Debt relief, social pact key aspects of Alberto Fernández’s economic plans

On the eve of the election, new details have emerged about presidential frontrunner Alberto Fernández’s plans to tackle Argentina’s economic problems.

Earlier this month, his chief economic advisor Matías Kulfas described the Frente de Todos candidate’s main campaign priorities, while a direct source for the economic strategy of Fernández also gave further details of future plans to Bloomberg News.

The candidate’s spokespeople declined to respond to multiple requests for comment.

1. RAPID ‘REPROFILING’ OF DEBT

Fernández is seeking to reschedule Argentina’s debt with the International Monetary Fund (IMF) and private creditors along similar lines to Uruguay in 2003 when the Uruguayan government convinced investors to extend the deadlines on its international bonds without a haircut.

“We believe that it is fundamental to be able to stretch the debt deadlines to make the economy grow,” said Kulfas. “The objective is to renegotiate very fast rather than prolong the misery so that we can gain some time and breathingspace.”

Even so Fernández faces obstacles repeating the Uruguayan model, which enjoyed IMF support and was partly facilitated by a long-term commitment to fiscal consolidation. While Uruguay only rolled over US$5.3 billion, Argentina is trying to “reprofile” a total of US$101 billion.

2. SOCIO-ECONOMIC PACT

The plan would freeze the prices of public services and limit dismissals in companies while increasing wages and social security contributions, according to an anonymous source in the know but who was not authorised to speak in the name of the Fernández campaign. But at the same time Fernández would seek to reduce debt costs by granting the PyME small and mediumsized companies greater access to credit. Argentina currently has the highest interest rates in the world, almost 70 percent.

It is unclear by how much wages would rise under a Fernández government, or if the IMF would support such a plan, which would place additional pressure on prices. The candidate considers that this social pact is necessary in order to generate political consensus in the midst of an economic crisis. Argentina’s Gross Domestic Product will shrink for the third year running in 2020, according to all analysts consulted by Bloomberg.

3. AIM GRADUALLY FOR A SURPLUS

Fernández plans to close Argentina’s fiscal gap by hiking the export duties on commodities and increasing wealth taxation, according to a source familiar with his plans. Soy export duties are currently 25 percent. Kulfas said that Argentina should move towards a fiscal surplus but that austerity is not the answer.

Yet it remains uncertain whether the government can rally public support with these tax increases or even whether they would suffice to balance Argentina’s budget.

The Mauricio Macri administration pledged to achieve fiscal balance this year although it was allowed a primary deficit of up to 0.5 percent of GDP. Last year’s agreement between Macri and the IMF also stipulates a primary fiscal surplus for next year.

4. MANAGED EXCHANGE RATES

“The Central Bank must control currency markets,” said Kulfas, adding the need to supervise speculative capital.

Fernández would seek currency bands, whether implicit or explicit, while trying to avoid the drastic methods taken by his running-mate Cristina Fernández de Kirchner between 2012 and 2015 during her presidency. His monetary policies would be similar to those implemented by the late Néstor Kirchner (president from 2003 to 2007), according to the source.

The Fernández government might also raise statutory reserve requirements or permit banks to maintain the current levels on condition that they lower the interest rates for loans.

Even so, the promises of Fernández have prompted scepticism among some investors who highlight that both Kulfas and another key adviser, Cecilia Todesca, held top posts in the Central Bank when Cristina Kirchner was implementing stricter monetary controls.

5. REDUCE INFLATION SLOWLY

The objective of a Fernández government would be to bring consumer prices below pre-crisis levels by the end of 2020, according to the source. Annual inflation is currently running at 53.5 percent. Kulfas said that the socio-economic pact would be a key mechanism for wage bargaining and freezing prices.

Nevertheless, Fernández has yet to explain how he can control inflation while increasing wages and social security contributions along with lowering interest rates as part of the pact.