Sunday, June 26, 2022

OP-ED | 08-02-2020 12:59

Are the wheels coming off the Axel?

Much has been said about the ideological differences between the pragmatic and extremist wings of the ruling Frente de Todos coalition but last week the contrast was clearest in style and strategy – the smooth soap of presidential showcasing with the top political leaders of the European mainland at all odds with the wild roller-coaster lurches of Buenos Aires Province Governor Axel Kicillof out of all proportion to the tiny bond he was scheduled to pay last month.

Playing with fire over what would have been the most ridiculous default in world history (barely quarter a billion dollars as against Argentina’s 12-digit default of 2001) and painting himself into a corner only to pay up in full at the last minute are two gratuitous dents in Kicillof’s credibility in what should be his honeymoon period. Nor was he only hurting himself – by setting an example as the governor of Argentina’s most important province by far, he risked triggering a copycat effect among other debt-strapped provinces, placing heavy pressures on the national government.

Hard to see any method in the madness and even if there were, almost everybody judges by appearances and these are catastrophic. President Alberto Fernández said from Europe that Kicillof’s approach was “correct” but even if we assume against all the evidence that everything was somehow co-ordinated – that Kicillof’s wild default brinkmanship and Economy Minister Martín Guzmán’s hours of friendly conversation with International Monetary Fund Managing Director Kristalina Georgieva in Rome form part of a “good cop, bad cop” strategy or that Kicillof was right to resist debt payments until he could see how they dovetailed into the overall restructuring – a negative verdict remains unavoidable.

Kicillof’s many critics tend to centre on his hard left ideology glorifying the state with frequently Marxist roots but perhaps he is more dangerous as a political novice. With his track record as a negotiator he should have thought twice about taking on the bondholders – as 2013-15 economy minister, he similarly indulged in vapid grandstanding over the Paris Club agreement and the compensation claims for the YPF nationalisation, only for the vulture funds and Repsol shareholders to walk away with profits beyond their highest expectations. Any possible gains from a bond rollover until next May were out of all proportion to Kicillof’s ineptitude as a negotiator being exposed once more.

Not only did Kicillof lose his game of chicken by blinking first but he also betrayed his essence as an economist with the crudely political twist he gave to this issue throughout. The Frente de Todos governor constantly blamed his predecessor María Eugenia Vidal from Mauricio Macri’s Juntos por el Cambio for his debt woes, skipping the central fact that the BP21 bond was actually issued in 2011 by then Peronist governor Daniel Scioli. This dollar bond carried an extraordinarily high interest rate of 10.87 percent (as against a Vidal average of four-plus percent) because Scioli, desperate to pay off militant teachers (whose pay increases this year are now jeopardised), was starved of funds by a Cristina Fernández de Kirchner administration seeking to undermine a potential presidential rival – factors of which Kicillof would be well aware as then deputy Economy minister but effectively running the show. Kicillof also insisted that the 75 percent creditor assent needed for a rollover was blocked by a single investment fund holding over 25 percent of the bond but the share of Fidelity to which he presumably referred was 16.4 percent. Such dishonesty with facts and numbers is unworthy of an economist.

No happy ending (not least with a new deadline to avert technical default already looming next Thursday, this time at national level) but at least Kicillof did not step over the brink, a responsible decision which deserves praise – we should be thankful for not so small mercies.

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