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OPINION AND ANALYSIS | 25-01-2020 10:04

Boy, you’re going to carry that debt a long time

Keeping calm and carrying on when you owe the world billions is all very well, but the markets tend to get hysterical when financial deadlines near. At some point, Martín Guzmán will have to make an offer.

In the world of finance, US$250 million is not a lot of money. But the question in Argentina currently is if that figure will suffice in triggering a financial debacle for the Republic. Buenos Aires Province Governor Axel Kicillof, a progressive Kirchnerite and a former economy minister, has urged bondholders to accept the postponement of a US$250-million bond payment due January 26. The governor has so far failed to convince 75 percent of the bondholders to delay that payment until May. Now, negotiations will continue until the end of this month, Kicillof said. Technically Buenos Aires, the nation’s biggest province, is staring down default. Yet it is likely, that by dragging out the payment, the governor will wiggle his way out of ever declaring such a default.

Nerves were frayed because it was not clear if Kicillof was setting the stage for the national government or if he was acting up on his own. The confusion was dispelled on Wednesday when the nation’s economy minister, Martín Guzmán, called a press conference. The 37-year-old is a soft-spoken economist trained in the US who has flourished under the wing of Nobel Prize winner Joseph Stiglitz by criticising the ways of old school capitalist austerity recipes. He specifically said in his press conference that Buenos Aires province’s approach was “coordinated” with the national government. It made no sense for the province to pay now when the nation was gearing up to “reprofile” a much bigger debt, Guzmán said.

Argentina has seen so ma ny economy ministers go by after taking a botched shot at sorting out its problems that the public by now is probably numb to what another impeccably groomed technocrat has to say. But nonetheless it is Guzmán’s turn to try. On Wednesday he navigated what every economy minister dreads: a press conference (though at times he tripped over his words slightly).

The new economy minister clearly does not like shooting his mouth off. Guzmán announced that the government is submitting a bill to Congress seeking the authority to restructure the debt. But he revealed absolutely nothing about what kind of an offer the bondholders will get. The local press was quick to trumpet recent comments by Stiglitz that the holders of Argentine bonds must ready themselves for a significant haircut. But that hairdressing, when it comes by the end of March, will be performed by the meticulous Guzmán and not his mentor. Here is a minister who is shunning histrionics and, at least for now, is keeping his debt-cutting scissors tucked neatly in his back pocket, waiting for the right time to draw them out.

Keeping calm and carrying on when you owe the world billions that eventually you will nip at the bud is all very well, but the markets tend to get hysterical when financial deadlines near. At some point, even if it is said in nothing more than a whisper, Guzmán will have to make an offer.

The narrative surrounding this “reprofiling” includes speculation that the Republic has Argentine-born Pope Francis on its side. Guzmán’s team must also sit down for talks with the International Monetary Fund (IMF). The Fund has been left on the brink of losing face over its decision to rescue former president Mauricio Macri with a loan of US$56 billion during his 2015-2019 mandate. That decision is history, but Argentina still owes the infamous IMF its money. The difference, according to Guzmán, is that the IMF will not dictate policies. “We are in control,” he said. Yet at the same time there is a pension system reform of sorts, to scrap index-linked increases, in the works.

Before reporters, Guzmán again accused the Macri administration of destroying the economy. The situation is “critical,” he said. The debt debate is a challenge for the centre-right opposition because embarrassingly much of it was issued by Macri, before his ultimate defeat last year. The sting of the former head of state’s awkward debt legacy, at least in the short term, works in favour of the getting-drastic-at-the-hair-salon narrative championed by Guzmán and his mentor Stiglitz. It is a narrative that Guzmán is uttering without ever raising his voice and when the time comes to reveal Argentina’s offer, the minister will probably do it in writing.

Guzmán’s approach is to tread carefully and show the kind of manners that global financiers can relate to. It is an approach that the new administration is embracing as a whole. President Alberto Fernández is introducing himself to the world by visiting Israel to attend a Holocaust memorial conference (with Kicillof forming part of his delegation). Is this a policy shift from the days of signing understandings with Iran? The gesture reportedly has the blessing of VicePresident Cristina Fernández de Kirchner. Voters have given the new government a chance and there is room for change. Still, they will show little mercy with these officials if they fail to control inflation before the end of this year – even if the bondholders are left looking like skinheads.

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Martín Gambarotta

Martín Gambarotta


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