Alberto Fernández understands the political, financial and economic consequences of default, but designed a negotiation strategy with Wall Street funds that blocks the possibility of paying the $ 503 million of the Global bond that matures on May 22. It is a historical and paradoxical situation: Unlike Alberto Rodríguez Saá, he does not want to execute a new sovereign default. And in tune with the power decisions of Néstor Kirchner, he assumes that honoring debts will imply certain autonomy and future benefits in the dystopian world scenario that the COVID-19 pandemic will leave.
However, the President will not pay off that minimum debt on May 22. His bet is to close the negotiation with the bondholders under foreign legislation and place in this restructuring all maturities of 2020. This is $ 3.3 billion, a figure that Alberto Fernández hopes to include in the final agreement with private creditors.
The investment funds – which presented two different counter-offers – have already assumed that the Olivos farm will not pay the 503 million dollars that are in healing period and that they expire next Friday. The bondholders’ bet is to “not accelerate” the default, open a waiver sui generis to close the negotiations and bury the legal breach under the terms of the agreement that could be concluded in early June.
In this context, Alberto Fernández is sustained by an unprecedented situation: the bondholders will consent to a default to continue talking with Martín Guzmán, the International Monetary Fund – unlike other financial crises – is in favor of Argentina and questions private creditors, and the majority public opinion considers it necessary to agree with private creditors who demand 66,000 million dollars.
But the unprecedented situation can self-destruct if the negotiations do not prosper, a working hypothesis that was not ruled out in Olivos and Wall Street. Unlike the first days of May, when there was maximum tension between the representatives of BlackRock and Guzmán, there is now a certain climate of good faith and propensity to close a deal that benefits both parties. But $ 66 billion is being discussed and any spark can scorch the President and his economy minister.
Alberto Fernández knows that Néstor Kirchner, José Manuel de la Sota and Carlos Ruckauf supported the default of Adolfo Rodríguez Saá. Also remember that James Walsh, then in charge of the United States Embassy, He hand delivered a letter from President George Bush to his unexpected colleague from San Luis..
“The letter is to wish the President of Argentina all the success of the world in his management”, Walsh recognized the journalists stationed at the Casa Rosada.
The political sum is simple to do: Rodríguez Saá was supported by Peronism – he was applauded standing up when he announced his default – public opinion was on his side and had been praised by the White House. Did not reach: He left before he learned to use the remote control he had in his office in Balcarce 50.
The head of state does not want to repeat Rodríguez Saá’s historical experience. But on May 22 he will act his own deja vu. It will put Argentina in default by failing to pay the Global’s 503 million dollars, and must expect that the bondholders do not accelerate their contractual declaration in exchange for an agreement that meets their financial interests.
Discarded the Rodríguez Saá model, President He wants an epic, political and institutional result identical to that obtained by Néstor Kirchner when he paid cash to the IMF and then achieved a swap of securities that was not in the previous calculations of Wall Street and the White House. Kirchner resisted pressure from Rodrigo Rato, then managing director of the International Monetary Fund, and took his time to agree with the bondholders he had surprised – in Dubai – by announcing a 70 percent discount on the amount owed.
Unlike Kirchner, Alberto Fernández has a negotiator with little political experience -Martín Guzmán- and trusts Miguel Pesce, who owns the Central Bank of the Argentine Republic (BCRA), to the maximum. Instead, Kirchner benefited from the Florentine diplomacy Roberto Lavagna and had to kick out Alfonso Prat Gay of the BCRA, when he revealed that he did not share his strategy to solve the external debt crisis.
“Okay, you can go and I’ll take your resignation”Kirchner communicated to Prat Gay in his office in Balcarce 50. Alberto Fernández was by his side, and the calendar marked September 17, 2004.
Kirchner had no political opposition, and Eduardo Duhalde had not yet become an internal enemy that had to be ejected to consolidate internal power. Kirchner closed with the IMF and the bondholders when he wanted, and nobody dared to review his negotiating strategy that Lavagna and Guillermo Nielsen executed, at that time he was secretary of Finance.
The history of Justicialism shows that it is a vertical party with a single leader. Alberto Fernández is president with two allies who have different dreams: Cristina Fernández de Kirchner and Sergio Massa.
Alberto Fernández trusts Guzmán to the letter, Cristina Fernández considers him the best cabinet minister and Massa exercises loyal support for the negotiations that the disciple of Joseph Stiglitz undertook. The foreign debt placed the President at a crossroads and his ability to resolve the options will mark his mandate forever.
It is not a usual event that the IMF, the European Union, Francisco and The White House backs a multi-million dollar take away from the assets of the most powerful investment funds on the planet. Argentina is a medium country in the global system, and its importance is based on its natural wealth, its consumer market and the influence it may have on the regional geopolitical agenda.
The United States supports Alberto Fernández for the strategy he proposed regarding Venezuela, the European Union -Angela Merkel, Pedro Sánchez, Giuseppe Conte and Emmanuel Macron- supports her mandate due to the view she has on the global agenda (Paris Agreement, for example), and the IMF managing director, Kristalina Georgieva, found in the Argentine president is a political partner to suit him to propose a new approach to the world economic crisis.
This political volume allowed the head of state to advance negotiations with the IMF and the Paris Club, and present an aggressive offer to bondholders who bought $ 66 billion in sovereign securities. Alberto Fernández always appreciates this global support, but in Olivos’ privacy he recognizes that it is a “gigantic responsibility”.
The head of state knows that if he fails before the investment funds, he will instantly face a political and economic crisis of unknown dimension.
Cristina Fernández supports the management of Alberto Fernández and opted for silence until the events find an outcome. Will applaud if there is deal, and it will play strong if the bondholders initiate a new default judgment against Argentina.
The coronavirus pandemic transformed the local political system into a puzzle. With no known references in sight, Alberto Fernández bets on Guzmán, leans on opponents Horacio Rodríguez Larreta and Gerardo Morales, listens to CFK and Massa, and tries to find a formula that will allow them to close with the bondholders in early June.
The President knows that he has little room for maneuver. His first offer was rejected by private creditors, and now he has no alternative but to improve his proposal to reach an agreement. That means more will be paid, and that it must explain to the public opinion and the IMF how the eventual diversion will be financed.
It may happen that Alberto Fernández decides to consolidate the default situation due to the impossibility of agreeing to restructure the debt with private creditors. In this case, the President will be similar to Rodríguez Saá. Isolated from the world, in the midst of the economic and social crisis, and awaiting the political reply of Cristina Fernández de Kirchner.
But Alberto Fernández gives little chance to this working hypothesis that reveals the cabinet. In Olivos they assure that a long default it would have a very low probability due to the government’s willingness to close a sustainable agreement over time.
Adolfo Rodriguez Saá failed in the presidency when deciding the default in December 2001, while Néstor Kirchner consolidated a 12-year power model by paying the debt with the IMF and closing a bond swap with an acceptance that very few expected.
Alberto Fernández has the opportunity to strengthen his own government and bury the ghosts that have been going through Olivos since he took office in the Chamber of Deputies. It is at a crossroads of power: if it succeeds, it will validate that Peronism only recognizes one leader for each historical period. And if it fails, too.
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