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OPINION AND ANALYSIS | 08-04-2023 06:25

Griesa’s ghost and the return of the ‘vulture funds’

The YPF court ruling ultimately represents a failure to face and resolve the structural challenges of the beleaguered sovereign and its never-ending attempts to escape a chronic cycle of ineptitude.

In 2012, Argentina’s government led by Cristina Fernández de Kirchner decided to controversially nationalise energy giant YPF. More than a decade later, a case in a New York courtroom presided over by Judge Lorreta Preska, of the United States Southern District of New York, threatens to put Argentina against the ropes at a moment of utmost fragility. 

Mired in crisis since at least Fernández de Kirchner’s second term in office (when then-deputy economy minister Axel Kicillof spearheaded the forced nationalisation of YPF). Judge Preska’s opinion could put Argentina in a situation where it could have to pay some US$11 billion to creditors headed by Burford Capital, a law-focused hedge fund characterised by critics as a “vulture fund” that takes advantage of its expertise at the expense of desperate debtors. As usual, polarisation took over, characterising Judge Loretta’s opinion as either the overstepping of international jurisdiction by the United States’ colonialist and expansionist legal system, or as the demonstration of the total incompetence of the Kirchnerites, who failed to even contemplate its government’s own rules. The case, of course, is more complicated, but ultimately represents a failure to face and resolve the structural challenges of the beleaguered sovereign and its never-ending attempts to escape a chronic cycle of ineptitude.

Judge Preska’s opinion indicated that the Republic, but not the firm itself, was responsible for failing to present all of YPF’s shareholders with a buyout agreement when it forced Spanish energy-firm Repsol to sell its 51-percent stake in the company. The consequences of pushing out the Spaniards but failing to include the rest of the public-private energy giant, if ultimately confirmed by higher level courts, could force Argentina to pay the vulture funds that bought the rights to litigation amounts substantially above the reserves held in the Central Bank. Yet, while many have indicated this could cause a dangerous depletion of much-needed reserves in the midst of a difficult financial crisis, any ultimate outcome will still have to wait until the courts’ final ruling, which could be many years off. Thus, the current state of polarisation has led some to put this issue in the centre of the political scene, either proving that Kicillof and Cristina are buffoons, or to the contrary that they are heroes defending national sovereignty. As usual, the extremes of “la grieta” blur our vision. They are neither fools nor visionaries, just pragmatists trying to consolidate a position of power at a time of doubt, ultimately causing much damage to the country and its people.

The government of Argentina nationalised YPF in 2012, two years after the global financial crisis detonated Néstor Kirchner’s “business model,” which was based on a consistent expansion of fiscal spending financed by a global commodities super-cycle that demanded what Argentina had in abundance. Two years after Néstor’s death, Cristina struggled in her attempts to expand the welfare state with dollars within the Argentine financial system scarce. After nearly two decades of energy exports, Argentina had been forced to become a net importer, while then-Spanish-led YPF continued to pay hefty dividends to Repsol, its majority owner. Energy production fell as increasing bureaucracy and an unfavourable business environment led Repsol/YPF to focus on profit extraction rather than exploration and production. The discovery of the Vaca Muerta shale field indicated Argentina could become a global leader in oil and gas exports. In its typically aggressive fashion, the Kirchner government made its move with an aggressive nationalisation that was a prelude to its ultimate lockout from international markets a few years later when it defaulted on its sovereign debt, once again blaming the vulture funds.

By 2015, Argentine-owned firm Grupo Petersen sued the state for breach of contract. The company, owned by the Eskenazi family, bought into YPF and ultimately controlled 25 percent of the shares at the request of Néstor Kirchner. The deal was structured in a way in which the Eskenazi led the “Argentinisation” of the energy company and paid for its shares with YPF’s own dividends, and external financing. The Eskenazi family owned the Bank of Santa Cruz, the province from which Néstor grew from municipal leader to president. Years later, their litigation claims – along with those of the hedge fund Eton Park – were bought by Burford Capital, which financed the continued legal battle against the sovereign. This battle, which was also fought by the Mauricio Macri administration, has been in the hands of Judge Loretta Preska, the successor of Judge Thomas Griesa, who oversaw the infamous “pari-passu” suit in which Argentina ultimately defaulted on its foreign debt in 2014. The Eskenazi family, experts in regulated businesses, had been a close ally of the Kirchners throughout the years, leading some like journalist Carlos Pagni to suggest they are behind Burford’s claims. What is clear is that Burford stands to win 35 percent of the Petersen claim and 73 percent of Eton Park’s. There’s limited visibility into who would take the remaining cut.

As usual, the situation is far from simple. The Kirchnerite argument, championed by Kicillof, that claims their administration was battling the big bad empire to preserve national sovereignty falls flat on its feet. Yet it was Néstor and Cristina who lauded then-president Carlos Menem for the privatisation of YPF in the early 1990s which generated a massive windfall for the province of Santa Cruz. There are serious doubts as to what happened with those funds. Furthermore, the need for hard currency in the face of dual deficits during Cristina’s second presidency led to a desperate sacking of government coffers, including YPF. This was the beginning of the end of Argentina’s last bout of prosperity, setting the stage for the implosion that occurred during the Macri and Alberto Fernández years, both administrations exacerbating the negative effects. At the same time, the nationalisation of YPF was one of the cornerstones of the development of Vaca Muerta, which today shines as one of the few last opportunities that could help Argentina overcome a chronic lack of dollars that tips it into crisis every few years. While it wasn’t a necessary condition, YPF has allowed the sovereign to lead the exploration phase alongside international firms while giving the government a platform from which to sink productive investment into Vaca Muerta that could prove hugely beneficial in the near future. This, of course, requires YPF to be professionally managed and efficient.

It is a bit weird that a New York court gets to judge the Argentine government on its interpretation of Argentine law. Yet, YPF is publicly listed in New York and is run by a government that has defaulted on its obligations multiple times. The case is political by nature, and must be read in that tone, both in favour and against Argentina.

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Agustino Fontevecchia

Agustino Fontevecchia


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