Manhattan judge Loretta Preska’s controversial ruling setting a fuse of a fortnight on the US$16-billion time-bomb compensating speculative interests for the nationalisation of YPF oil company with its shares needs to be viewed in its electoral context as much as for its legal force. Placing the nation in this quandary is clearly a massive embarrassment for Buenos Aires Governor Axel Kicillof (which will whet appetites within an infighting Peronism as well as beyond), creating an enormous interest in digging up memories of his error-strewn handling of the 2012 YPF nationalisation when economy minister and this cautionary tale against crony capitalism is well worth hearing again. Yet legally it is far from being as much “game over” as some headlines proclaim.
Her unsavoury inclinations to favour vulture funds notwithstanding, Preska’s right to sit in judgement is beyond dispute. In order to draw funds in the United States, YPF had to place itself under the jurisdiction of the Securities & Exchange Commission and hence US law, precisely in order to guarantee its investors against moves like nationalisation, which there was every reason to expect from a Kirchnerite administration. Yet does this give the judge any right to override sovereign immunity in ordering the Argentine state to pay 51 percent of YPF shares to shady creditors in violation of Congress legislation requiring a two-thirds majority in both houses for shedding shares? Argentina’s defence thus does not only lie in court appeal but also in Congress voting overwhelmingly to stiffen its defence of its own legislation in repudiation of the judge (with electoral speculation adding to patriotism as motivation for such an initiative) while the Supreme Court could affirm the primacy of sovereign immunity over the delegation of jurisdiction. And then there is always the remote possibility of an out-of-court settlement negotiated by the government with the hedge fund creditors Burford Capital and Eton Park (as the Mauricio Macri administration managed to do with bond swap holdouts in 2016) although giving even an inch here could be politically dangerous in an election year.
While jurisprudence teaches us that legality and morality are two different spheres, moral reasoning can be relevant in legal interpretation, particularly when the former is clearer than the latter, which would definitely seem to be the case here. This serpent’s egg was laid in 2008 when the Eskenazi family owning the Santa Cruz provincial bank were gifted 25 percent of YPF shares without putting down a cent and with zero background in the energy sector as “experts in regulated markets” (in presumed gratitude for the lavishly generous interest rates bestowed on the Kirchner family deposits) – two consortia of international banks and the then-Spanish Repsol owners of YPF curiously cooperating in their own exit put up the money which the Eskenazis were to repay out of dividends. These dividends were absurdly high at the expense of investment for a couple of years but such repayment was cut short by the nationalisation of 2012 in a burst of greed sparked by confirmation of the huge potential of the Vaca Muerta shale deposits. The Eskenazis via Petersen Energia (a company they had established in Spain in order to deal with Repsol) had the right to reclaim because at the behest of Kicillof, the state had only paid for Repsol’s 51 percent while ignoring all other shareholders yet Petersen waived that option, filing for bankruptcy and selling 70 percent of its rights to litigate to Burford Capital hedge fund (being unable to make a total transfer due to Spanish legislation guarding against the wholesale delivery of assets to speculative interests). That 30 percent of the rights to litigate now entitle the Eskenazi family to some five billion of the US$16 billion mandated by Preska without ever having placed money in YPF.
This sordid history of fraud was aired by the Macri Presidency between 2015 and 2019 but the advent of the Alberto Fernández Presidency (widely seen as a puppet of his veep Cristina Fernández de Kirchner) led to a total silence as to any possible wrongdoing, thus giving Preska time to build up her case – the legal official directly responsible for this issue was Treasury Prosecutor Carlos Zannini, whose many hats included being a Santa Cruz provincial director. Such deliberate inaction now leaves Argentina stuck with the US$16.1-billion bill which Preska sought to accelerate last Monday.
Shady as the unedifying origins of this crisis are, they are very much clearer than where all this is going to end either in the courtroom or at the ballot-box.
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