Argentina seeks more time to repay debt

As the Argentine Minister of Economy tries to persuade rich countries to postpone the payment of US$2.4 billion in debt due on May 30, some investors worry that his efforts to avoid another default are being affected by Vice President Christina Fernandez de Quich The destruction of a faction led by Cristina Fernández de Kirchner.

The 38-year-old Chancellor of the Exchequer Martin Guzmán will tour the European capitals with President Alberto Fernández this week, calling on 22 of them including the United States, Japan, France and Germany. The members of the country’s “Paris Club” postpone the payment of its debts.

Investors worry that failure to reach a friendly agreement with the Paris Club may disrupt negotiations with the International Monetary Fund for a larger and more critical agreement to control its notoriously easy financial situation. Since 2018, Argentina is expected to negotiate new repayment terms for the US$44 billion in loans provided by the International Monetary Fund since 2018. Agree to reorganization $65 billion in private debt in August.

But now, IMF officials don’t expect to Argentina Until the mid-term elections in October, the Peruvian government’s populist instinct increased spending before voting.

Not long ago, Guzmán was mocked by the market as an inexperienced left-wing thinker. “It’s ironic and sad,” said Siobhan Morden, managing director of Amherst Pierpont Securities in New York. “Investors are actually cheering for Guzman now.”

As a new wave of Covid-19 infection swept through Argentina, after a three-year recession, the poverty rate rose from 26% to 42%, which boosted consumption growth. This makes it unlikely that the country will provide the kind of fiscal consolidation that an agreement with the IMF might require.

The repeated actions of the hard-line “kirchnerista” faction loyal to the vice president (the former president himself) hindered Guzman’s efforts to moderate fiscal consolidation, and the government’s chances of success have been compromised.

Recently, he failed to persuade Federico Basualdo, Deputy Minister of Electricity, to raise the tariff to 30% for the first time in two years to keep up with the inflation rate, which is currently around 43%.

Guzman tried to fire Bassurdor with “incompetence”, but failed. However, after being effectively vetoed by the vice president, Basualdo still insisted on his work. At present, this year’s electricity price will only increase by 9%, which is equivalent to an inflation rate of about two months.

“Guzman made a mistake in his way [he tried to fire Basualdo]”, said the main politician who is loyal to Fernández de Kirchner. “I believe this issue will be resolved, but I will remain silent. ”

Polls expert Mariel Fornoni said that the disastrous defeat not only harmed Guzman, but also harmed the president himself.

“It’s gone [Fernández] At an absolute weakness. It reveals who made the decision. She said. She pointed out that polling data showed that about 55% of Argentines considered the vice president of the current administration, while only 35% considered the president.

For Guzman, the challenge is to persuade the IMF and the Paris Club to keep their promises, because they seem to be vulnerable to the ruling left-wing coalition opposition.

Most analysts believe that the Paris Club default is a real danger, especially since liquid net foreign exchange reserves have only recently returned to positive territory.

“If Argentina uses reserves to pay [the Paris Club], The central bank will be very exposed. Therefore, if they do not try to refinance the debt, they are likely to default. Marina Dal Poggetto, executive director of EcoGo, a Buenos Aires economic consulting company, said that he admitted that refinancing would be “difficult. [but] Not impossible”.

A person familiar with the negotiations between Argentina and the International Monetary Fund said that there has been no progress-“no agreement” on economic policy has been reached-because Guzman “failed to come up with a strategy endorsed by the International Monetary Fund. He The whole alliance can be proposed to the International Monetary Fund”.

Despite the delay, most people agree that some form of transaction (no matter how weak) with the International Monetary Fund is inevitable.

Although the Paris Club’s default will result in heavy financial and diplomatic costs, cooperation with the International Monetary Fund (IMF) means that it will enter a new period of financial isolation, which may be more than the country’s historical debt default in 2001 The decade after being rejected from the international market was even worse. . It is almost impossible to pay the $18.5 billion that will be paid to the International Monetary Fund next year.

“Reality puts Argentina in trouble. Christina [Fernández de Kirchner may be] An investor on Wall Street said.

“There is no choice but to reach an agreement with the International Monetary Fund or Christina’s imaginable Plan B.”

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