In an exclusive interview with Perfil, Economy Minister Martín Guzmán discusses Argentina’s restructuring of foreign debt and negotiations with the International Monetary Fund over a new deal.
"Argentina has made it very clear to the IMF the macroeconomic programme over several years towards which it aims," he assures.
Guzmán, 39, defends the government’s decision to deploy Special Drawing Rights sent by the IMF to the Central Bank: "We consider it was the right thing to do," he says.
Declaring that the government wants a deal before next March, he was further asked what to expect if an agreement with the Fund is not forthcoming.
What are the differences with the [International Monetary] Fund blocking an agreement?
That’s a big question which could take a long time to answer. I’m not going to start with the conceptual framework of the negotiations, we can talk about that later. What would most help us to reach an agreement would be if we could carry forward our vision to calm the Argentine economy so that our country can act like a nation state. It would help us in this geopolitical negotiation if the powers that be in our society backed us in order to be able to resolve this problem. That’s a must. We have often observed conduct going against the interests of our nation state. A change there would be very important.
When you restructured the public debt [with private bondholders], you asked the International Monetary Fund for technical assistance to indicate the parameters so that the IMF could qualify Argentina’s debt as having a high probability of being sustainable in a future programme. According to the IMF’s work, the public debt in Argentina would be 70 percent of gross domestic product next year. Nevertheless, the expanded fiscal deficits of 2020 and 2021 have taken debt up to 101 percent of GDP, according to the latest official data. Would that imply a future agreement with the IMF qualifying the debt as sustainable but without a high probability of remaining so or even unsustainable?
The IMF analysis of the sustainability of Argentina’s public debt was carried out before the pandemic and later updated. The pandemic changed things and the fiscal deficit was much higher. Imagine if we had had a primary fiscal deficit of around one percent of GDP, as we had anticipated for 2020 before the pandemic. That would have implied a massive destruction of companies and jobs with social suffering in the most vulnerable sectors. The pandemic changed reality heavily but things are otherwise in 2021. Gross public debt will close this year at around 89 to 90 percent, precisely because the economy grew and because a large part of debt was assumed in pesos at interest rates below real economic growth.
Did the pandemic make the debt less sustainable?
It worsened the situation, beyond any doubt, but we’re working towards a sustainable agreement. That’s why we’re acting so firmly.
Should today’s parameters of sustainability differ from 18 months ago?
We closed the last agreement in the context of a pandemic. The final agreement was announced on September 3 last year when the pandemic was hitting very hard.
I’m referring to the sustainability of the agreement because the IMF is also part of the debt.
Sustainability is a probabilistic concept with important margins. If you’re asking if the situation of a pandemic affects the sustainability of the debt, the answer is: Of course. It has consequences for economic growth, as happened last year, but now there is a very strong rebound, recovering a great part of what was lost in 2020.
So did it fall nine percent or so and will it now grow nine percent or so?
It will grow nine percent, perhaps not [recovering] 100 percent but almost. Our last debt agreement was in the context of a pandemic. We took an evolving position, understanding that there was a pandemic. We should have taken a very firm stand. From now on we will present the issue of the IMF to be resolved in steps, precisely because of the size of the debt.
As a more academic question, with the information you now have, is a bad arrangement with the IMF worse than none? What would your friend [former Greek economy minister] Yanis Varoufakis respond and what would you respond?
I respect Yanis Varoufakis but I haven’t had the possibility of knowing him well enough to call him a friend ...
It’s well worth listening to all the analysts for the question of what we seek from the Fund and preferences. The worst thing for Argentina would be a bad agreement, there’s nothing worse than that. It would hugely damage an already battered credibility after the collapse of the economic model of the previous government following a great wave of optimism.
A bad agreement would be like what the previous government did. It would mean aborting economic recovery without tackling any of Argentina’s structural problems. We’re looking for an agreement which works, a good one, which permits us to lend continuity to the process of resolving the structural and cyclical problems of the Argentine economy along the lines of the national government’s scheme of public policies. We’re working towards that.
Might not delay begin to cost more than a not so good agreement?
Rushing to make a bad agreement aggravates problems. You’ve got to keep negotiating until you arrive at an agreement which works. That’s the same logic we followed with the private creditors.
So was Varoufakis right and [his premier] Alexis Tsipras wrong in the case of Greece?
It was a prolonged situation of over a decade of economic crisis with unemployment rising to unacceptable levels. There was a great problem of lack of opportunity and motivation with very many young people leaving the country.
The troika placed Greece in a really very difficult situation with a huge social cost. The former Greek president called a plebiscite where the people decided one thing and then the other was done. Greece is clearly an example of nothing working out well.
