Finance Minister Martin Guzman’s appearance in Congress yesterday, 12 February, was never going to amount to a full and frank exposition of the government’s policy and debt restructuring plans. What it did involve was some indications of the government’s opening debt play, including some very modest fiscal consolidation plans, and a dose of political grandstanding. Clear away the posturing on the International Monetary Fund (IMF)’s and previous administration’s responsibility for Argentina’s current predicament and some rhetoric against foreign investment funds, and the key takeaways from Guzman’s appearance are as follows:
The blueprint of the government’s macro-strategy for the economy remains unclear. Guzman insists there is a plan but that it would be counter-productive to reveal it now. However, recent missteps related to the BP21 provincial bond and the AF20 dual bond (which the government unsuccessfully tried to roll over but ended up unilaterally reprofiling this week) have not been encouraging vis-à-vis the debt question; VP Cristina Fernandez (CFK)’s recent hardline stance on the IMF also points to possible internal disagreements that may be cramping the emergence of a coherent plan. The IMF team currently in Buenos Aires (until 19 February) will certainly want to see more detailed numbers.
The most important plank of any plan will center on fiscal policy. What Guzman outlined on this front was exceptionally modest: no reduction in the primary fiscal deficit in 2020. Even in what Guzman described as his most realistic scenario, a primary fiscal balance will only be reached in 2023 (the final year of Alberto Fernandez’s presidency), with primary surpluses of only 0.6%-0.8% of GDP thereafter. These numbers imply – as Guzman acknowledged – a “deep debt restructuring” that will generate “frustration” among creditors, which presumably means that the government’s opening position will be that bondholders must accept steep losses on the value of their investments. The 2023 target suggests the government could seek a three-year grace period free of interest or capital payments.
If all this amounts to an opening – and not fixed – position, the key question will center on the government’s preparedness to compromise. One challenge for Guzman and Fernandez is that the administration’s own timetable appears unrealistic – a concrete offer will not materialize until the second week of March. The tougher the opening offer, the longer negotiations will likely take. Another challenge is that tough, uncompromising rhetoric risks boxing Guzman into a corner from which he cannot easily exit. While Guzman insists he does not want a default, the AF20 episode saw the government shun the least worst option (printing pesos to pay the obligation despite the problems this would entail) and instead unilaterally postpone a principal payment until September, thereby raising doubts about its commitment to meet its peso obligations.
