilian builder Galvão Engenharia has filed for bankruptcy protection, becoming the first large construction company to crumple under the strain of the biggest corruption scandal in the country’s history.
The privately-held company blamed its deteriorating finances on the fallout from police investigations into an alleged bribery and kickback scheme at state-controlled oil company Petrobras, a probe dubbed Operation Car Wash.
Accused of involvement in the scandal itself, Galvão Engenharia said it has faced delays in payments and difficulty gaining access to new capital.
“From the end of 2013 there were repeated delays in payments owed by Petrobras for several contracts. This was combined with curbed access to credit markets for the construction sector, strongly impacted by Operation Car Wash,” said Grupo Galvão, Galvão Engenharia’s parent company, on Wednesday.
Prosecutors allege that Galvão Engenharia and other top Brazilian construction groups conspired with Petrobras executives and politicians over much of the past decade to cream billions of dollars off the oil company’s contracts.
Erton Medeiros Fonseca, a director at Galvão Engenharia, remains in police custody after being arrested over the scandal last November. The company has denied any involvement and is co-operating with authorities.
Galvão Engenharia is not alone in facing funding problems. OAS, another major Petrobras contractor, is negotiating with creditors after missing debt payments while smaller company Alumini Engenharia has already sought bankruptcy protection.
Adding to pressure on the sector, public prosecutors in February filed a R$4.47bn lawsuit against OAS, Galvão Engenharia and four of the country’s other largest builders: Camargo Corrêa, Sanko, Mendes Júnior, and Engevix.
In December, Petrobras also dropped 23 suppliers, including Galvão Engenharia, over the scandal, banning them from bidding for further contracts. However, the state oil company told Reuters on Wednesday that it was up to date with its contractual obligations.
The problems in the construction industry have not only raised concerns about building work for the Olympics in Rio de Janeiro next year but also over the country’s efforts to revamp its creaking infrastructure. Just last year Galvão Engenharia won the rights to operate for 30 years a stretch of highway in two of Brazil’s farming states.
The corruption scandal emerged in March last year when the former head of Petrobras’s refining unit, Paulo Roberto Costa, struck a plea bargain deal following his arrest on money laundering charges.
The investigation has snowballed as more witnesses have come forward, threatening to engulf the oil and construction sectors as well as President Dilma Rousseff’s government.

