Investors left guessing on Argentina’s economic plans
Uncertainty over the economic plans of Alberto Fernández, Argentina’s populist president-elect, is unsettling investors concerned about the urgency of problems facing the country.
Argentina risks a ninth sovereign debt default and investors want to know how Mr Fernández, who takes power on December 10, intends to seek a deal with private creditors and the IMF to restore access to urgently needed financing.
“Everyone is desperate to know what’s going on,” said one investor involved in one of the main creditor groups hoping to cut a deal with Argentina and avoid an excessive “haircut” on the money they are owed.
“There have not been any discussions” with the incoming government, said the investor.
Argentina faces debt repayments that it will struggle to pay, with more than $60bn coming due in 2020. There are widespread concerns that Mr Fernández may resort to printing money to cover some of the government’s spending commitments and to stimulate an economic recovery, with the country mired in recession. But that could fuel what is already one of the highest inflation rates in the world, running at around 50 per cent.
On Thursday, Mr Fernández told a business audience in Buenos Aires: “I do not want to give haircuts to anybody, I do not want to stop paying what we owe.”
“We are going to pay the day we have grown, produced more, exported more and obtained the dollars with which to pay this debt.”
But beyond that, investors have been left guessing. Markets have clamoured for Mr Fernández to announce his economic team since his election victory a month ago. Local media have speculated wildly as to who will be chosen to resuscitate Argentina’s precarious finances. Until that choice has been made, no serious plans can be drawn up.
But Mr Fernández has focused instead on visiting fellow leftist leaders abroad, including Mexico’s populist president, Andrés Manuel López Obrador, and Daniel Martínez, the leftist candidate who lost Uruguay’s presidential elections last weekend.
Until recently, many investors had expected Guillermo Nielsen, an orthodox economist who played a leading role in the negotiations with the IMF after Argentina’s 2001 default, to be chosen as Mr Fernandez’s finance minister. But he was widely understood to be taken off the list late last week, fuelling fears of a less market-friendly choice.
Mr Fernández provided some clues this week when he suggested that he would not seek the funds remaining to be disbursed from Argentina’s $57bn bailout programme with the IMF secured by the outgoing President Mauricio Macri during a currency crisis last year.
“If you have a problem because you are very indebted, I think that the solution is not to keep on getting more in debt,” he told a local radio programme. “It’s like a guy who has drunk a lot [of alcohol] . . . The solution is not to keep drinking [but] to stop drinking. I have a big problem and I’m going to ask for $11bn more?”
Some interpreted this as the beginning of Argentina’s negotiation with the IMF, after its new managing director, Kristalina Georgieva, and Mr Fernández spoke briefly on the telephone for the first time last week. Others saw it as a signal that Mr Fernández intends to break away from the IMF.
“There’s lots of guessing going on, and different characters getting involved,” said Daniel Marx, a former finance secretary consulted widely by creditors and local officials. “They are listening to different voices, but I don’t think they have made a decision,” he added. Given the pressing need to reach a deal, though, Mr Fernández is likely to attempt to hold negotiations with bondholders and the IMF in parallel to save time, he believes.
“Simultaneous negotiation with the IMF and bondholders requires a comprehensive macroeconomic plan behind it,” warned Martin Redrado, a former central bank governor who is close to Mr Fernández. Although such a plan has yet to materialise, he believes it would enable Argentina to reprofile its debt and postpone interest payments for two years, but with no haircut on principal.
Carlos Abadi, an Argentine specialist in debt restructuring, is less optimistic. He fears that such a strategy could trigger a “race to the bottom” to get a deal first. “It is no less risky than jumping off the 30th floor without a helmet. One of the constituencies is going to get screwed,” he said.
“The first gets what it bargained for, the slow one keeps negotiating for all eternity.”
A stand-off with private creditors could mean another legal battle of the kind that locked Argentina out of capital markets for more than a decade after its catastrophic 2001 default; but falling out with the IMF could even lead to a “vindictive” haircut, warned Mr Abadi.
“These guys need money and therefore a deal. But the economic plan comes first. And from what we’ve seen, they’ve been long on palace intrigue and short on personnel and specifics,” said the investor. “They are not going to hit the ground running.”