Alberto Fernandez and Kristalina Georgieva, this Friday in Rome.- / AFP
Argentine President Alberto Fernández and his Minister of Economy, Martín Guzmán, have made a quick tour of Lisbon, Madrid, Paris and Rome this week.
They have obtained words of support from governments and also from the International Monetary Fund and the Paris Club, the creditor institutions with which it urgently needs to renegotiate its debts.
But a possible agreement seems more and more distant: the deep internal divisions in the government of Buenos Aires prevent presenting a concrete proposal.
Inflation, meanwhile, remains rampant.
Minister Guzmán's work resembles that of Sisyphus in Greek mythology: he pushes the stone of economic sanitation uphill and, before reaching the top, he watches the stone roll down the slope again. On the same day that he met in Rome with senior IMF officials, and a few hours before Alberto Fernández and the institution's director, Kristalina Giorgieva, spoke face to face for the first time, the Kirchner majority in the Senate approved a resolution that undermined an essential element in Guzmán's strategy to renegotiate the debt.
The Minister of Economy decided to use the 4,350 million dollars that Argentina will receive this year from the IMF, for the capital increase of the organization, to continue paying debt installments and avoid the "default". In 2021, Argentina is responsible for returning $ 3.8 billion in capital and $ 1.3 billion in interest. Guzmán wants to show that the Argentine government respects its commitments. But the Senate, led by vice president and former president Cristina Fernández de Kirchner, is betting on another strategy. On Thursday it approved a non-binding resolution in which the government is required to allocate the 4,350 million to “alleviate the pandemic”, not to pay debt.
The vice president's spokespersons assure that the resolution is not addressed to the government, which they say they support, but to the IMF. Nobody has interpreted it that way, neither in the Fund nor in the financial markets: despite the sharp increase in the price of soybeans, Argentina's main export, which has exceeded $ 600 per ton and promises to substantially increase the income of dollars in the public coffers, the country risk continues to rise and now exceeds 1,600 points. This means that buyers of Argentine bonds demand interest 16 points above those in the United States, to compensate for the high risk of default. Right now, Argentina pays interest of almost 20% on its bonds under foreign law.
The meeting between Alberto Fernández and Kristalina Georgieva in Rome lasted almost two hours and was defined as "positive". The director of the multilateral institution explained that both had committed to "continue working together on a program supported by the IMF that can help Argentina." The key word in the phrase is "program." That program, for the moment, does not exist because Vice President Cristina Fernández de Kirchner and her faithful refuse to accept an agreement, with its inevitable conditions of fiscal adjustment and control by the Fund's inspectors (the so-called “men in black”). , before the parliamentary elections scheduled for November.
The differences between what Guzmán and Cristina Fernández de Kirchner want to achieve from the IMF are profound. The minister aspires to lower the interest on the debt (now 3%) and to extend the repayment term from three to ten years. The vice president believes that ten years are few and requires more, up to 20, which would require changing the IMF statutes with the agreement of all its partners: something practically impossible.
Kirchnerism wants to clear the debt into the distant future and win votes with spending in the November elections. Weeks ago, the side of the vice president disavowed Guzmán (and the president rebound) preventing the dismissal of the undersecretary of Energy, the Kirchnerist Federico Basualdo, whom the minister wanted to dismiss for refusing to reduce subsidies in gas and electricity rates . The pawns of the vice president, such as Axel Kicillof, former Minister of Economy and current provincial governor of Buenos Aires, want to maintain the subsidies and even increase them in the poorest areas. To this public expenditure was added this week the creation of an extraordinary fund of 180,000 million pesos (almost 1.800 million dollars at the official exchange rate) destined to combat the damage caused by the pandemic in the most vulnerable population. Almost 45% of Argentines live in poverty.
Inflation on the rise
Guzmán can only meet those expenses by issuing high-interest bonds (the aforementioned 20%), printing paper money and moving away from the objective of reducing the budget deficit.
All of this contributes to fueling inflation, which rose 4.1% in April.
In the first four months of 2021, prices have increased by 17.6%, making it impossible to achieve the 29% annual target set in the budgets.
Analysts estimate that this year it will be around 45%.
Inflation makes life more expensive and reduces real wages.
It is estimated that the purchasing power of Argentines has already fallen by almost 20% so far this year.
At this time, the utmost urgency for President Fernández and Minister Guzmán is to have the payment of their debt with the Paris Club postponed. They are 2.4 billion dollars and expire at the end of this month. A "default" with that multilateral institution would add another difficulty to the renegotiation with the IMF. French President Emmanuel Macron, with a lot of weight in the Paris Club, said he supported Argentina, but made it clear to Fernández that to reach an agreement with that institution, a prior agreement with the IMF was necessary. The only option for the Argentine government seems to be to allow it to delay everything until after the elections. And then it will be seen.
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