The impossibility of concluding an agreement with creditors caused the country to once again go into default. How it is seen from the outside
The “controlled” default of its debt into which Argentina has entered this Friday does not go unnoticed by the rest of the world.
For example, the newspaper The Country of Spain He has devoted an extensive article to graphing the critical situation. “Argentina has fallen into the ninth default in its history. It is a default with an adjective: ‘soft’, ‘soft’, ‘selective’, ‘technical’ or ‘controlled’, depending on who defines it, because until 2 of The negotiation with the creditors continues in June and, at least for the moment, there is no litigation in the courts, “he begins.
“But the risk remains that a disastrous default without adjective and the macroeconomic picture does not stop getting worse. Paradoxically, while all this is happening, the popularity of the president, Alberto Fernández, remains very high, “warns the note signed by columnist Enric González.
Given the great dilemma raised by the pandemic, health or economy, Alberto Fernández showed no doubts. An early order of strict confinement (as of March 20, when the death toll was four and the cases detected did not reach 160) has allowed the ravages of the coronavirus in Argentina to be relatively mild for the moment, especially when compared to those of neighboring Brazil. The death toll has just exceeded 400. In Brazil there are more than 20,000. The level of support for the president, close to 80%, is explained by the firmness in the application of sanitary precautions.
But firmness has its limits. If the planned extension of the quarantine from May 24 to June 8 is confirmed, the city of Buenos Aires and its suburbs may soon become the place subject to severe restrictions on movement and work for the longest time.
The Chinese city of Wuhan, the origin of the pandemic, suffered a quarantine of 77 days. Buenos Aires should reach 79 days. Damage to the economy, meanwhile, reaches catastrophic levels.
Source: El País, based on IMF data.
The pandemic has allowed the Government, for now, to hide its difficulties and errors in other areas. The own negotiation with the creditors, according to the Minister of Economy, Martín Guzmán, has suffered due to the confinement. He says that telematic conversation is not the same as face-to-face.
Creditors, however, think that this has not been the problem. They recall that the Government of Alberto Fernández took office on December 8, after long months of assured electoral victory, but waited until March to present its first proposal to the holders of its debt. Some blame Professor Joseph Stiglitz, Nobel laureate in economics and mentor to Minister Guzmán, for government rigidity.
Guzmán raised an offer (capital withdrawal, interest reduction, three years without payments and extension of maturities) and did not move from it until May 8, the date that had been set as the limit to get the debt restructured, and failure was consummated. Only one in five creditors accepted the proposal. In a hurry, a new deadline was opened until May 22. And there was no time, relates El País.
An “indisputable” default
Now, the default situation can be adjectivable, but not debatable. Last April 22, Argentina failed to pay $ 503 million in Global bond maturities, subject to New York law. He had a month of grace, until May 22, to regularize the situation. It has not. Alberto Fernández made an effort to downplay the fact: “We have been in default for months, since before December we are in default,” he said Thursday.
That is true: since the collapse of August 2019, when then President Mauricio Macri suffered a setback in the primaries and the peso and the stock markets sank, it is known that Argentina cannot face its external debt. The difference is that now, if they wanted, a group representing at least 25% of creditors could go to court and demand full and immediate payment.
That is not going to happen while the negotiation remains open. That is, at least until June 2, or beyond: unless it spreads [el plazo] for an additional period, the Treasury said in a statement issued Thursday night. Hours before the default was consummated (officially, at 5 pm New York time), Martín Guzmán announced his intention to modify his proposal. The toughest creditors, like the gigantic investment fund BlackrockThey have also carried out approach maneuvers.
With a global debt to be restructured of $ 68 billion, the difference between Guzmán’s position and that of the bondholders is estimated at about $ 5 billion. It doesn’t seem like an insurmountable amount, considering that payments would be staggered for more than a decade.
Guzmán’s negotiations did not come to fruition. Fear a default without mitigating.
The grace period remains as a major stumbling block, that is, the time when Argentina will pay neither principal nor interest. Guzmán wants it to be three years, which would mean leaving almost all of Alberto Fernández’s presidential term free from the debt burden. In reality, that is the key to the Casa Rosada’s economic plan: to have plenty of time to accumulate foreign exchange reserves and shore up the ever-failing peso; Additionally, that could contribute substantially to Fernández’s re-election in 2023.
But creditors consider that three years without charging anything is excessive, explains El País.
There are ten days, or something more, to know if there is an agreement or if Argentina loses all kinds of access to international credit markets. The IMF route would also be closed, because it is already owed $ 44 billion, to be restructured later. In the current economic circumstances, a definitive default would mean an incalculable disaster for Argentina.
The country has been in recession for three years. In March, the economy contracted 11%. April, a full month of confinement, will yield much worse data. For 2020, an annual production drop of at least 10% is expected. In the absence of credit, the Central Bank is issuing 300,000 million pesos each month. 70% of the budget is already covered by printing currency. These are terrifying figures, which may end up sinking a president as popular as Alberto Fernández is now.
The risk of social explosion
Argentina is used to crises. Since the collapse of 2001, it has had relief mechanisms for the most affected population. Peronism governs, a movement of great popular implantation. The Production and Labor Assistance (ATP) subsidy program has allowed the survival of thousands of companies and the subsistence of millions of people. But the risk of a social explosion, especially if the default cannot be lifted in a few weeks, is always there.
Mario Firmenich himself, the top leader of the Peronist armed organization Montoneros until its dissolution and now a professor in Barcelona, published an article on Friday stating that “the indefinite extension of a ruinous quarantine for millions of people (…) can end in a social rebellion. “
Villagers, precarious populations without access to basic services, are being most affected by the pandemic and suffer from lack of work. However, it is the middle class of professionals, small businessmen and merchants, not very related to Peronism, which shows growing discomfort with the quarantine and growing anxiety about the economic prospects.
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