Sunday, August 1, 2021

OPINION AND ANALYSIS | 07-12-2019 10:21

What will Alberto Fernandez do in his first 100 days?

Three days out from his inauguration and following the announcement of his Cabinet yesterday, Alberto Fernández can now look ahead to his first 100 days in office, which will have one main driver: averting a debt default.

It sounds simple, but it is complex. And more than that, it is crucial, as everything else in his governance agenda will largely depend on whether his administration can keep the economy stable, even if in bad shape.

The economic consensus for his first year in the Casa Rosada is that Fernández will lead the country into its third year of recession, with a decline of at least 1.5 percent of the country’s gross domestic product anticipated. This means poverty will likely remain close to 40 percent and unemployment will go up slightly, to around 12 or 13 percent.

And this is the best-case scenario.

In the first quarter in office, the new president and his economic team will have to walk the tightrope act of negotiating with Argentina’s creditors. Fernández has given some signals about what he wants to do with the country’s debt: kick payment as far ahead down the road as possible in order to give Argentina time to grow again – and to have some money to pay off their creditors.

But that is only as far as he has gone, and the general feeling in the amorphous entity called “the markets” is that there are more doubts than certainties about the new government’s immediate economic course.

How do the markets speak? Mostly through subscription reports drafted by banks and investment funds that feed decision-makers, who in turn get quoted by international news agencies and newspapers. These people do not have information much different than that of an informed Argentine citizen. All this bulk of information, combined, produces a general impression of where things stand and where they are headed.

Disclaimer: they may be wrong.

One of these stories this week started off like this: “The mood in Manhattan couldn’t be much gloomier toward Argentina just days before President-elect Alberto Fernandez takes office.” It went on to say that there is now speculation that the IMF might withdraw support for the administration given the new left-leaning government in office, and that thinner support from the Fund might complicate a much-needed negotiation with private creditors.

Beyond some broad policy definitions, foreign investors are playing guessing games about what could be Fernández’s concrete policy on a number of issues, from fiscal to energy policy, from Mercosur to next year’s budget. The new president has devoted most of his time since the October 27 election trying to align the musical chairs of his Cabinet, which despite the name of the alliance that catapulted him to power does not have a place for todos (“everybody”) and needs to maintain a delicate political equilibrium.

Now that he is taking the reins of the country, Fernández’s words will count somehow less than his concrete action. In his first 100 days through the summer, the administration will likely make little changes on the financial front, keeping the foreign exchange restrictions introduced by outgoing President Mauricio Macri in a desperate attempt to halt a run on the peso after it became clear he would lose his reelection.

The new government will also make a move, albeit perhaps a timid one at first given the fiscal restrictions, toward improving domestic consumption. The latest information is that it would allocate 100 billion pesos (US$1.6 billion) to boost income in the lowest echelons of society, including pensioners and people on social welfare. Given the high levels of inflation that the government is inheriting from Macri, it will have to move very slowly in its cash injection. This drive will also include a food plan that hopes to tackle hunger.

But last and by no means least, the new economic team will have to engage in swift talks with bondholders, and have the IMF as a mediator. Creditors are already gathering together to put up a synchronised fight. This is the administration’s most urgent and imperative agenda. The average price of Argentine sovereign bonds, at around 40/45 percent of their nominal value, does not reflect a default but a high probability of default.

The country is on the brink, Fernández’s best chance of success would be to move it one step away from the edge.

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Marcelo J. Garcia

Marcelo J. Garcia


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