The long and winding debt

Political rifts in Argentina, while generally peaceful since 1983, are fierce. There’s all that talk about a great divide. And so it is, but not always.

On Wednesday the Chamber of Deputies approved a bill granting Economy Minister Martín Guzmán the prerogative to renegotiate Argentina’s mammoth debt. The outcome of the vote: 224-2 in favour. What happened there? Where is that infamous rift? You answer that one.

The result shows that the opposition centre-right coalition Juntos por el Cambio (“Together for Change,” JxC), technically still loyal to former president Mauricio Macri, is not comfortable with the debt issue. The lower house vote included negotiations between the new ruling Peronist front, headed by President Alberto Fernández, and centreright provincial leaders who have debt obligations in the provinces that they still rule despite last year’s electoral defeat (like Mendoza and Jujuy).

Despite the constant chest-thumping in the media, the warring factions united in the lower house to approve Guzmán’s bill (it now moves to the Senate, which is controlled by the ruling party). At least the new economy minister now has a card of political support in his back pocket that he can show the world whenever he feels like it.

Macri is out of the parliamentary picture. But he is not entirely absent. Raw footage of the ex-president attending a town hall-style meeting was released this week. Macri, wearing slacks and loafers, tells a small circle of seated supporters that he had warned his staff about the perils of amassing debt, but they reassured him that everything was going to be alright. Many centre-right coalition leaders – especially those who belong to the Radical Party – rolled their eyes at this. The footage shows that Macri still believes in social media network spin, even after losing the presidential election. He wants the public to believe that the dire debt legacy is the product of his fumbling technocrats, not him. I told them that “everything could go to hell,” he said. The former president can say whatever he likes because he wields no formal power and is out of office. But the centre-right lawmakers and governors who are still donning formal working clothes in the sweltering days of the Argentine summer have debt issues to worry about.

The former president also confirmed that he will head the foundation of the FIFA international football federation. Macri rose to power by turning Boca Juniors into a trophy-winning machine when he headed the club between 1994-2007. But Macri won no cups in 2019. Not only did he lose the presidency, his faction at the club was also defeated and he no longer controls the Xeneize.

It’s hard to imagine a comeback for Macri while the debt issue rages on. And rage on it does. Buenos Aires Province Governor Axel Kicillof, the progressive Kirchnerite and former economy minister, is still trying to convince provincial bondholders that they should accept his offer to postpone the payment of a US$250-million bond until May. The question is if Buenos Aires Province is flirting with default – Kicillof offered, at the last minute,interest payments on the bonds to convince the holders. But there has been no final agreement, the governor needs 75 percent of the bondholders to agree to his terms, and the default clock is ticking.

Meanwhile Guzmán, a 37 year-old US-trained economist, shuttled to New York to meet with creditors and IMF officials. Much of the local press underlined that the minister had revealed that so far only 26 percent of the Buenos Aires Province bondholders had accepted the offer. Many observers are eager to pick out subtle differences in statements between Guzmán and Kicillof, but they could be simply putting on a good cop/ bad cop routine in the face of a group of nervous bondholders about to get one ugly haircut.

Guzmán’s soft-spoken approach includes announcing many of his steps in writing (including the upcoming schedule released late Wednesday night). Guzmán will meet IMF officials in Rome on February 5 and an IMF mission will visit Argentina on February 12. The offer to the private bondholders will be released in March, according to the written schedule issued by Guzmán, who is trying to walk down the long and winding road of debt renegotiation without waffling.

The markets are bracing for an “aggressive haircut” which has yet to be announced. There’s also market anxiety about Guzmán’s approach of renegotiating the debt before announcing a full economic plan that would at least give them a clue about where the republic is heading, financially and fiscally. IMF officials, who are also in talks with Guzmán to reprofile a US$44-billion loan granted during Macri’s presidency, have also hinted that they would like Guzmán to produce a coherent plan.

Still, the government seems to be insisting on its debtfirst-then-plan stance. Guzmán is a debt expert and he might not have much of a say on domestic policies, which appear to be controlled by Production Minister Matías Kulfas, another key member of President Alberto Fernández’s inner circle.

For now, however, debt still dominates.