Friday, October 15, 2021

ARGENTINA | 20-02-2020 09:00

Famed economist concerned Argentina is on road to 'total default'

Economists, including respected Turkish academic Nouriel Roubini, warn that Argentina's lack of credibility and a coherent economic plan may mean negotiations with IMF end up fruitless.

Respected economist Nouriel Roubini, the man who famously anticipated the 2008 subprime crisis, has declared that the "risk of total default is increasing” for Argentina.

Roubini, 60, said he believes Argentina eventually stop payments on its sovereign debt. He accused the national government of lacking a coherent plan to restructure its debt. "The country does not have a coherent economic plan to convince creditors to accept a swap offer with significant debt reduction in net present value terms," he pointed out.

The Turkish economist, who was US treasury accessor, he held that the outlines suggested by the government to discuss restructuring with creditors "lack credibility."

"If Fernandez defeats President Mauricio Macri and sinks the US$57 billion program agreed with the IMF, Argentina could suffer a repeat of the 2001 currency crisis with debt default," he proclaimed.

This contagion effect, he analysed, "could lead to a more general process of capital flight from emerging markets, which could cause a crisis in highly indebted countries such as Turkey, Venezuela, Pakistan and Lebanon, and complicate the situation of countries such as India, South Africa, China, Brazil, Mexico and Ecuador."

Until now, said contagion was not observed due to the high liquidity in the emerging markets as a result of the low international interest rates.

Whereas the expectant attitude from G7 members, to see how the Argentine government will solve its external crisis, reflects President Alberto Fernández’s reception in Europe and Washington’s signals in favour of an agreement 

On that note, the Government communicated over the positive progress of the IMF’s negotiation and that an agreement is plausible over the US$44.000 millions loan.

If the Fernandez administration succeed to negotiate with the Institution, it will facilitate dialogues with bondholders that await the overall conclusion of the Argentine ability to reimburse the creditors.

Pro-market strategy

The former president of Banco Nación, Carlos Melconian, considered that the government should present a "very pro-bondholders offer" to succeed in renegotiating the foreign currency debt.

"I think that Argentina, for the universe of debt in dollars under foreign law, got into a mess of an offer that will have to be very pro-bondholders. They have more difficult legal clauses for a negotiation," he added.

In radio statements, the economist stressed that: "This is a PPP: Pure Peronist Program. I don't want to get into politics, not to mention Peronism, but to stabilise in the short term, within normality, it can work".

"But for that, we had to put in place a very strong currency control, we had to raise the fiscal pressure strongly, or make decisions to freeze it for 180 days. Based on these three things that are not sustainable over time, the idea of having less than 54 percent inflation this year or having a GDP fall of less than 2 percent; I do not know how successful it can be," he added.

Finally, he observed: "there is a kind of triangle of interests in the relationship between the bondholders, the Government and the Fund, which I do not see going in the same direction.”

“It's a situation where I think the government is going to try to make a move on the bondholders without the IMF. The bondholders are going to see if they can catch something else in the river."

Necessary alignment

The former Economy Minister, Daniel Marx, assured that the Government are “shortening” the timetables to renegotiate the external debt.

"Times are getting shorter and it may be putting pressure on the Central Bank's reserves. If there's no solution, there will be an aimless Argentina," assessed the former finance secretary.

However, Marx uttered in radio statements that "negotiations with the IMF are progressing. There are maturities coming up and interest is still being paid, so it is expected that in the coming weeks there will be an acceleration of the procedures."

The specialist estimated that the deadline imposed by the government to close the negotiation with creditors, at the end of March, "is very demanding, especially if one is looking for important accessions that could change the debt scheme.”

In addition, he said he doesn't know "whether there will be a unilateral offer or not, but I do believe there will be consultation mechanisms. And from there an offer will be outlined."

"This has to be fixed, not only because of the default, but also because it would leave Argentina aimless," he warned.



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