Thursday, October 6, 2022

ECONOMY | 15-02-2020 09:17

Cristina raises stakes for Argentina's crucial talks with IMF

Vice-president lays into IMF, as government officials welcome mission team to Argentina.

Cristina Fernández de Kirchner raised the ante in Argentina’s debt restructuring talks with the International Monetary Fund this week, slamming the Fund’s officials as they arrived in Buenos Aires for crucial negotiations..

While Economy Minister Martín Guzmán’s report to Congress on Wednesday was supposed to be the official update on Argentina’s debt situation this week, he was, in many ways, upstaged the previous day by VicePresident Fernández de Kirchner, who became the first senior Argentine official to inject the word “haircut” into the panoply of solutions.

A haircut was in order, insisted Fernández de Kirchner from Cuba, because the IMF had broken its own rules in granting the Mauricio Macri administration the biggest loan in its history (US$56 billion, of which US$44 billion was transferred) in order to finance capital flight.

This assertion was swiftly and emphatically denied by both IMF spokesman Gerry Rice and various Argentine economists and politicians. But it was upheld by President Alberto Fernández, who called her diagnosis “highly pertinent.”

While neither accepting nor rejecting the vice-president’s claim that the mega-credit had been used for capital flight, Rice insisted that what would be a violation of IMF statutes would be a haircut, which is expressly ruled out for any loan recipient.

The outgoing Macri administration has reported that US$37.15 billion of the US$44 billion had gone on repaying debt.

The former president was the first official to introduce the word “haircut” into the debt debate, but not the first person. The idea of a haircut had been trailed previously by none other than Guzmán’s mentor, the 2001 Nobel Economics Prize winner Joseph Stiglitz, who last month said: “The reality is there will have to be significant haircuts; it would be fantasy to think otherwise,” when commenting on Argentina’s debt situation during an interview at the World Economic Forum in Davos.

The government is attempting to restructure a foreign debt of more than US$100 billion. Argentina’s total external debt is US$311 billion, according to the latest figures, of which it owes US$44 billion to the IMF.


On the same day Guzmán was addressing Congress, an IMF mission team headed by Western Hemisphere assistant director Julia Kozack and Argentina specialist Luis Cubeddu arrived for its first formal talks with the Fernández administration.

It did not receive the friendliest of welcomes, either inside or beyond Congress. In Congress Guzmán – while speaking positively about the IMF’s new leadership after meeting Kristalina Georgieva in Rome earlier this month – said that the monetary institution was co-responsible for Argentina’s economic crisis, implying that it should be more flexible in consequence.

And the same day an antiIMF demonstration organised by picket groups and some trade unions converged on Congress after assembling along the 9 de Julio thoroughfare. The organisers claimed a turnout of 60,000, which did not seem too exaggerated from the photographic evidence.

The IMF was also given scant hope for a rapid return of their money when Guzmán told Congress that Argentina would not be returning to fiscal surplus until 2023 (with no deficit reduction at all this year), which would thus be the earliest date on which debt repayment could resume. But Guzmán was guarded even about 2023, saying it would be imprudent to make any long-range fiscal forecasts while Argentina’s debt remains unsustainable, offering at least three different scenarios.

Major debt restructuring would be needed, Guzmán also said, without actually using the H-word (haircut) pioneered by his mentor.

But disappointment would not be limited to the IMF, he declared.

“It’s clear that there’s going to be frustration on the part of bondholders,” he said, adding in a fiercer tone: “We’re not going to allow foreign [investment] funds to set the guidelines for macro-economic policy,” ruling out any austerity.

Such comments set a tone for tense negotiations with bondholders, including major investment funds such as BlackRock and Fidelity, with a formal offer due in mid-March with the talks due to finish by the end of next month according to the government’s tight timeline.

But at least he gave investors assurance that Argentina’s bonds under New York laws will not be treated differently than bonds under local law.

On Tuesday the latter took a hit when the government failed to talk AF20 bondholders into an unfavourable bond swap by the deadline. All capital payments superior to US$20,000 were deferred until September 30 but the totality of interest and all capital under that sum (accounting for 91.5 percent of bondholders) were repaid, costing the Treasury 15.3 billion.

This national “reprofiling” came just a week after Buenos Aires Province was forced to repay its BP 21 bond in full.


Investors have been fearing an aggressive debt restructuring since August, when Fernández defeated ex-leader Mauricio Macri in August’s PASO primary elections by a far wider margin than any poll had forecast. The peso and sovereign bonds prices have since plunged.

On Friday, Bloomberg reported that Monarch Alternative Capital LP is spearheading a group of hedge funds, who are organising ahead of debt restructuring talks with Argentina.


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