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OPINION AND ANALYSIS | 22-02-2020 12:57

With the IMF on our side...

The bondholders still don’t know what kind of a haircut they will be asked to suffer but Guzmán is trying to meet a March 31 deadline. A long next month lies ahead.

Some people drop rap albums. Others drop microphones. The International Monetary Fund (IMF) drops statements.

The IMF said in writing on Wednesday that Argentina’s debt with bondholders is “unsustainable.” It was the statement President Alberto Fernández and everyone in the ruling Frente de Todos coalition had been waiting for. “It is a more than good signal,” the president responded, releasing a tweet almost instantly that welcomed the Fund’s stance. An IMF mission visited Buenos Aires and after meeting with top officials, including Economy Minister Martín Guzmán, they said that the task is to “restore debt sustainability with high probability.” The financial international press is also telling the bondholders that they must bite the bullet too and absorb some of the pain. Argentina also owes the IMF US$44 billion, dished out during the 2015-2019 mandate of centre-right President Mauricio Macri.

All the debt talk is a problem for Juntos por el Cambio, because the general impression is that Macri is responsible for the republic’s current monetary woes. The opposition can voice criticism on other issues but it is hapless when it comes to talking about debt. Even they think so: Congress granted the left-leaning Peronist administration the power to renegotiate the terms of the debt with the opposition’s backing.

Fernández and Guzmán are trying to sort out the debt issue politically and the IMF’s statement shows that the world is listening. Economically and politically a sudden shock of austerity is not feasible, the IMF says. The bondholders still don’t know what kind of a haircut they will be asked to suffer but Guzmán is trying to meet a March 31 deadline. A long next month lies ahead.

The government is talking to the IMF. But for them, the political approach also means rattling the Fund in public: Vice-President Cristina Fernández de Kirchner, generally considered to be to the left of the president, has publicly accused the Fund of bending its own rules in order to lend Macri money. The IMF, the vice-president said recently in Cuba, should bend the rules again and accept a haircut on those US$44 billion. The IMF fired back that it had played by its rules and that it would not accept a cut. Fernández said the vice-president had a point. The government is trying to make the IMF feel awkward in public.

The detailed work is down to Guzmán, who is a US-trained debt expert. The minister is trying to convince bondholders by speaking softly, it seems; he likes to announce his policies in writing, mostly to avoid those histrionic press conferences favoured by predecessors. The government’s moves have included scrapping an index-linked pension increase system used during the Macri administration. Instead, it has decreed pension hikes favouring those retirees collecting the minimum pension. Those on higher pensions will lose out to inflation and the government will save money. The president argues that it is not an adjustment, but in a way, it is a reform of the pension system – it is the kind of reform recommended by the IMF.

The changes also include submitting a bill to Congress to scrap special pension benefits for court system employees (including judges) and the diplomatic service. All this will only make sense if, at the same time, the government manages to curb rocketing inflation left behind by Macri. Price increases did slow in January, we learned this week, but the real challenge is to ensure that inflation does not increase again in March, showing voters that the political approach on the international front makes sense. Also at issue are the frozen utility rates, which are currently a short-term factor in limiting inflation (along with strict currency exchange controls).

The debt headlines, dominant as they are, give the opposition nothing to work with. Alberto Fernández can tell voters that if this doesn’t feel like a honeymoon, it is because the Macri administration left behind a massive debt in their name at the hotel where the newly-wed couple have only just checked in.

The landscape could change if the ruling Frente de Todos coalition, which includes Peronist factions who were, in the past, at war with each other, shows any signs of a significant rift. That appeared to be the case when a number of top Kirchnerite officials serving in this a d m i n i s t r a t i o n showed support for the so-called “political prisoners” jailed during the Macri Presidency. Fernández (along with much of his Cabinet) begged to differ and said that are no political prisoners but rather “arbitrary detentions,” like in the case of the jailed indigenous activist from Jujuy Province, Milagro Sala. For now, the Peronist coalition (president included) appears to have closed ranks on the issue: Alberto Fernández released a video accusing the Macri administration of manipulating the courts and violating human rights in order to wrongly jail ex-Kirchnerite officials through fabricated graft allegations — a charge flatly denied by Macri’s camp.

Argentina can’t afford to pay its debt. The IMF can’t afford to look the other way because the numbers really don’t add up. For now, government officials can’t afford to argue among themselves.

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Martín Gambarotta

Martín Gambarotta

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