Argentina’s new leftist government faces a delicate balancing act as it seeks support from both the IMF and congress for its strategy to restructure about $100bn of debt in hopes of averting another looming crisis.
A week of formal talks with IMF officials in Buenos Aires begin on Wednesday. At the same time economy minister Martín Guzmán is due to present his debt restructuring strategy to congress to drum up support among the diverse ruling coalition for its approach.
“President Alberto Fernández needs to ensure a careful balance between a pragmatic resolution with the IMF and maintaining the political support of key allies,” said Jimena Blanco, head of Latin America at Verisk Maplecroft, a risk consultancy.
Growing tensions in the ruling Peronist coalition were laid bare after Cristina Fernández de Kirchner, the country’s vice-president, called for a “substantial” haircut to Argentina’s $44bn debt with the IMF over the weekend. Just days earlier Mr Guzmán held “constructive” informal talks in Rome sponsored by Pope Francis, an Argentine, with the IMF’s new managing director, Kristalina Georgieva, with no mention of a possible haircut.
The president has also been lobbying for support from major shareholders of the IMF, including leaders from Germany, France and Spain, as part of the efforts to avoid what would be Argentina’s ninth sovereign debt default.
The pragmatic Argentine leader has insisted he will keep promises made during the Argentine presidential elections last year to end unpopular austerity measures and repay creditors only after the country exits a recession, which is now entering its third year.
“If the lack of policy cohesion continues to grow within the coalition, or if large bondholders dig in their heels to force Guzmán’s hand — as they did in the Buenos Aires province debt negotiation in early February — the risk of a default will increase,” said Ms Blanco.
The IMF is facing a difficult decision as well. Acquiescing to Argentina’s arguments that its debt is unsustainable would effectively endorse giving a haircut on the country’s bonds that would anger private creditors.
Bondholders are already growing increasingly exasperated with the government’s refusal to present a detailed economic plan that would explain convincingly how it plans to repay them and justify a haircut. Mr Guzmán is not expected to provide much fresh detail on economic targets in congress on Wednesday, especially for the fiscal deficit.
One of Argentina’s largest creditors, Fidelity, refused to accept an offer by the province of Buenos Aires to postpone a $277m debt payment due last week. The country’s largest province narrowly avoided default by agreeing to make the payment at the last minute.
“Bondholders are in no mood to be bullied into a deal,” said Walter Stoeppelwerth, chief investment officer at Portfolio Personal Inversiones, an investment bank in Buenos Aires. The province of Buenos Aires “made a major negotiating faux pas”, he added, explaining that its attempt to strong-arm investors had flopped.
While talks over the restructuring of Argentina’s foreign debt are yet to start in earnest, the government has fuelled more investor concern this week by delaying payment due on a local peso-denominated bond until September, after about 90 per cent of bondholders declined to participate in a debt swap last week. Franklin Templeton is said to hold 23 per cent of that debt, according to Portfolio Personal Inversiones.
“This government will not allow the Argentine society to be hostage to international financial markets, nor will it favour speculation over the wellbeing of the people,” Argentina’s economy ministry said in a statement on Tuesday.
Analysts said the government was concerned that it might have to resort to printing money at the central bank to cover the debt payments, pouring more fuel on what is already one of the highest inflation rates in the world.
On Thursday the statistics agency is due to publish inflation figures for January, which officials hope will be below the December figure of 3.7 per cent, leaving inflation in 2019 at 53.8 per cent — the highest in almost three decades.
