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ECONOMY | 20-07-2021 17:03

Sergio Chodos: ‘The fundamental thing is for Argentina to get out of excessive debt’

IMF Executive Director of the Southern Cone was a key member of the committee accompanying Economy Minister Martín Guzmán at the recent G20 summit. “The meeting with Janet Yellen was very good,” he reveals, regarding the US Treasury Secretary.

A few days after concluding the intense agenda in Venice during the G20 summit of Finance Ministers, Sergio Chodos highlights that the trip served “to generate greater levels of consensus and understanding as to the challenges facing Argentina” in restructuring the debt to the International Monetary Fund (IMF).

“The fundamental thing is to have an agreement which is good for Argentina and permits us to escape excessive debt,” the IMF Executive Director of the Southern Cone told Perfil in an exclusive interview.  

 

What was the most important thing the government came away with from Venice?

The possibility to keep explaining. The working trip to Venice revolved around three main axles. One had to do with the discussions within the framework of the G20, where the main focus was on environmental issues, the minimum global tax rate for corporations, reassigning Special Drawing Rights, the post-pandemic world, the distribution of vaccines and inequality. Then we had more than 10 parallel top-priority bilateral meetings, parallel to which we had technical meetings with the IMF mission in Venice. What I would call the most distinctive and striking was the quantity and depth of the bilateral meetings we had. That is important because it helps to generate greater levels of consensus and understanding as to the challenges facing Argentina. 

The reconstruction of Argentina’s external financial positioning proceeds step by step, it is slow and needs doing on a firm basis. If you read the communiqué of the IMF mission [team], there are some interesting signals not only in the areas where advances were made but also in marking out Argentina’s structural challenges and external problems. If you look at the former, there was a reference to Argentina’s inflationary process being multicausal. If we go back to February last year when we began the renegotiation with private-sector creditors, they defined that Argentina’s debt was unsustainable. An important part of that construction had to do with direct dialogue and Argentina’s capacity of being understood. In that sense the achievements from the bilateral meetings are important.

 

One of the bilateral meetings was with US Treasury Secretary Janet Yellen. What balance do you draw from that meeting and what does the United States ask before supporting an agreement within the IMF Board of Directors?

The meeting was important because it permitted us top-level direct dialogue and increased the understanding of the challenges facing Argentina, of how it arrived, where it did and why. In truth, it was a very good meeting. Furthermore, Martín Guzmán and Yellen have academic mentors in common – Joseph Stiglitz and Jeffrey Sachs. They [the United States] did not come with a printed sheet of conditions, it was more like their seeing the relevance of reaching agreement and finding a way out for Argentina’s financial challenges. The meeting with Janet Yellen was highly relevant and significant.

 

The international financial architecture has changed with the rise of China and its greater global influence. China is also one of Argentina’s bilateral creditors. What is its position regarding Argentina’s negotiations with the IMF? Does it require an agreement at the same time as it is pressuring Argentina with a cross-default if the bilateral debt is not paid?

With China there was no meeting simply because they participated in a virtual format with no Chinese colleagues present for direct dialogue. As far as I’m concerned, I would consider China’s seat on the Board of Directors to be collaborative in the process with a certain level of understanding. I really do not have any indication of urgency or conditioning in the sense in which you speak, almost the opposite on the basis of our precedents. When we had to renew the swap with the Central Bank, the previous administration had  – incomprehensibly to my taste – pegged the second tranche of the swap with China to the regularity of the agreement with the Fund. When renewing in June last year, it delinked that aspect. Nor is it Argentina’s intention to default on its bilateral debt with China, which furthermore comes with a very difficult format compared to that owed the Paris Club member countries. China’s financial linkage passes more through outlay connected to investment projects, infrastructure or trade. Obviously, as you point out, the relevance of China and its influence at global level mark out a relationship different to other periods. 

There is an important level of global tension, above all when a global debt crisis begins to arise again as an important issue, and not just as the idiosyncrasy of some countries, while there is clearly no new universal system of ground rules. We are seeing complicated times in that sense. We have to transit them keeping clearly in mind what our priorities are and understanding that our central point right now is restructuring debt or drawing up a new programme with the IMF to pay the old. 

 

In April you declared that “we should have something concluded by September,” alluding to the debt payment to the IMF falling due that month. Will there be an agreement for September or do you now consider that impossible?

I don’t know if it’s impossible. It seems to me that it has the difficulties proper to a process requiring an important construction of external consensus which must also pass through Congress and be discussed in the IMF Board of Directors. If you understand a final agreement formally signed by the Directors, it is even more difficult. The process is longer in terms of its crystallisation than it would be in reaching a basic agreement and nor are we there now. 

It seems to me that the most fundamental thing is to have an agreement which is good for Argentina and permits us to escape excessive debt.

 

If the negotiations continue in September, could there be a partial payment to the IMF, as was the case with the Paris Club?

No. If a deadline expires, there will be a payment but first we must see at what point we are in the negotiation. The sooner we arrive at an agreement, the better because that way we avoid paying but within a general agreement which has clearly in mind that the priority is the future of the next 10 to 15 year in Argentina. 

Is it preferable to reach an agreement beforehand? Yes. Is it a priority? No. The priority is the agreement being sustainable, permitting us to exit the debt problem without affecting the potential, incipient and sustained economic recovery that we have been having in the last few months. In these questions you need to have your preferences clearly in mind but also the priorities in order to be able to arrange strategy well.

 

Are labour, pension and tax reform on the negotiating table with the IMF?

Some very interesting things are being discussed, including Argentine economic  history, what worked and what didn’t. There is an openness to discussing things which has more to do with understanding than a one-size-fits  manual. 

Having said that, the IMF is learning but it has not transformed itself into something which it is not. It is still the IMF, not a development financing institution. The future of the balance of payments or capital controls are issues which will always be present in discussions. Also the development of domestic capital markets to migrate from that excessive dependence on external financing.

 

Is bipartisan consensus over an agreement with the IMF in Congress feasible or will it fall victim to the grieta rift and the elections?

I don’t know if I’m the right person to ask but I can tell you that the level of domestic cohesion we have impacts on the negotiating process and on the credibility and possibility of building a road ahead. It is clear that some of us went into debt and some of us are coming out of it. It is also clear that Argentina must take a common view of how we are going to relate to foreign debt. The laws governing the restructuring of private-sector debt had an extremely high level of support in Congress. The degree of domestic cohesion will be fundamental both for future sustainability and for being able to negotiate the process.

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Leandro Dario

Leandro Dario

Editor de Economía Diario Perfil.

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