Argentina’s president is
trying to sort out the
country’s debt problems
politically. Still, in the
end, it will all be about
money – the success of
the ‘gently does it’
approach hinges on the
a considerable haircut.
President Alberto Fernández, in the name of the leftleaning Frente de Todos ruling Peronist coalition, is
scheduled to deliver Argentina’s own version of the
state-of-the-nation address tomorrow in Congress.
The speech will come on the first day of March.
By the end of this new month, Argentina will have
settled its renegotiation with debt bondholders, according to
Economy Minister Martín Guzmán and President Fernández’s
schedule. The deadline is March 31 – and
so begins Guzmán’s long March.
The minister has engaged in a marathon
of meetings with International Monetary
Fund (IMF) officials and, presumably,
bondholders in recent days. Last week, the
IMF released a statement declaring
Argentina’s debt “unsustainable”, but there have been more developments since
then. Guzmán met with IMF chief Kristalina Georgieva in Saudi Arabia and then
with the Fund’s technocrats in the United
States. Guzmán also found time to shake
hands with US Treasury Secretary Steve
The meetings keep on coming. Jorge
Arguello, Argentina’s new ambassador to
the United States, held talks with US State Secretary Mike Pompeo. All this jawboning means that eventually, perhaps before the end of the year, Fernández will meet
with US President Donald Trump.
Argentina’s president is trying to sort out the country’s debt
problems politically. Still, in the end, it will all be about money
– the success of the ‘gently does it’ approach hinges on the
bondholders accepting a considerable haircut before the end
of the month. The road has been long and winding for Fernández and Guzmán.
Argentina’s president embarked on a tour of Europe recently
to explain the precarious debt situation to the leaders of France,
Germany and Spain. Now the likes of Pompeo and Mnuchin are
lending an ear to Argentina’s case. The novelty here is Guzmán’s
approach: the minister is a US-trained debt expert who has
chosen to mostly explain himself in writing. He speaks softly
and has avoided any histrionics. The professor, while highly
critical of austerity policies, is trying to speak in a language the
world will understand. The debt is unpayable – even the IMF is
telling you that – but don’t expect Guzmán to wildly declare a
default with his hands up in the air. Still, a default is improbable
but not impossible, to quote Argentina’s Central Bank head.
The IMF’s statement on Argentina’s debt is not the end of
the road, far from it. Guzmán has since agreed to allow the
Fund’s officials to monitor Argentina’s economy. A similar
step was denied by late president Néstor Kirchner when he
cancelled a US$10-billion debt with the Fund during his 2003-
2007 presidency. But the clock never stops ticking and now
we are in the year 2020. (Once again: Argentina owes the IMF
US$44 billion that the Fund injected during the 2015-2019
centre-right presidency of Mauricio Macri.)
Guzmán has ruled out deploying extreme austerity to meet the fiscal targets that
would allow the country to immediately
pay down debt, but the government’s recent decision to scrap index-linked pension hikes will effectively save it money,
as favoured by the IMF. The government’s
increases, by decree, have favoured retirees collecting the minimum pension, but
those on higher pensions will lose out.
The government has also submitted a bill
to Congress that would reform the special
pensions enjoyed by the justice system
(including judges) and the diplomatic service. A congressional battle is raging right
now, with the centre-right opposition frowning at the changes. The reform could trigger the mass exodus of judges and prosecutors, as judicial officials rush to retire in
a bid not to miss out on those special pensions. The new government had also promised a wider reform of the court system. The opposition claims
that these reforms could allow the government to manipulate
the courts, which have probed former Kirchnerite officials for
corruption. President Fernández argues that it was Macri who
manipulated the courts, with the help of the intelligence services, to frame those former officials in the first place.
Fernández is also expected to announce the increase of
soybean export duties by three percent in his upcoming speech.
The farmers are already fuming and some are calling for protests. Sound familiar? Cristina Fernández de Kirchner, when
she was president in 2008, became locked in a epic, fierce standoff over export duties with the farmers. The increase was eventually quashed when the ruling party lost a
Senate vote and the then-vice-president
broke a tie against the government’s stance.
But is the context different now?
Many could relate to the farmers, complaining about yet another tax increase back in
2008. But, again, the times have changed.
The IMF has reportedly recommended jacking up the export duties too. Macri’s campaign promises when he won the presidency
in 2015 included eventually scrapping the
farm export duties all together, but he had
problems delivering on his promise after an
Will the farmers manage to win the support of public opinion in the current context? It will be difficult for the farmers to
go on the warpath against a government
which has yet to register 100 days in office.
Increases are always on the horizon. For
example, the new government’s credibility
will be dented if it does not manage to curb
inflation, even if it does manage to get some
joy on the debt front by March 31. Recently,
President Fernández was forced to overrule his own Cabinet chief, who had announced utility rate hikes would be unfrozen for
some sectors in June.
Trouble keeps on popping up. The president was forced to
apologise in public this week, when some human rights leaders criticised comments he made about “turning the page”
on Argentina’s dictatorship years, saying they amounted to
“negating” the atrocities committed by it.
Everyone, it seems, has to tread carefully. A long month lies