On October 26 you said that [ex-president] Mauricio Macri and [former Buenos Aires Province governor] María Eugenia Vidal were “anti-sovereignty and anti-Argentina.” Do you regret that?
I said what I considered pertinent, given what I was observing and the information I had. It was in a context where Argentina is negotiating at international level with the rest of the world.
Their behaviour damages la patria [“the fatherland”]. When somebody lays the blame for not closing a deal on Argentina while also lobbying against Argentina when the country has clearly presented what it seeks to achieve, they do a lot of damage. When somebody is accused of lying for having manifested that the 2018 agreement with the IMF privileged the interests of private creditors above the people, this is also against la patria because what really happened then was a choice.
It was choosing not to restructure an unsustainable debt while using US$21 billion of the US$45 billion remitted by the IMF to privilege the interests of private creditors, instead of resolving the problems of the Argentine people. Afterwards we restructured the debt.
This is a very delicate and challenging moment for the country with the IMF. It would be good if everybody were up to the circumstances. Those who were part of the problem, which did a lot of harm to Argentina, should now help.
I return to the question of somebody close to the ruling coalition who says: when there was a more or less lasting success in economic management, word came from the Ministry that you are in charge supported by the Presidency, going on to ask if one of the great problems of the Argentine economy is the capacity of an institutionally fragmented economic leadership and whether more coordination and power in the hands of the Economy minister is not essential.
Today’s economic cabinet acts in a coordinated form, which was a decision of the president. I have the last word.
Don’t you feel that your hands are tied?
No.
We are said to be close to an agreement with the IMF, yet from Washington we are informed that Argentina has not presented a programme for the next few years with fiscal, monetary and financial objectives. Will an agreement be granted solely on the basis of this year’s good fiscal performance and the 2022 Budget?
Who’s informing you from Washington?
Sources close to a person occupying a post similar to yours.
That is false. Argentina has made very clear the macroeconomic programme over the next few years towards which it aims. We are in agreement on that basis. It is very important to be able to construct the support of the international and national communities, all the powerful interests to back a process which will also generate more confidence. The more extensive the support of the powers that be in Argentina, the more force we will have in the negotiations. This will be the process to keep regaining confidence and for a more solid recovery. The negotiations take time and detailed work.
Which structural reforms are included in those projections for an agreement with the IMF?
The conceptual framework on which the programme to calm the Argentine economy must be based is very important for Argentina and we say as much in the negotiations.
The starting-point is to recognise that the main constraint on sustained growth has been external. The measures geared to promoting economic growth must aim towards greater productive capacity for tradable sectors which generate foreign currency, as well as capital markets permitting more options of financial assets in pesos, thus attacking the problem of our economy being bimonetary.
What used to be termed structural reforms and today are called policies to promote growth move in the same direction as what we have done: encourage the development of agribusiness, the energy sector, the knowledge economy and certain industries with a capacity to generate hard currency which are also very important for the domestic market while at the same time continuing to reconstruct the public debt market and deepen the development of capital markets.
Does that plan for the next few years include reducing the fiscal deficit, printing less money and lowering the subsidies for public utility billing?
All those numbers are in the 2022 Budget bill.
But since it’s for the next few years, it should also include 2023.
There is a scenario for the next few years which is also established in the 2022 Budget, even if not so much attention is paid to it. Anybody who wants an indication of the negotiations with the IMF could look there.
The issue of subsidies is tackled by redefining the use of state funds towards those who generate more productive capacity, thus giving greater dynamism to the economy and making for a more vibrant market economy.
Today what gives a nation comparative advantages is different from the times when David Ricardo first wrote about the concept of comparative advantages. In the 19th-century, England had an abundance of physical capital and India abundant labour so England was to specialise in capital-intensive activities and India in the labour-intensive. Today the world is very different with almost everything on the move and what gives a nation comparative advantages is abundance in what does not move. The public infrastructure, the logistics, the institutions and also the brand name of the nation state.
We came proposing a redefinition of the state role on the basis of that logic. Both the 2021 and 2022 Budgets reflect that logic – to construct a society with more public infrastructure, better logistics and, above all, with more capacity for generating knowledge and applying that knowledge to production, thus strengthening our nation state, constructing a consensus which will help Argentina have a more peaceful climate.
The budget posits 2.5 percent of GDP for the net financing of international organisations. We’ve discussed this issue before. How many dollars would that signify?
In dollar terms, one point of GDP is somewhat more than US$4 billion so we’d be talking about some US$5.3 billion without entering into details.
What would be the source of financing?
That depends on what is achieved with the IMF.
