Economy Minister Martín Guzmán has reiterated once again that balancing Argentina’s books and securing a deal with the International Monetary Fund to restructure US$44 billion in debt will not come at the price of sweeping budget cuts.
“Austerity is not the way to go,” Guzmán said at a videoconference talk hosted by his American alma mater, Brown University, on Wednesday. “Not in the north. Not anywhere.”
The minister’s comments come just a few weeks before he is set to travel to Washington DC to step up negotiations over a new financing programme for Argentina, which remains in the grip of a lengthy recession and is suffering from runaway inflation.
Argentina is hoping to renegotiate repayments on a US$44-billion loan granted to the Mauricio Macri administration by the IMF in 2018. The credit line was originally meant to be US$57 billion, but President Alberto Fernández halted disbursements when he took office in December 2019.
Guzmán, who wants to seal a deal by early May, says that Argentina won’t accept stringent budget cuts imposed by the Fund and that the nation must return to growth.
“There is one principle that has to be respected, which is that there is no economic stabilisation if there is no economic recovery,” he insisted Wednesday, when asked about how this round of negotiations with the IMF would differ from previous talks.
The minister emphasised repeatedly that deficit spending is an essential part of generating economic recovery and eventual growth. According to him, Argentina has to balance the twin goals of avoiding the destabilising effects that too much monetary financing can have on the exchange rate while still having enough expansion to boost the economy.
“This establishes a thin corridor through which the economy has to transit,” he said, acknowledging the touch challenges that lie ahead.
When pressed on what the correct level of deficit spending as a percentage of GDP would be, in order to fit through his “thin corridor,” he answered with the 4.5 percent figure outlined in the government’s 2021 Budget.
Bloomberg reported this week Bank of America economists project that a lower target of 3.5 percent of GDP is what will ultimately be included in any deal with the IMF deal.
Guzmán credited the government’s ability to finance this deficit to the Alberto Fernández’s administration’s work rebuilding the domestic debt market. Argentina sealed deals with international and domestic bondholders last year to restructure its heavy debt-load.
“Since the moment we took office, we worked on rebuilding the market for public debt in domestic currency and rebuilding the peso yield curve,” he said.
“Our economic policies are based on what we consider prudent assumptions. Over-optimism has been in the past associated with troubles,” the minister said, adding that the assumption that reforms would lead to large recoveries “has been associated with a process of indebtedness that didn’t end up well.”
IMF tensions?
Despite an apparent simmering tension between the Fund and Argentina, Guzmán pointed out that a technical note that the IMF produced on debt sustainability last year was very close to the one that Argentina had itself produced. He also highlighted the administration’s work to engage with the G20 and the support Argentina has received from the academic community, rebuffing rumours of tensions over how quickly a deal can be reached.
Emphasising the constraint that the balance of payments puts on any potential reforms, Guzmán stressed the importance of growing exports.
“The arithmetic is quite simple,” he explained. “When the economy grows, imports grow. If exports do not grow, we start to face tensions on the balance of payments.”
The subsequent loss of foreign currency results in a depreciation of the peso, a turn of events which has plagued the Argentine economy for years, he said.
Guzmán also highlighted the government’s inflation target for 2021 is 29 percent, an aim that is seen as unreachable by private economists, who predict prices are likely to increase by closer to 50 percent this year.
Political angle
Guzmán’s talk wasn’t just limited to economics, however. In a noteworthy exchange, he sought to differentiate his approach to the IMF from that of the Mauricio Macri administration’s, saying that his predecessors had based their economic policies on false assumptions.
The minister criticised what he described as “dangerous ideas” that only ended up deepening recessions. He added that though his predecessors believed that “monetary contraction in the context of a recession was going to be effective to stabilise prices,” the opposite actually occurred and inflation increased.
Mark Blyth, the Scottish-US political scientist who hosted the event, pointed to an emerging policy consensus in the global north in the wake of the Covid-19 pandemic against austerity that he has not yet seen in the south, and asked Guzmán if there was one law for one hemisphere, and another rule for another.
“Austerity is not the way to go,” the minister replied strongly. “Not in the north. Not anywhere.”
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