Saturday, March 21, 2015

Brasil At The Breaking Point

March 20, 2015 6:52 pm

Brazil: At breaking point

With Petrobras mired in a corruption scandal, Rousseff hopes an economic boost will lift flagging ratings
Demonstrators rally to protest against the government of president Dilma Rousseff in Copacabana Beach in Rio de Janeiro, Brazil on 15 March, 2015. Thousands of demonstrators wearing the yellow-green national colours protested Sunday in several cities of Brazil against president Dilma Rousseff, who is facing a complex economic panorama and a political corruption scandal. AFP PHOTO / YASUYOSHI CHIBAYASUYOSHI CHIBA/AFP/Getty Images©AFP
Brazilians on Copacabana beach in Rio de Janeiro protest over the government of President Dilma Rousseff, below, and a corruption scandal involving state energy company Petrobras
milio Pastore normally spends the weekend visiting his elderly parents or taking a quiet bike ride in the countryside around São Paulo. But last Sunday the 50-year-old systems analyst printed out a banner with the slogan “no more lies” and took to the streets for the first protest of his life.
The multibillion-dollar corruption scandal engulfing state-controlled oil companyPetrobras and President Dilma Rousseff’s ruling coalition was too much to bear, he says.
“Corruption has escalated from random cases to a state strategy — it now seems to be the official source of party funds, from the small-town mayor all the way up to the nation’s president,” he says. “We’ve had enough.”
Among the 1m protesters who joined him on São Paulo’s Paulista Avenue, a woman in her eighties waved a poster calling for the president to “go away”, while chanting crowds draped in Brazilian flags guzzled down beer and popcorn. This is what Brazilians, albeit in their own festive and non-confrontational way, look like when they reach breaking point. “It’s one thing for Brazilians to vote in an election; it’s another thing to take to the streets,” says Fernando Schüler, a political scientist at Insper, a Brazilian business school.
Faced with recession, decade-high inflation, poor public services, a fiscal crisis, water shortages and possible energy rationing, even the most tolerant Brazilians have found it hard to stomach allegations that up to $10bn was stolen from Petrobras to pay bribes and fund political campaigns while Ms Rousseff was chair of the company’s board.
Hundreds of thousands joined protests across Brasília, the country’s capital, and 25 other states on Sunday, making the demonstrations the biggest since those that preceded the impeachment of President Fernando Collor de Mello over corruption in 1992. “We are seeing a shift in the nature of political risk surroundingBrazil,” says Rafael Cortez, a political scientist at Tendências, a consultancy. Ms Rousseff now faces becoming a “lame-duck president” only three months into her second term, he says.
With calls for Ms Rousseff’s own impeachment and a Datafolha poll this week ranking the leftwing leader as the most unpopular president since Mr Collor de Mello, it may appear that history is repeating itself. However, while Ms Rousseff’s approval rating will probably drop below the current 13 per cent as the economy further deteriorates, the world’s second-largest emerging market has come too far to return to the dark days of its past, says João Augusto de Castro Neves of Eurasia Group.
Austerity measures introduced by Joaquim Levy, Brazil’s new market-friendly finance minister, are expected to put the economy — forecast to contract 0.8 per cent this year — on a path back to growth by 2016. Meanwhile, the emergence of the Petrobras scandal in March last year is itself credit to the growing independence of Brazil’s judiciary and public prosecution service.
“There has been undeniable progress . . . despite the feeling that we are back to square one,” says Mr Castro Neves.
Towering above Rio de Janeiro’s historic centre, the concrete Jenga-style building that houses Petrobras’s headquarters has gained an almost mythical status over the past year. After all, what happens within its grimy slatted walls over the next two months could decide Brazil’s immediate future.
If Petrobras cannot calculate the company’s losses from corruption and convince its auditors PwC to sign off its annual financial statements by the end of May, the world’s most indebted oil major faces technical default. After the company missed third-quarter reporting deadlines, Moody’s says it “does not yet see any assurance that audited statements will be available by any particular date”. Missing the May deadline would break the covenants on its $137bn of debt, prompting a possible bailout and further fiscal deterioration, says Nymia Cortes de Almeida at the rating agency, which downgraded the company to junk in February.
For much of the past decade, some former executives at the New York and São Paulo-listed company allegedly colluded with the country’s top politicians and construction firms to cream up to 3 per cent off Petrobras contracts. This cash, often siphoned off through Swiss bank accounts, was used to pay bribes and finance political campaigns, claim prosecutors. Foreign contractors including Rolls-Roycehave also been accused of making illicit payments.
While prosecutors had identified $800m of kickbacks by January, the final amount stolen is likely to be about $10bn given the alleged 3 per cent figure, the time periods involved and the size of Petrobras, which accounts for 10 per cent of all investment in Brazil, says André Gordon of the Amec shareholder association and founder of asset managers GTI.
It is a case that has both appalled and fascinated Brazilians, much like the improbable plots of the country’s soap operas. Many have rejoiced over the authorities’ battle against impunity, devouring media reports on the construction bosses who remain detained in police cells. But fascination has often given way to despair, as it did this week over allegations that Mr Collor de Mello also received cash in the scheme. He has denied the claims.
“There is a sensation that the country is being systematically robbed by the political apparatus,” says Mr Schüler, adding that the investigation comes only a year after politicians were jailed over the Mensalão vote-buying scandal. While that scheme was allegedly operated between 2003 and 2005 by advisers to the then-president Luiz Inácio Lula da Silva, Ms Rousseff’s mentor, he denied any knowledge of it and never faced formal charges.
If the amounts of money involved in the Petrobras scandal are staggering, it is at least partly because there was so much money sloshing through Brazil during the commodity boom, analysts say. In the year since prosecutors arrested Paulo Roberto Costa, their first Petrobras executive-turned-informant, 103 people have been indicted and 33 members of Ms Rousseff’s Workers’ party (PT) and coalition allies are under investigation by the Supreme Court.
While the president has denied any involvement in the scheme and the PT says all the donations were legal, opposition parties have called for Ms Rousseff to be investigated, as critics claim she was either complicit or incompetent.
But impeaching a president is not easy, says Diego Werneck, a law professor at FGV, an academic institution. “Losing the confidence of the people is not enough,” he says. There would have to be evidence she committed a crime, preferably one during her current mandate that resulted in her personal enrichment, he says.
Whatever her faults, the president has never shown much interest in the trappings of wealth. On a trip to Uruguay this month, Ms Rousseff was pictured in a local supermarket buying milk and groceries after reportedly cancelling a dinner date with ministers.
As a Marxist guerrilla in the 1960s, Ms Rousseff probably never imagined that she would depend on a Chicago-trained former banker for survival. During last October’s election, her party demonised the banks. However, her finance minister Mr Levy is now considered the best hope for Brazil’s recovery and that of Ms Rousseff’s own career.
After winning re-election by one of the narrowest margins in Brazilian history, Ms Rousseff made a surprise policy U-turn by hiring Mr Levy and proposing a series of benefit cuts and tax hikes. While Brazil recorded its first primary budget deficit in more than a decade in 2014, Mr Levy has promised a surplus this year of 1.2 per cent of gross domestic product in a bid to restore credibility and attract investment.
Such efforts are long overdue. Like other emerging markets, Brazil has suffered from the end of the commodities supercycle, but years of overspending and state interventionism are also to blame for signs of stagflation. The Petrobras scandal, which has already led to job losses and paralysed the industry, will probably hurt the economy further.
Persuading voters of the need to cut spending at a time when Brazil’s public services are suffering will be a hard sell, analysts say. Horror stories abound about the country’s health services. This week dentists in Brasília posted a video that went viral of them removing 15 maggots from a girl’s gums.
Eurasia’s Mr Castro Neves says the fiscal agenda is still viable, given Ms Rousseff’s recent conciliatory efforts to bring ministers from other parties into her inner circle. The bigger challenge will be political reform — finding a way to remove the structural incentives for corruption and restore Brazilians’ faith in their leaders, analysts say.
During a heated session in Congress on Wednesday, education minister Cid Gomes branded the PT’s allies a bunch of opportunists, yelling out he would rather be considered impolite than an “extortionist”. It was a rare moment of frankness that struck a chord with the disillusioned Brazilians who took to the streets on Sunday.
But in a sign of how far Brazil still has to go to regain their trust, Mr Gomes was promptly fired.

