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OPINION AND ANALYSIS | 08-02-2020 10:15

All is not quiet on the debt restructuring front

Debt is Argentina’s disease. President Alberto Fernández, a Peronist, has said that the nation is now in “intensive care” treatment for its debt addiction. The president has also likened trying to restructure Argentina’s mammoth debt to playing poker with the good fellas. You try pulling a convincing poker face while in intensive care without your cards falling to the ground.

What Alberto Fernández is telling you is that he is taking a political approach to the debt problem. After all he is an old-school backroom Peronist operative who cut his teeth churning out deals on late-night negotiating tables. He has been playing political poker all his life. His biggest ever gamble was quitting Kirchnerism in 2008 and fiercely criticising former president Cristian Fernández de Kirchner only to be eventually tapped as a presidential candidate by her in a surprise move early last year.

Now Alberto Fernández decided to embark on a tour of France, Germany, Italy (including the Vatican) and Spain in what appears to be an effort to garner heavyweight political support from the leaders of the big industrialised nations before opening talks with the International Monetary Fund (IMF) and the private bondholders to avoid default.

The IMF is not apolitical. Kristalina Georgieva, the recently-appointed IMF chief, and Economy Minister Martín Guzmán attended a forum at the Vatican sponsored by Argentine-born Pope Francis. The Pope, after his meeting last week with Alberto Fernández, sent out his message with the IMF in the audience: debt can’t be paid at any price if that means the perpetual suffering of the people.

Did Georgieva get the message? Possibly. But the biggest IMF shareholder is the United States of America and it is presided by one Donald Trump. President Fernández is, predictably, getting geopolitical to sort out Argentina’s chronic debt problem. But if you go down the geopolitical trail you end up realizing that Trump and Europe (Angela Merkel and Emmanuel Macron especially) are not exactly on the best of terms right now.

While all this glad-handing was going on in good old Europe, Trump was busy delivering his State of the Union speech with Juan Guaidó, considered by the US the “legitimate president of Venezuela,” in the audience. The US and Argentina have disagreements about Venezuela. President Fernández has sided with Mexico in refraining from getting involved in the domestic affairs of another Latin American nation. The US is actively trying to topple what it calls a “socialist dictatorship” r uling Venezuela. Yet Argentina’s political debt strategy probably does include getting on the correct side of the United States. Presumably the idea is that with all the big guns, ideally including Trump, backing Argentina the private bondholders will be humbled into accepting the “reprofiling” that is coming their way.

Still Fernández has yet to meet with Trump. The general impression in Argentina is that Trump’s support clinched the US$56-billion loan granted to Argentina by the IMF during Mauricio Macri’s centre-right presidency.

The new Argentine diplomats are doing their work. But the debt battlefield is far grittier right now for the republic’s lieutenants. Buenos Aires Province Governor Axel Kicillof, a progressive Kirchnerite and former economy minister, tried to postpone the payment of a US$250 million bond. But Kicillof has announced that he has not clinched the 75 percent backing of the bondholders required to avoid default. Kicillof played hardball, but one major hedge fund withstood the onslaught. This specific hedge fund, Kicillof said, had showed “enormous intransigence.” With the deadline upon him the histrionic governor was left with no choice but to pay the bond by issuing some local debt. During the press conference Kicillof announced the immediate restructuring of the provincial debt. Provincial debts rarely make such big headlines and the governor’s challenge now is to show some positive progress on other fronts to avoid looking like he is running a province on the verge of default.

Both Guzmán and Kicillof have insisted that there is “coordination” between nation and province. Guzmán has also launched a debt swap, which has so far won little acceptance from the bondholders. All is not quiet on the restructuring front. Progress for these lieutenants has been scant so far in the early stages of what is likely to be a slog through the waist-deep mud of international finance. Guzmán’s schedule says in writing that the debt restructuring will be over and done with by March 31. But even that ambitious deadline looks very far away.

The government’s political approach includes tackling the debt issue first, with a US-trained expert like Guzmán calling the shots, along with an emergency new food debit card for poor families to fight hunger. But it is facing growing demands to explain the specifics of its future policies, which are likely to be dished out by Productive Development Minister Matías Kulfas. The debt is heavy. The headlines about the tortuous restructuring process are making it heavier.

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Martín Gambarotta

Martín Gambarotta

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