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ECONOMY | 09-12-2019 14:07

Meet Martín Guzmán, Argentina's next economy minister

New economy minister, who is close to Nobel-Prize-winning economist Joseph Stiglitz, is seen as a critic of the International Monetary Fund.

Martín Guzmán, a protege of Nobel Laureate Joseph Stiglitz at Columbia University, will become Argentina’s next economy minister, overseeing the nation’s attempts to get out of recession and renegotiate its debt.

“He’s a young man, who’s very well trained, and who understands Argentina’s debt conflict and macroeconomic conflict very well,” President-elect Alberto Fernández said Friday, as he named his cabinet.

Guzmán, an expert on sovereign debt crises and frequent critic of the International Monetary Fund, has already recommended a “possible path to restore debt sustainability” for his own country.

In a presentation in Geneva last month, he recommended delaying debt payments on capital and interest for two years, and argued against an immediate default. Argentina should set a March deadline for re-profiling its debt, he said.

Argentina is deep in crisis, even by its own standards. The economy is poised to contract for the third year in a row, unemployment hovers over 10 percent and annual inflation runs above 50 percent. The nation’s dollar bonds due 2028 are currently trading at around 39 cents on the dollar as investors brace for a default.

Foreign investors

Some foreign investors are worried by Guzmán’s lack of political experience and by his “heterodox” views, said Hans Humes, chief executive officer of Greylock Capital Management, which is leading one Argentina creditor group. Humes said he thinks those views are misplaced.

“His understanding of the process, the players and the financial tools of working through a cash-flow crunch in a country will make him extremely capable in the role,” he said.

Guzmán has co-written several articles and papers with Nobel prize-winner Stiglitz, including on Argentina’s 2001 sovereign default. Stiglitz congratulated his protege on Twitter Friday. He’s also worked with Colombian Central Bank co-director José Antonio Ocampo.

“Guzmán has worked hard on debt issues, which is very useful at a time when Argentina is going to have to renegotiate,” Ocampo, who has co-authored academic papers with Guzmán, said by phone. “He doesn’t belong to the most orthodox wing of economists. He belongs rather to Professor Stiglitz’s school.”

Stiglitz is known for his criticism of economists he says put too much faith in free markets.

IMF criticism

Amid the Argentine peso’s plunge last year, the government lost access to markets, forcing President Mauricio Macri to seek a record US$56-billion IMF credit line. But the IMF deal did little to halt the country’s slide into recession and is now on hold as the fund awaits the details of Fernández’s economic team and its policies.

Guzmán has criticised the agreement in an October 15 presentation at the US Congress, when he said that the deal should have had a plan to revive growth as its centrepiece, rather than a fiscal adjustment that led to painful spending cuts.

“This programme didn’t work,” Guzmán said at the time. “If the country tries to deepen the austerity policies that have been implemented recently, that will lead to a deeper recession.”

In addition, Guzmán last month argued against receiving further funds from the IMF to service Argentina’s bonds. The nation should only accept money from the fund if it’s invested in boosting production in the export sector, he said.

“The views of Guzmán vis-à-vis the IMF are quite aggressive, but we sense that he wants to offer private bondholders a benevolent restructuring offer,” Alberto Bernal of XP Investments wrote in a report.

Guzmán, who has never held public office before, currently lives in New York, where he works as a research associate in the economics division of Columbia University Business School. He holds a PhD in economics from Brown University, according to his resume.

“Argentina’s central problem is its debt,” Guzmán said in an interview with local newspaper Clarín on October 19. “If the country doesn’t solve that, there will be no way to implement a macroeconomic programme that allows for a recovery.

Running Argentina’s economy is one of the world’s toughest jobs. Since 1983, when the country returned to democracy, it has had 26 economy ministers, who lasted on average less than a year and a half in the role.

Central Bank chief

Fernández said Miguel Pesce will lead the nation’s Central Bank, which has struggled to retain its credibility over the last two years. The bank has had three presidents under Macri and implemented some erratic policies, such as introducing and then abandoning inflation targets and a currency band.

Pesce, 57, served as the institution's vice-president for over a decade until 2015 when Macri appointed new leadership. During his tenure, the bank oversaw capital and currency controls that made it legally difficult to buy dollars and drove many Argentines to the black market. He’s currently the president of the Tierra del Fuego Province bank.

Other major nominations include Santiago Cafiero, who will be Fernández’s Cabinet chief, a powerful role in Argentina. Felipe Solá, a former governor of Buenos Aires Province, will be foreign minister, while Matías Kulfas will be productive development minister and Sergio Lanziani will be energy secretary.

by Jorgelina do Rosario & Patrick Gillespie, Bloomberg

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