Joseph Stiglitz, the famed economist and Nobel Laureate, has criticised the Mauricio Macri administration in a new interview that touches on Argentina's debt restructuring plans.
In an interview with the BBC, the economist – a mentor to Economy Minister Martín Guzmán – said creditors "should not have lent so much money" to the Macri government and that the former president's team "did not make prudent loans."
"I blame the capital markets; I don't blame Argentina," he added, going on to suggest that the country should cut interest rates for creditors as part of their offer.
Speaking to BBC Mundo, Stiglitz offered praise for his protege Guzmán, describing him as "an excellent economist who has made a career of studying debt, macroeconomics and debt restructuring." The minister's team "has a probably unsurpassed understanding of macroeconomics and debt," he added.
The Nobel Prize winner said he hoped that under new President Alberto Fernández, Argentina would "manage the whole process better than almost any other country."
However, he stressed that Argentina "does not have the dollars to pay" off its debt.
Renegotiating the country's heavy debt obligations is the highest priority for the Fernández government, which waived the last tranches of a US$57 billion loan agreed with the International Monetary Fund (IMF) in 2018 during Macri's time in office.
The country has received a total of US$44 billion from the loan to date, which was the largest in the Fund's history. On Tuesday, Guzmán held "productive talks" with IMF officials in New York, with a mission team from the institution set to visit Buenos Aires in February as negotiations begin in earnest.
"I think most people who have seen the numbers say something has to be done," Stiglitz told the BBC. "I don't think anyone is saying: we can continue like this."
"The numbers are very clear – they don't have the dollars to pay what's due. It's arithmetic," he stated.
Asked what Argentina should do, the Columbia University professor referred to the "excessively high interest rates," adding that "if you charge high interest rates, you will end up with a high probability of default. But if you charge low interest rates, you have a low probability of default.”
"The history of debt restructuring has a very large amount, about 50 percent, that ends with a crisis in five years. They don't want to get into that," Stiglitz said. "So they want to solve it. It's not a temporary solution, but a real solution. And that will require some form of rewriting the contract to make it sustainable.”
He said "there are many ways to do that," but "I would expect them to work very hard to make sure it's sustainable.”
If no agreement is reached with the bondholders, the economist agreed that Argentina would be considered to be in default, though he added that "technically, you are not in default until the creditors declare that you are."
"It is in everyone's interest to avoid a default," Stiglitz, who recently suggested Argentina's creditors would have to accept a haircut, told the BBC. "That is why Argentina is working, as they have said, very hard to avoid a default. And it should also be in the interest of creditors.”
“I mean, if a default costs Argentina, and that slows down growth, it will mean that creditors will have less of a return. Why would creditors do something so counterproductive?"
Stiglitz, a former World Bank chief economist and ex-advisor to US president Bill Clinton, said he thought that "the lenders were fools to lend" so much to the Macri administration.
"Macri bet the house and the capital markets were blind. Every loan has a borrower and a lender. And the lenders were fools to lend that amount of money," he concluded.
"They bet in the same way that Macri bet – that there was going to be a flood of foreign investment into Argentina that would suddenly lead to economic growth," he concluded. "Everyone was blindly following Macri's speeches."