Messi and Argentina’s Shambles: How a Hedge Fund Manager Conquered the Spirits of 41 million

by / 1 Comment / 172 View / July 31, 2014

Minutes before the final whistle of the 2014 FIFA World Cup, millions of television screens across the globe displayed the same image: Messi, fatigued arms resting on hips, somberly gazing out into the crowd.

In other words, utter disappointment.

The scene was heart wrenching. Flaws in his hunched-over posture glared – the usual picturesque smile of the humble fútbol star nowhere to be found.

All seemed lost.

Hope, however, would come soon as spectators watched the referee raise his arm, signaling a late foul outside the box. There, in the 122nd minute of the match, Messi stepped up to take a free kick in what was most likely the last opportunity for La Albiceleste.

“If anyone can, he can,” said British commentator Ian Darke.

We held our breath – murmured prayers barely audible above Rio and the rest of the world’s ambient angst. Scenes of Argentina hoisting up the trophy, celebrations charged by Messi, flashed in the minds of Argentinians and non-Argentinians alike.

Whoosh.

God himself could not have crafted a better forecast, because the ball – in those mere few seconds of flight – captured the entire trajectory of the Argentine economy: horribly off its mark.

Currently, Argentina, Latin America’s third largest economy, is facing its second default since 2001 after exhausted conversations with U.S. investors this past W ednesday. The country that has been cultivating around $200 billion in foreign-currency debt has repeatedly failed to make scheduled payments. At this week’s climax, Standard & Poor’s finally declared Argentina in default after the government missed another deadline for paying interest on $13 billion of various restructured bonds – a fraction of the $30 billion debt in restructured bonds the country already accumulated.

At the forefront of these conversations is Elliott Management billionaire Paul Singer, whose firm won a monumental debt dispute against the foreign government in the Federal District Court of Manhattan in 2012. Elliott Management, who originally bought Argentine government bonds at a steal ($170 million), will make huge profits (projected $1.5 billion) as the Americans hold Argentines in financial shackles.

Columbia Professor Joseph Stiglitz says, “Singer and Elliott have already done a lot of damage.” Stiglitz also alludes to the global externalities this American-Argentine gridlock could have, extending the economic misery of other countries facing immense debt.

Camila Russo and Katia Porzecanski of Bloomberg Businessweek relay the similar words of Daniel Pollack, the main court-mediator between Elliott Management Corp. and Argentina.

“Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people,” Pollack writes.

Singer, however, believes in the positives of this lucrative trade. In a 2005 article penned with fellow Elliott Management Employee Jay Newman, Singer writes, “Imagine how much capital a country like Argentina might attract.” He argues that creditors can often strengthen nations.

This is not surprising considering that it’s only human nature to justify long-term habits with fictitious claims.

Mr. Singer attributes a part of his own billion dollar fortune to certain strategies with distressed debt. These strategies essentially revolve around “vulture fund” investors who acquire struggling government loans at heavily discounted prices and later sell them for profit as soon as the country’s circumstances improve or sue for full payment. Certainly it works, considering that Singer previously converted $20 million in Peru into $58 million, and later converted a $30 million debt owed by the Congo-Brazzavile into more than $100 million.

Now, all these “vultures” have to do is perch and watch the roadkill slowly decimate with time.

According to Peter Eavis of The New York Times, there are now two options for the Argentine government: either restart negotiations with these investors who demand the full repayment of bonds, or remain in a purgatory state of default.

One thing’s for sure.

Not even the technical genius of Messi can save this country.

 

References:

Eavis, Peter, and Alexandra Stevenson. “Argentina Finds Relentless Foe in Paul Singer’s Hedge Fund.” The New York Times 30 July 2014, sec. DealBook: n. pag. Print.

Goodley, Simon. “Profile: Argentina’s nemesis, hedge fund manager Paul Singer.” The Guardian 31 July 2014, sec. Business: n. pag. Print.

Krantz, Matt. “Argentina falls into default after talks fail.” USA Today 31 July 2014, sec. Money: n. pag. Print.

Russo, Camila, and Katia Porzecanski. “Argentina Declared in Default by S&P as Talks Fail.” Bloomberg Businessweek 30 July 2014: n. pag. Print.

Image Credit: Cassimiro, Wagner. “Argentina soccer.” Flickr: Creative CommonsFlickr, n.d. Web. 31 July 2014. <https://flic.kr/p/72rAYb>. 

  • Observer

    This is a pretty poor analysis of an important topic. Less low-quality rhetoric and more quality economic analysis if you’re going to address such topics, please.