Alberto Fernández offers first real hint as to how he will deal with debt

Frente de Todos presidential hopeful Alberto Fernández says he hopes to have “serious and sensible” negotiations with Argentina’s creditors, should he win the upcoming election.

Fernández, the former Cabinet chief who’s the clear frontrunner in next month’s vote, gave his clearest comments yet on Argentina’s debt problem and how he would tackle the issue on Thursday during an event in Córdoba.

The 60-year-old said he would tackle the issue by adopting a strategy similar to that of Uruguay, which successfully extended its bond maturities in 2003.

“It’s not going to be that difficult to do something similar to what Uruguay did,” Fernández said at a business conference organised by the Fundación Mediterránea en Córdoba, adding that the goal would be to buy time to repay the debt without imposing a haircut on investors.

“I’ve spoken to many investment funds and they’re aware that that can be a way out,” he added.

In a broad outline of his economic agenda, Fernández said that Argentina needs to lower interest rates and that currency controls are not the solution to developing the economy, but rather a transitory measure. He added that, under current conditions, Argentina can’t repay its debt.

“We have never considered saying that we were not going to pay or that there would be a haircut,” Fernández said. “What we say to bondholders is that we need to grow to pay. If not, there is no way to pay.”

“What can we do to pay the debt if we are not growing and exporting? Argentina has only one way, which is to export,” he added.

Uruguay is often cited as a successful case of debt “reprofiling” in emerging markets. Without changing coupons, the government succeeded in launching a voluntary debt exchange that lengthened debt maturities on 18 international bonds. An overwhelming majority of creditors accepted the terms of the new bonds, avoiding a default while Uruguay’s economy recovered.

“Fernández’s hint at a Uruguay-like reprofiling makes sense and is good news in that it signals that he aims at a negotiated reprofiling,” said Bloomberg’s Latin American economist Adriana Dupita. “What is unsettling is that his argument that the country needs to lower rates and export more says very little about his plans to fight inflation.”

Economic approach

Fernández defeated President Mauricio Macri in the August 11 PASO primary vote by a wider-than-expected margin, emerging with a 15-point lead. The peso, Argentina’s national currency, and the country’s bonds have since been sold off as investors priced in larger chances of default in the coming years.

The Frente de Todos hopeful – whose running-mate is former president Cristina Fernández de Kirchner – argued that boosting exports and consumption were critical if the country was to emerge successfully from this crisis, and that one doesn’t have to be chosen over the other.

Fernández also said he considers Macri’s current reprofiling proposal to essentially be the same as a default.

“They call it ‘reprofiling’ but what they’re saying is they can’t pay,” he said. “In other times, it was called default. Now, in postmodernism, they are calling it a ‘reprofiling’.”

The Peronist leader went on to criticise the amount of debt taken on by the Macri administration.

“It is incredible. The debt contracted by the government is impressive,” he said ironically. “It went from 38 percent of gross domestic product [when Macri took office in 2015] to 100 percent today.”

According to economists consulted by the AFP news agency, Argentina’s current level of debt totals some US$383 billion.

A report by Infobae this week said that external debt had reached 58 percent of Argentina’s GDP, having doubled over the last two years.

– TIMES/AFP/BLOOMBERG