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OPINION AND ANALYSIS | 09-05-2020 10:01

Debt-xit time

The incessant prodding for a laxer quarantine, trumpeted by part of the mainstream media, is peppered by the pot-banging cacerolazo protests.

Argentina is grappling with the dire economic consequences of the coronavirus crisis just like the rest of the world – yet here the debacle comes with specific ingredients: namely the restructuring of nearly US$70 billion dollars worth of debt. 

President Alberto Fernández, the Peronist leading a left-leaning coalition, is coming under intense pressure and lobbying to rapidly relax the lockdown he first announced on March 20. The lockdown has been gradually eased, with Buenos Aires City estimating now that 25 percent of the population is allowed to go about its business. The president, at press time, was poised to decide to extend the quarantine, which is set to expire on Monday.

The pressure is palpable. One major news show on Wednesday night carried a story about a couple who had decided to curb the strict quarantine rules to open their small clothes shop in Buenos Aires City. The bad news on Wednesday was that 188 coronavirus cases were reported nationwide – the highest daily total so far. Now the virus is spreading in poor neighbourhoods and slums in the capital too. The lockdown is being slowly relaxed in phases by the president, who has delegated many decisions on the provincial governors and Buenos Aires City Mayor Horacio Rodríguez Larreta, a prominent leader of the centre-right opposition Juntos por el Cambio coalition led by former president Mauricio Macri.

The increase in cases on Wednesday had a sobering effect on the lobbying. The president has been here before – Fernández regularly meets with the medical experts and the provincial governors before making a decision. The round of cumbersome meetings creates a brief vacuum that grants the lobbyists (big business leaders and trade union bosses) time press for authorities to reopen the industrial and construction sectors.

The incessant prodding for a laxer quarantine, trumpeted by part of the mainstream media, is peppered by the pot-banging cacerolazo protests, demonstrations against what the opposition alleges is a plan by the government to release prisoners purportedly for humanitarian reasons. The pot-banging was loud and clear again this week (on Wednesday and Thursday night). Since then, the president and Buenos Aires Province Governor Axel Kicillof, a progressive Kirchnerite, have scrambled to make it clear that judges and not government officials are ordering the release of any prisoners.

More cacerolazos have been called. Yet the contradiction here is that polls are still showing sweeping support for the president's handling of the crisis. Nevertheless, good public opinion polls do not mean that the opposition can't do their work – much of the conservative opposition seems to be furious that the pandemic has opened the door to intense state intervention managed by a Peronist administration. The opposition appears to be agitating for protests to pin the looming economic discontent on the president, but the polls, at least for the moment ,tell a different story.

The Fernández administration is spending the pesos it is printing on welfare. About eight million people collected an "emergency family income" payment of 10,000 pesos, designed to rescue workers locked in the informal economy. That same subsidy will be paid (hopefully not via long, chaotic lines outside banks and post offices – the scenes prompted the resignation of the head of the ANSES social security agency) again this month. Effectively this is Argentina's first shot at universal income. There’s also a lot of agitation about a wealth tax bill that Kirchnerite lawmakers are expected to table in Congress, which is set to begin holding virtual sessions. 

Meanwhile, again at press time, the deadline yesterday for bondholders to accept Economy Minister Martín Guzmán's offer to swap nearly US$70 billion worth of debt was also looming. Argentina is once again flirting with a massive default. Guzmán's mission is to avoid it. Debt-xit is playing out. There’s rife speculation that the president favours continuing negotiations with the bondholders, who earlier this week flatly rejected the initial offer from Guzmán, a US-trained economist who is critical of Wall Street. The minister’s offer is audacious and the minister has insisted that it is all Argentina can pay.

Hear the minister out – “Our offer includes a three-year grace period, a 5.5 percent reduction on the bonds principal, and a 62 percent reduction of interest payments. It leaves creditors with an average bond coupon of 2.3 percent versus the current 7 percent average, which is not low considering the current interest environment. We are, in short, not asking creditors to lose – but to make less,” Guzmán wrote in the Financial Times.

Crunch time. The minister has called on the bondholders to make a realistic counter-offer at the last minute, and this week he received the support of more than 100 high-profile economists, including Nobel laureates. He is also facing another test: what level of support his strategy has in the complex ruling Frente de Todos coalition, now that the president seems to favour a deal over default.

 

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Martín Gambarotta

Martín Gambarotta

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