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Argentina and (again) the 'default'

2020-04-29T16:26:25.055Z


It is not possible to imagine how far the Argentine economy will sink without a quick agreement with private creditors and the IMF.


Argentina looks out, once again, into the abyss of default , the ninth in its history. Less than 20 years have passed since the last fall, in 2001. The plenary session of Congress then applauded standing the cessation of payments declared by the fleeting Peronist president Alberto Rodríguez Saá. The size of the Argentine economic catastrophe is similar today, and if there is no successful restructuring of the external debt, the third economy in Latin America will not be able to pay its commitments. It would be a mistake, however, to interpret this crisis with its conceptual tools. Today everything is more complicated for Argentina. The world no longer pays fortunes for its soybeans or oil and there is not and will not be a "tail wind". If there was any hope of growth, even moderate, it has disappeared with the pandemic.

Peronism declared default in December 2001, raising the flag of sovereignty. There was then no negotiation, but a unilateral declaration of default. The agreement with the bondholders was for another Peronist, Néstor Kirchner. President Mauricio Macri harshly criticized the economic inheritance received from Kirchnerism, but at the same time admitted that the level of debt was very low. Loans rained down on Argentina, until fear seized creditors, who turned the tap off overnight. The IMF came to the rescue of Macri and loaned him $ 44 billion. The snowball of debt became unstoppable, and priceless.

Peronist President Alberto Fernández received a gross debt of $ 323 billion from Macri. At the end of last year, private investors had 133,000 million in portfolio, of which 83,000 corresponded to bonds issued in foreign currency. Until the end of 2023, the payment of interest would amount to more than 30,000 million. Without deferrals, Argentina should allocate between 17% and 23% of GDP to its external debt. For the IMF, this ratio must not exceed 5% to be sustainable.

Previous editorials

Argentine false step

Latin America and the pandemic

Last April 17, the Argentine government finally presented a restructuring offer. The last attempt to avoid default is a great effort for creditors, in line with the IMF's request to these bondholders: reduce interest rates by 62% and not start paying them until 2023; As for capital, Fernández proposed reducing it by 5% and starting repayment starting in 2026. The Casa Rosada no longer talks, at least, of "sovereignty", but is dangerously close to the abyss, warning that there is no margin for negotiation . There is now time until May 7 to reach an agreement that reverses the widespread rejection that creditors have already advanced, despite pressure from the Fund and the severity of the looming global crisis.

The pandemic has altered everything. The latest report of the Economic Commission for Latin America and the Cribe (CEPAL), a UN dependent office, warned that regional GDP will fall this year by 5.3%, three tenths above the percentage registered during the Great Depression of 1929. Argentina will take the lead in this dark scenario, with a collapse of 6.5%, which will add to the falls of 2018 (2.6%) and 2019 (2.2 %%). The Casa Rosada has faced the health crisis with millionaire aid to the poorest and companies in trouble.

Disbursements, however, are around 3% of GDP, a modest portion compared to 15% in Chile, 11% in Peru or 8% in Colombia. The Argentine problem is that without credit it can only be financed with monetary emission, with the pressure that this supposes on inflation, which is around 50% per year. The exchange market thermometer is red: in the informal market, the dollar has gone from less than 90 pesos to almost 120 pesos per unit in recent days. The circumstances could not be more complicated for Argentina.

The economic growth plan that was demanded of Fernández today seems like a movie of the last century. Argentina has added to the danger of a new default the certain possibility of a devastating economic crisis, from which it will only emerge with more poverty and unemployment and its destroyed productive apparatus. It is not possible to imagine how far the Argentine economy will sink without a quick agreement with private creditors and the IMF. In the world there is already talk of canceling the debts of the poorest countries, a club to which Argentina, as a member of the G20, does not belong. An intermediate solution is inevitable.

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Source: elparis

All news articles on 2020-04-29

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