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OPINION AND ANALYSIS | 31-08-2019 00:37

My name is bond, 'reprofiled' bond

When volatile Argentina shudders, its peso currency is thumped. The dollar deposit drain, a hushed issue that nobody wants to talk about in the open, is not slowing down.

Back to the future in Argentina means not paying debt on time. So back to the future it is.

Like so many times before the nation is now pleading with bondholders to reschedule its obligations. How did this happen? On Saturday, President Mauricio Macri was thanking a large crowd for expressing their support in Plaza de Mayo, even after the punishing 49.55-32.97 defeat in the August 11 presidential primaries to Peronist hopeful Alberto Fernández. Come Wednesday, the newly appointed Finance Minister Hernán Lacunza was announcing a plan to reschedule much of Argentina’s debt, including its loan agreement with the International Monetary Fund (IMF).

Do you have money in the bank here? Bat an eyelid at your own risk. Lacunza announced a “reprofiling” of debt, a plan to postpone Argentina’s mammoth obligations. The technicalities abound, but Lacunza opened the press conference by directing political darts at Alberto Fernández, implying that he had behaved irresponsibly since winning the primaries causing the monetary storm. It’s an emergency, but the Macri administration officials are somehow still throwing electoral jabs.

Now back to that Plaza de Mayo demonstration “spontaneously” organised by Macri’s supporters on Saturday night. The march came out of nowhere (really meaning, social media agitation) and it effectively served as a desperate rallying-cry for the depleted forces of the defeated centre-right coalition to close ranks. An elated Macri, flanked by First Lady Juliana Awada, waved from a presidential palace balcony and shouted (no microphone was available) to the euphoric crowd that he was ready to put up a fight in the first round presidential election scheduled for October 27. At one point Macri joined his hands in prayer and looked up to the night sky as if searching for enough divine strength to pull off a political miracle in October. The street demonstrations are unlikely to alter the election result, but they could serve as a boost and buy some momentum for the centre-right coalition, which needs to win congressional seats even if it loses the presidency.

The energy shot of the street demonstrations for the centre-right could secure victory in its bastion, Buenos Aires City Mayor Horacio Rodríguez Larreta is seeking re-election and he needs to win with over 50 percent of the vote to avoid a run-off. He scored a 46-30 victory in the primaries over his Peronist rival Matías Lammens, but the mayor risks being swept by the opposition landslide.

Macri’s feverish Saturday night did not stop the week from going its course. On Monday the problems had not gone away: the same debt was waiting there to be serviced. Plus an IMF mission was in town meeting with Lacunza’s team, and also with Alberto Fernández. The IMF was here to review the situation with a US$5.4-billion payment pending next month.

Alberto Fernández’s economists were not in a friendly mood and issued a statement, after a meeting with the mission, that accused the IMF of lending Macri money simply to pay for rampant capital flight.

What ensued was a barrage of leaks saying Fernández’s meeting with the IMF officials included talk about a supposed “vacuum of power” generated by the August 11 primary result and discussions about early elections. The rumours snowballed into speculation the IMF wanted a faster transition. The fright triggered by those rumours forced an IMF spokesman to issue a late-night denial about any talks with Fernández about a snap presidential vote.

Something was lost in translation when Alberto Fernández and the IMF met (maybe the mission had simply said something about Macri being a lame duck?).

Macri and Fernández had managed two amiable telephone conversations after the August 11 upset. The WhatsApp diplomacy between the two foes had temporarily helped to calm the markets down. But the president’s histrionic posturing to the crowds in Plaza de Mayo and the Peronist statement after the talks with the IMF killed the truce.

When volatile Argentina shudders, its peso currency is thumped. On Wednesday the Central Bank threw about US$360 million at the greenback. The dollar deposit drain, a hushed issue that nobody wants to talk about in the open, is not slowing down. Macri huddled with his economic team repeatedly looking for options.

The result was Lacunza’s politically-charged press conference on Wednesday afternoon. A debt “reprofiling” bill, a swap of bonds issued under local legislation, will now be sent to Congress for approval. The catch, however, is that Macri’s centre-right coalition does not control Congress. The president is effectively asking the Peronist opposition to approve its rescheduling swap plan. But how likely is such a parliamentary debate? The opposition could see it as an electoral ambush just when it is about to win it. On Thursday morning, Macri was still speaking like a candidate. He blamed the primary result for the crisis and voiced hope of a recovery.

The minister’s rescheduling plan, decreed by Macri, spared individuals holding short-term Treasury bills (Letes and others) who will be paid in full, but not institutional investors. Presumably “voluntarily reprofiling” US$50 billion of long-term debt will mean the Central Bank reserves can also cover for dollar deposits held by clients in local banks.

The impression is that local and foreign banks and their powerful associates have momentarily lost out, meaning that the markets could now come to the conclusion that Macri is indeed a lame duck who can kiss re-election goodbye. The IMF said after Lacunza’s press conference it will stand by Argentina to face the challenges ahead. Talks will open for the repayment of US$44 billion owed to the IMF.

Argentina is once more a junkyard full of worthless bonds. It’s happened before: rescheduling, reprofiling, call it what you will. It’s the same old story redux, the debt swap reloaded, the sequel of the 2001 meltdown (almost). It could end up being a default by any other name. The Central Bank reserves are finite and default, especially the Argentine kind, is not a word lost in translation to the world.

Martín Gambarotta

Martín Gambarotta


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