Friday, December 8, 2023

OPINION AND ANALYSIS | 08-08-2020 08:44

Goodbye default my old friend

The ultimate question is if this agreement will spare Argentina the ordeal of holdout bondholders – Guzmán will have conjured a miracle if there are none to worry about once this deal is done.

Not all deadlines are deadly. There have been a number this year in Argentina's quest to renegotiate US$65 billion in foreign debt with bondholders who had the power to sue the republic in the courts of Manhattan. By the end of those deadlines, nothing had died. Sure, they’ve been frustratingly extended since April and the negotiating raged on. But finally, the August 4 deadline for bondholders to take or leave Argentina's latest offer stuck. Well, kind of, of a sorts.

Technically there has been an extension for an agreement, which will be fully confirmed come August 24. But already Economy Minister Martin Guzmán, the 38 year-old US-trained economist with progressive ideas, has confirmed that a deal with the bondholders has been reached. 

President Alberto Fernández, the centre-left Peronist, and his young academic have turned a corner. The talks with the bondholders had edged ever closer. The handshake with the often hawkish big three groups of bondholders came when Argentina offered 54 cents on the dollar (the initial offer was more like 40 cents). The ultimate question is if this agreement will spare Argentina the ordeal of holdout bondholders, like those who refused to accept an offer when the country restructured a massive debt back in 2005. It is a question that should have an answer come August 24 – Guzmán will have conjured a miracle if there are no holdouts to worry about once this deal is done.

Remember 2005? Then, late Néstor Kirchner was president. Fernández, now the head of state, was Cabinet chief at the time and was heavily involved in the epic debt negotiations to settle the default announced late in 2001. The restructuring four years later was headed by Economy Minister Roberto Lavagna, a Peronist economist known for treading carefully. He quit soon after, but he has always been credited with pulling off the debt deal and, to this day, is considered an authority on all matters economic and political. The legal battle with the holdouts in the courts of Manhattan nevertheless raged on, until it was finally settled in 2016.

Now it is Guzmán who will take credit for the agreement, especially – as stated – if there are no holdouts to worry about. Guzmán, in a way, could be the new Lavagna.

The serving minister has avoided direct confrontation and any inflammatory rhetoric that might irk bondholders. The minister hardly ever raises his voice, and he prefers to communicate important decisions in writing. The difference with Lavanga is that Guzmán will probably not want to quit any time soon. The current agreement, which delays immediate debt obligations until after the end of Fernández's mandate in 2023, is confirmation that he has a political future. The minister was brought in specifically for his academic expertise on debt issues. Productive Development Minister Matías Kulfas, a member of the president's inner circle, was generally thought to be in charge of the domestic economic policies, but now Guzmán, in the middle of the pandemic, is likely to have more of a say in Argentina's future economic direction beyond debt issues.

Throughout the negotiation Guzmán enjoyed the backing of Vice-President Cristina Fernández de Kirchner, meaning that the minister has the blessing of the Kirchnerite wing of the ruling Peronist coalition. Frente de Todos is holding together, but there is a subtle game unfolding in the backrooms of power. 

During the debt negotiations Lower House Speaker Sergio Massa (a key member of the coalition who once clashed with Kirchnerismo and often embraces right-of-centre stances on other issues, such as crime and Venezuela) was reported to have pursued alternative channels in Wall Street, not necessarily with Guzmán's blessing. At one point, when the negotiations appeared to be bogged down, there was even speculation that Guzmán would eventually be replaced by a local market-friendly economist. 

Such talk has probably been buried. You can even argue that Guzmán might have a political future. Axel Kicillof, Fernández de Kirchner's fiery last economy minister in 2015, is now the governor of Buenos Aires Province, for example.

The subtle differences in the ruling party also relate to interactions with Buenos Aires City Mayor Horacio Rodríguez Larreta, a key member of the centre-right Juntos por el Cambio opposition coalition. While former president Mauricio Macri is the subject of a court investigation into spying against politicians during his administration, Rodríguez Larreta is performing well in polls and has gained exposure by working with the president in the fight against the coronavirus. 

Not all relations are friendly, however. The Kirchnerite wing of the ruling coalition (as well as the vice-president) recently criticised Rodríguez Larreta for clashes between demonstrators and police at a human rights march in the capital. Out of nowhere, Fernández also directed an unexpected jab at the City mayor (the Peronist leader, just a few weeks ago, described  Rodríguez Larreta a “friend”) by criticising the lack of care for senior citizens in Buenos Aires City. 

Rodríguez Larreta's popularity (some polls list him as the most popular politician in the land) means that he is unexpectedly acceptable to moderate Kirchnerite voters after displaying bipartisan civility during the pandemic. The mayor has so far refrained from reacting personally to the criticism by the president and other officials.

Next up for Argentina is the International Monetary Fund (IMF). Fernández, who has now been involved in two major default negotiations, now has credentials as the solver of financial debacles. Still the president has yet to hammer out an agreement with the IMF. The Fund injected US$44 billion into Argentina during Macri's centre-right presidency (2015-2019). If you believe Fernández and Guzmán, the IMF money was a desperate bid by a debt-ridden administration to survive until the end of its mandate without collapsing. Fernández has said that as things now stand Argentina can't pay the IMF back its cash – the biggest loan it has ever granted a single nation. The country must now sit down with the new IMF to agree on new terms.

Guzmán has cleared the ultimate hurdle. But he is now facing calls to unveil a consistent economic plan. Those calling for a plan, mainly in the conservative opposition, probably mean to imply that there must be a long-term commitment to austerity and belt-tightening policies, in order to make Argentina fiscally viable. The president has insisted that he is not a fan of plans, yet the IMF is bound to ask for some kind of road map if it is to accept a new deal to 'reprofile' the money its owed by the Republic.     

Martín Gambarotta

Martín Gambarotta


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