Despite a thousand obstacles, negotiations between Argentina and the creditor hedge funds restart. Meanwhile, however, payments on credit default swaps are starting, derivative instruments that function as insurance policies against the failure of the underlying (in this case the sovereign debt of Buenos Aires). The large hedge funds in the United States have subscribed to many of them, thus finding themselves playing a double role: on the one hand, as creditors, they demand full payment of bonds they bought at bargain prices, thus pushing the country into bankruptcy ; on the other hand, in the event of no capital gain on government bonds, they ensure an abundant profit with CDS.
According to the International Swaps and Derivatives Association, Argentina's default has triggered $XNUMX billion in redemption requests. The alarm was raised by Citigroup, one of the banks that hold debt securities on behalf of Buenos Aires.
So far, however, only the tip of the iceberg can be seen: the mass of derivative contracts on Argentina is equal to at least 20 billion dollars (but net of hedging transactions the figure drops to just over a billion).
The payment of the CDS has made Argentina rise up. The Buenos Aires government speaks of a maneuver to encourage speculation by accusing New York judge Thomas Griesa of subjecting "the country to extortion" and asking for the removal of mediator Daniel Pollack. “Argentina – replied Griesa – must stop telling half-truths about the debt crisis”.
The default effect also affects the sale of Telecom Argentina. The closing of the sale of the Telecom Italia subsidiary to Fintech, already scheduled for Tuesday 12 August for 960 million dollars, could be postponed. The dossier will be examined by the board led by Marco Patuano tomorrow 5 August.
