Tuesday, May 26, 2020
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OPINION AND ANALYSIS | 25-04-2020 11:57

Pay no more

Argentina is staring default in the face once again. The country has been here before, but never with the world economy cracking up in the middle of a pandemic.

Imagine there's no coronavirus. You can’t. The lockdown is like a long-haul flight home being delayed, over and over again. But instead, what’s on hold is life as we knew it, not just a plane ride. You can try sitting it out at home. But it’s not a virus you can just shrug off. What’s also not going away is obligations. Bills must be paid. And oh yes, Argentina still has to deal with nearly US$70 billion worth of debt.

Economy Minister Martín Guzmán, a US-trained economist who has yet to turn 40, has finally shown investors his cards. Argentina, the minister has told the world, can’t pay anything right now. The republic is offering bondholders a grace period of three years, a 62 percent cut in due interest, and a 5.4 percent reduction in the principal. 

Bondholders formally have until May 8 to take or leave the offer (they can sue in US courts). A US$500-million debt payment due on Wednesday was not made. Argentina is staring default in the face once again. The country has been here before, but never with the world economy cracking up in the middle of a pandemic.

The investment funds don't like the offer. They also don't like a new minister trying to stare them out. Technically, Guzmán is not budging but also, technically, the terms can be changed for a real negotiation to start over within the next 30 days. After that? Default.

Political landscape

What the funds can do is sit out and wait for Guzmán’s poker-faced intransigence to somehow crumble. Will it? Argentina’s debt decision was announced by economy minister last week at a gathering attended by President Alberto Fernández, Vice-President Cristina Fernández de Kirchner, Lower House Speaker Sergio Massa and most provincial governors (including those of the centre-right Juntos por el Cambio opposition coalition).

Among those in attendance was Buenos Aires City Mayor Horacio Rodríguez Larreta, a key member of the opposition coalition. Donning a face mask, Rodríguez Larreta sat next to the president as his economy minister defied the international markets. The message to the bondholders was clear: don’t expect Argentina’s political landscape to shift in your favour any time soon.

President Fernández confirmed Guzmán as the republic’s sole negotiator, as his economy minister defied the international markets. The statement came after reports that Massa, a moderate Peronist once critical of the militant wing of Kirchnerismo, was doing a lot of talking with Wall Street. Guzmán, an academic mentored by Nobel prize winner Joseph Stiglitz with no political background until he was anointed minister by Fernández late last year, will now be subjected to tremendous pressure by the markets, who are frowning at his audacious “aggressive” offer. A dollar in the black market was worth over 100 pesos on Thursday. To pepper the situation Guzmán appears to be leaning left, calling for a sweeping reform of Argentina’s financial system and granting long interviews to journalists dear to the Kirchnerite wing of the ruling Frente de Todos coalition. Argentina’s debt drama will make or break the minister.

Guzmán has also backed a bill tabled by Kirchnerite lawmakers to tax Argentina’s richest. Details of the wealth bill are still sketchy, but it’s moving fast. Around 12,000 Argentines with fortunes of US$3 million and larger would be hit by it. Talk of the bill has shifted attention over to Congress, which has not held sessions since the coronavirus lockdown was introduced. Fernández de Kirchner, in her role as the head of the Senate, has asked the Supreme Court to rule on whether remote virtual sessions are constitutional. The request has triggered heated debate about the court’s role in deciding how another branch of power should do its work. Frente de Todos, the ruling coalition, is trying to wake Congress to get the bill moving.

The debt negotiation, if there is one, will show what Guzmán is made of. Critics can guffaw all they want at the new kid on the block, but they shouldn’t forget that the last progressive Kirchnerite economy minister, one Axel Kicillof, is now the governor of Buenos Aires Province. Guzmán is cultivating a softly spoken style devoid of any bombast. He likes to announce the specifics of his policies in writing, in contrast with the histrionics favoured by so many of his predecessors. The minister grants his interviews wearing a crisp white shirt and tie, looking like some inconspicuous IBM executive from the 1990s.

Balancing act

The coronavirus crisis is testing world leaders. It is also testing Argentina's politicos. Rodríguez Larreta, who has chosen to work with the Peronist administration, shunning confrontation as much as possible (even on the debt offer). The Juntos por el Cambio mayor rules over Buenos Aires City, the centre-right bastion that, in a vast majority, voted for Mauricio Macri in last year’s failed re-election bid. While Rodríguez Larreta was re-elected, Macri was defeated by Fernández. Now the City mayor faces a tough balancing act, navigating a relationship with a Peronist president (who according to polls is popular) without upsetting the hawkish wing of Juntos por el Cambio that remains loyal to the former president.

Rodríguez Larreta has been running Buenos Aires City practically unchallenged with a robust budget to splash on the vibrant metropolis. All of a sudden, the capital is at the centre of the coronavirus crisis and not everything is going to plan. News that more than 15 senior citizens had gone down with Covid-19 at a “five-star” care home in a plush neighbourhood had the municipal administration scrambling to explain the situation. To boot, the mayor’s announcement that City residents older than 70 must ask for permission from authorities by phone to leave the house triggered an outcry about civil liberties being curtailed. The uproar was headed by many fit and healthy senior citizens who don't like being told what to do.

For the first time Rodríguez Larreta is under pressure. He could see the virus crisis batter his political ambitions (a presidential candidacy in 2023?) as criticism comes in from his constituency that he is getting too chummy with the Peronist administration. For now, the mayor is playing by the book – criticising a president at the height of his popularity (enhanced by his management of the virus crisis, according to polls) usually leads to electoral destruction. If you read between the lines, perhaps Rodríguez Larreta and the other centre-right mayors in his coalition are trying to avoid being wiped out in next year's midterm elections.

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Martín Gambarotta

Martín Gambarotta

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