Could it come from there?
That has not been resolved. You present a budget on the basis of hypotheses, working for their verification.
So would the funds come from the IMF or the World Bank?
We’ve already borrowed US$45 billion from the IMF, of which we amortised US$1.9 billion of capital on September 22 with the same sum falling due on December 22. If that US$45 billion could be refinanced completely, the country would recover almost a point of GDP via the agreement.
The Central Bank has just frozen the dollar holdings [of banks] for November. Is that a desperate sign from the economic team following the rising parallel exchange rate and the loss of reserves?
It’s protection against potential speculative behaviour in an electoral context.
This week you served notice that the December tranche of US$1.883 billion would be paid to the IMF. What happens if we reach March without an agreement?
You can always ask hypothetical questions. We’re negotiating with every goodwill towards reaching an agreement, but not any agreement, only one which looks after Argentina. We want to reach it before March.
Both the hypothesis and the question are pertinent. What happens if March comes without a good agreement?
From here to March is a long time for Argentina. The hypotheses are infinite.
So would your reply be that you trust in an agreement being reached before March?
We will keep working towards reaching an agreement before March, one taking care of Argentina.
An agreement with the IMF doesn’t go through Congress in many countries. Would that add complexity to the problem?
That’s worth reviewing some history. In 2016,when the Juntos por el Cambio government reached an agreement with the vulture funds, it had to go to Congress to scrap a law preventing payment to those funds. At that time I spoke in Congress, presenting the need for a bill obliging any debt incurred in foreign currency in the form of public bonds under foreign law to be approved by Congress, including any programme with the IMF. The consequences of such debts transcend any government since in a very few days it can leave the country with an enormous problem lasting decades.
And that’s what happened. The previous government reached an agreement with the IMF in only three weeks of negotiations and you know the rest. When we had finished restructuring the debt with private creditors, we said we had to be consistent. From there on any debt with private creditors in foreign currency or agreement with the IMF would have to be approved by Congress, thus making the sustainability of public debt a policy of the state and not any single government.
Doesn’t that add a problem these days?
No, it’s an asset, the most important asset coming out of this agreement.
Does it also need to be approved by the opposition?
The opposition will have to decide whose side they’re on. But for Argentina, it’s an asset.
You’re taking it for granted that the opposition will have to approve it.
I take nothing for granted. Besides, I’m not a member of the opposition. I do take it for granted that the opposition will have to vote but how they do so is not a question for me but for their leaders. We would like the opposition to vote in favour and for all Argentina to back the proposal for an agreement with the IMF.
Another question is the prudence of the double booking of the Special Drawing Rights with both the Central Bank and the Treasury to that the latter can elude the statutory monetary limits on its financing in the context of a weaker demand for the local currency, extending the limits on overdrafts in exchange for collecting on a non-transferable bond.
Ministers asking anonymously do not have the possibility of follow-up questions. There is no double booking. The problem is that this minister will surely want his follow-up question.
And what might that follow-up question be?
The Special Drawing Rights were issued for Treasuries to use. What we did was to be empowered to obtain them by the Central Bank.
Isn’t that dangerous?
We considered that it was the right thing to do and that we acted consistently
After extraordinary earnings of US$13 billion this year, US$8.5 billion from higher soy prices and US$4.3 billion from the Special Drawing Rights, net reserves are ending the year where they started, at around one percent of GDP, losing over US$1 billion a month, even with super-tight capital controls and good trade figures.
How could a devaluation be avoided? And don’t tell me that last year the analysts also forecast a devaluation which never came because that’s a fallacy. “The exactitude of the forecast of rain tomorrow does not depend on the precision of yesterday’s forecast of rain but on the atmospheric conditions.”
Again there’s a problem with numbers. Argentina’s exports are not only growing in value but also in volume. The growth in trade surplus and foreign currency earnings are attributed to two factors: the price of soy and the Special Drawing Rights. That’s not correct. It’s very incomplete because Argentina’s exports of manufactured goods of agricultural origin, industrial goods and also fuels (including gas production) are all growing. The decline has been halted.
What you’re saying is that the capacity to export has grown numerically while substituting imports. You’re arguing that the US$8.5 billion will finally be secured next year by a different combo of exports and imports.
The external accounts are not only owed to those factors but to a scheme which is working.
How much did soy prices increase exactly? Those were historic numbers.
By 60 percent in value and 23 percent in volume year-on-year with the rest attributed to the price component. The terms of trade improved, of course. From the viewpoint of external dynamics, it was favourable.