Tuesday, March 17, 2015

Argentina's Debt Situation Is Unsustainable | Stratfor

Argentina's Debt Situation Is Unsustainable | Stratfor:

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The Secret To Getting Long-Term Political Change in Brasil

My friends I am delighted that we had some big and peaceful demonstrations in Brasil. Another big one is planned. All of you in Brasil need to take a lesson from President Obama. He wins elections because he has what we call in English "a good ground game." Quite simply he gets people out to vote. Many humble people get on the phone and talk to neighbors. If necessary they drive people to the place of voting so they can vote. This is what you need in Brasil. You need a slate of honest reform candidates. Then each of you has to work to get your friends, neighbors, and relatives to vote.

Monday, March 16, 2015

One Million Join Anti Rousseff Protests

Last updated: March 16, 2015 1:52 am

One million join anti-Rousseff protests

More than a million protesters took to the streets of Brazil on Sunday to call for the impeachment of President Dilma Rousseff, as anger intensifies over increasing economic hardship and the multibillion-dollar corruption scandal at state oil company Petrobras.
Tens of thousands of demonstrators swarmed around ministerial buildings in the capital Brasília, along Copacabana beach in Rio de Janeiro, and other major cities across at least 25 of Brazil’s 26 states. More than 1m people protested in São Paulo alone — equivalent to one in 20 people in the city’s greater metropolitan region, according to military police.
Families, the elderly and activist groups — many dressed in Brazil’s national green and yellow colours — waved flags and balloons, held up banners against the government, and sung the national anthem in what was largely a peaceful protest.
“Dilma and her PT party have taken away any pride I had in being Brazilian — I want to be proud of my country again,” said Wagner Pugliese, the owner of a petrol station who held up a sign calling for Ms Rousseff’s impeachment.
Others simply called for the end of corruption across all political parties. “I’m tired of corruption — we’re all tired of paying high taxes and seeing no return for society,” said Cristina Araújo, a systems analyst.
The demonstrations, which had been planned for weeks through social media and which were expected to attract only a quarter of a million people, come only three months into Ms Rousseff’s second term. While analysts say her impeachment is still unlikely, the protests will add to a climate of political instability that has pushed Brazil’s currency to a 12-year low and make it even harder to introduce the painful austerity measures needed to correct Brazil’s deteriorating fiscal situation.
“They will set the tone as to the level of popular discontent and mobilisations that Rousseff will confront in the coming months,” said João Augusto de Castro Neves of Eurasia Group, a political risk consultancy. “More important than [Sunday’s turnout] will be whether these protests lead to a more sustained . . . movement, including that of organised labour,” he said, pointing to recent strikes by truck drivers.
Three weeks ago, truck drivers set up roadblocks across a third of the country in protest over higher fuel taxes, among other costs, leaving supermarket shelves bare and disrupting soyabean shipments. The government was forced to give into most of their demands.
“Episodes like these will only become more common as the fiscal adjustment hits the labour market and threatens benefits to special interests,” said Mr Castro Neves.
Episodes like these will only become more common as the fiscal adjustment hits the labour market and threatens benefits to special interests
- João Augusto de Castro Neves, Eurasia Group
Since Brazil recorded its first primary budget deficit in more than a decade last year, Ms Rousseff has tried to introduce tax and benefit cuts to correct the country’s fiscal policy and retain Brazil’s prized investment grade credit rating. However, she has met tough resistance, not only among ordinary Brazilians but also from coalition parties in Congress, which has been paralysed by infighting over the Petrobras scandal.
Last week, Brazil’s Supreme Court announced it would investigate the speakers of both houses of Congress and more than 30 other congressmen and senators — all but one of whom are from Ms Rousseff’s ruling PT party and its coalition allies.

Nick Butler: How to rescue Petrobras

A technician tests an oil sample for water content on the Petrobras platform P-51 off the Brazilian coast

Prosecutors believe that for much of the past decade Petrobras executives and the country’s largest construction companies conspired to cream billions of dollars off Petrobras contracts, part of which was used to fund political parties. Ms Rousseff, who has denied any involvement in the scheme, was chairman of Petrobras when much of the alleged graft took place.
Brazilians are also outraged by poor public services and rising inflation, which hit the highest level in a decade in February even as the country heads for another technical recession this year.
Many states are also struggling with water shortages and the possibility of energy rationing after the country’s worst drought in 80 years.
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