Argentina’s Stiglitz-groomed debt chief has taken on a task many would have turned down. And as talks with bondholders enter a crucial stage, the stakes are higher than ever.
He’s never taken the bait, rarely even raised his voice. The bondholders he’s up against, used to throwing their weight around, boast that they’ll be there long after he’s gone. When BlackRock Inc’s Laurence Fink insisted on talking to his boss, he made it a three-way call.
But make no mistake. Martín Guzmán, Argentina’s 37-year-old economy minister, an academic leftist with zero experience in billion-dollar-credit talks, is in charge of historic debt negotiations. He will either persuade creditors to write down the value of their bonds by almost half – establishing a blueprint for scores of developing nations seeking pandemic debt relief – or trigger a redux of the gruelling legal battle that plagued the country after its 2001 default.
Some who admire Guzmán and know Argentina – now in its ninth painful default – say he’s taken on a task many would have turned down. His longtime friend, economist Pablo Gluzmann, says “if I had his skills, I never would’ve accepted being economy minister in this moment, even without Covid-19.”
Guzmán’s mentor, Nobel laureate Joseph Stiglitz of Columbia University, thinks this is precisely the moment to stand up to men like Fink. He and scores of other economists signed a letter in May calling on the bondholders to “trim the revenue stream” and accept that the pandemic is straining national economies.
In an interview, Stiglitz said “the creditors feel like they have to show that they’re tough to set the stage for a whole series of debt negotiations.” However, the pandemic requires what he called “a sense of humanity,” adding, “If this is not a time where the financial markets show a heart, when will it ever be?”
Appealing to the hearts of Wall Street creditors hasn’t generally been held up as a winning strategy. But perhaps it will work for Guzmán, a soft-spoken, hard-driven, studious, unmarried athlete who spurns high society for family gatherings (he has four brothers), tennis and football in his hometown of La Plata about an hour away.
Guzmán has already conceded a lot of ground. He’s revised his offer several times, bumping up the proposed repayment price to almost 54 cents on the dollar from an initial 40 cents. Creditors have until August 4 to accept, but the bonds wouldn’t be swapped until a month later. The gap between deadline and execution dates could suggest the government will use the extra weeks to sweeten the deal and get more reluctant creditors on board.
Creditors dealt Guzmán a new setback Monday, rejecting his offer and saying they’ll submit a counter-offer. The top three creditor groups joined forces to turn down the latest proposal – something they hadn’t done before – but said, “We are confident that a consensual resolution is in sight.”
Guzmán says his country’s crises have partly defined who he’s become. “Argentina’s reality shaped my personal interests,” the minister told Bloomberg News, responding to written questions. In the catastrophic 2001 default, “the recession affected millions of people, including part of the community that surrounded me.”
Economy minister since December, when President Alberto Fernández brought him home from being a research associate at Columbia’s business school, Guzmán led the decision to default – yet again – in May as he seeks to restructure US$65 billion in overseas debt in the midst of the pandemic and economic free fall.
It’s a task that mixes number crunching with theatrics in which he’s constantly saying that this is his “last offer.”
No surprise that his is a job with limited longevity. The average tenure for an economy minister in Argentina since 1983 is a year and a half. The previous government had three ministers in four years.
The situation is as bad as it’s ever been. Argentina’s economy is heading for a third straight year of recession with inflation near 50 percent, rising double-digit unemployment and an electorate losing patience with a four-month coronavirus lockdown. It will likely post its worst GDP contraction ever this year.
Guzmán’s job involves more than debt talks, of course, although he tends to leave the rest to others. On his watch, fiscal spending has soared and government revenues have tanked as the Peronist-infused government has instituted a range of policies partly in response to the virus. These include universal income for the poor, billions of pesos in emergency loans and increasing unemployment insurance.
He’s won his share of enemies. Walter Stoeppelwerth, chief investment officer at Portfolio Personal Inversiones in Buenos Aires, says Guzmán deserves credit for some decisions, such as “disarming a time bomb,” of local currency debt. But he and others have widely criticised his negotiation tactics, labelling him rigid and inexperienced, costing Argentina time and money as talks drag on from their original March deadline.
“All of the feedback that I hear is negative,” said Stoeppelwerth, citing conversations with creditors. “Guzmán was handling the negotiation in an excessively heavy-handed and inflexible way, and I think that’s come back to hurt him.”
The minister is chasing two words: Sustainable debt. His research focused partly on an alarming trend dubbed “too little, too late.” More than half of the countries that restructured debt since 1973 had to do so again within five years because the deal didn’t provide enough relief or relied on unrealistic assumptions about growth and reforms.
Guzmán’s career took a pivotal turn after getting a doctorate at Brown University. His thesis adviser, economist Peter Howitt, recommended him to Stiglitz for a post-doctoral programme. A close connection quickly blossomed with the left-leaning Stiglitz, who had warm relations with former president Cristina Fernández de Kirchner, now vice-president.
The minister notched a victory in his latest offer, winning support from Luis Caputo, the former government’s finance minister who issued some of the bonds now being restructured. Some creditors got on board too, like Fintech Advisory Inc and Gramercy Funds Management. And other opposition leaders backed the deal as well in a rare moment of political unity for a deeply divided nation. Now he just has to persuade the heavyweight creditors.
Guzmán’s friends say he has a history of taking on painful challenges where victory comes with high costs. Martin Fiszbein, an economist at Boston University who studied with the minister at Brown, recalls a football match there. Guzmán scored a goal and then his foot exploded in pain.
Fiszbein urged Guzmán to ask to be substituted. It was just intramurals. Guzmán scoffed and kept playing, his side prevailing 2-1.
The result? Fiszbein: “Double bone fracture. Surgery.”
by Patrick Gillespie, Bloomberg