Now passing to the other part of the question, you have to see that the Central Bank today has more reserves than a year ago and the exchange rate gap (which is, of course, at levels we would like to lower) is approximately 50 percentage points below what it was approximately a year ago. Does that mean it’s good enough? No, we’ve got to keep on lowering it. We have this external situation which I described, which gives us the conditions to maintain our exchange rate policy, over and above the many voices last year saying that there was going to be a maxi-devaluation.
The forecast of rain ...
And I was right from the viewpoint of macroeconomic conditions. Today we can give continuity to exchange rate policy on the basis of reality and data.
The question which everybody asks is how the results of the November 14 midterms will change the economic line. Can Argentina have a different economic plan from yours in the current circumstances?
I’m working with all Frente de Todos to improve the Argentine economy and that is what is happening. Secondly, there is a really very interesting question from the viewpoint of feasibility.
We would all like to have less restrictions when designing public policies. If Argentina had the credit conditions of the advanced countries, we would have more room to increase investment into public infrastructure far more rapidly. We’ve doubled it from 1.1 percent of GDP in 2019 to 2.2 percent in 2021 and it is projected to keep on growing. But you carry out economic policy as best you can with the restrictions you have.
Argentine reality has enormous social needs, which leads to a certain lack of enthusiasm among very many Argentines when a budget is designed. The social needs exceed what Argentina can finance. But there is also the question of the credit restrictions, which we were talking about previously. So what happens? Those who can only look at the budget one designs with the eyes of the market see a deficit beyond that which enthuses other sectors. It is normal for nobody in our society to be overly enthused by the draft Budget. Argentina has to pass through a narrow corridor with very tight restrictions, taking increasingly positive steps towards a stronger economy.
When history takes a photo of late 2020 and late 2021 and compares those two photos, what will it find? That the economy of late 2021 produced a whole lot more, around nine percent more, and that there were more jobs and capital because investment rose. That the purchasing-power of wages rose. That there is less deficit, which is also important, Not only less deficit but also far less deficit in current accounts – in other words, excluding capital investment, there is the issue of inflation, which we have to go on resolving. But when we look at the two photos, we’re going to see that 2021 was a year of progress for the Argentine economy. And with all the restrictions facing us, we have every confidence that 2022 will also be a year of progress and for that progress to be sustained in time, we must not go to one extreme or the other.
We must not leave that narrow corridor of stability which Argentina can navigate. If we lurch to one side or the other, it would be destabilising. That is what we must understand.
OK if you compare with 2020, an obviously complex year everywhere in the world, but if you compare with 2019, evidently the expectations of those voting for Frente de Todos in order to improve on the situation in 2019 are not being fulfilled. Can politics stand the strain and will others accompany you?
Politics is everybody participating in it, a process of constructing an understanding and creating a society which learns that a more vibrant economy also means a continuous process of apprenticeship at all levels of society.
We would have liked there to have been no pandemic for real wages to recover faster. But the reality of the world and of Argentina in particular was a situation with enormous restrictions on financing. That’s the reality with which we had to deal and you have to be up to the circumstances.
Is the polarisation, far from fading away, growing?
And it does not help. It has its economic cost and also a cost for companies. That’s a key point. It has a cost for people, for all sectors of our society. That’s why it’s so important that the leaders rise to being able to construct a calmer Argentina.
As we go to the vote, there is obviously economic turbulence of every kind which is also habitual. I’d like you to use these last minutes to leave the message which seems the most constructive to you.
Thanks for the interview.
From the viewpoint of where we are and where we’re going, it’s important to understand that the national government is doing all it can to construct a calmer economic climate with more inclusion on the basis of job creation. That’s happening. The distribution of income is more equal today than it was a year ago although there’s a long way to go in that direction.
Secondly, a country which generates more opportunities, which is more dynamically productive and which is also ahead of the game in a changing world which is resetting many things. Today’s Argentina has traffic in the productive structure putting us on track for more opportunities in the coming world.
Thirdly, stability. We need a country which goes about resolving its problems of economic volatility which generates so much anguish and anxiety in our population. And if we look at the numbers, those conditions have also been constructed. Things are still lacking and we will work firmly for what is needed. And from the political viewpoint, the line marked by our president is always to understand that calming our society and economy is a collective task so that we must always bet on constructing consensus and agreements. When a strong stance is taken and strong words uttered, this is not with the intention of rupture but of correcting behaviour. We all have to correct our behaviour but we must construct an Argentina which lives more in peace. And that is why it is so politically important to advance in the direction of consensus while discussing at the economic level on the basis of reality and the reality of the decisions facing us.
We’ve advanced with 2021 a year of progress. We look forward to the continuation of that progress, considering that we will be leaving a better Argentina on the day we end our government.
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