To normalize the debt in default will have a high financial cost for Argentina
Monday, November 11, 2013
By Martin Kanenguiser
The government’s decision to advance, after a delay of a decade, to settle the debt in default will generate a greater financial cost for the country, but will not attract more investments if it is not accompanied by integral measures to lower inflation and offer greater legal security.
So said economists consulted by LA NACION in relation to the moves by the government to pay the ICSID judgments, promote a settlement with the holdouts, negotiate with the IMF on a new inflation index and, eventually, pay the Paris Club.
A report from BCeconomics warned that, if the pending balances are normalized, “the total debt will go from US$198.033 billion to US$237.5 billion (almost 20% more) and in terms of GDP it will represent a ratio of 71% (versus 53% currently).”
"The situation gets worse in the coming two years (above all 2015) with complications from the point of view of debt service. To channel the debt problem would mean greater pressures on the fiscal and balance of payments sides, in an international context that will be less favorable in the medium term,” says the report. “To achieve it,” the consulting firm led by Fernando Baer argues, “economic policy clearly must be different.”
Then, the report says that “the policy of debt reduction is not so: in March 2003 the total debt reached US$145.504 billion, while currently as was mentioned it comes to US$200 billion.” Overall, in general the valid measure to calculate the evolution of the debt is in relation to GDP.
Regarding that, the fact is relevant that, according to Baer, the public debt would go from 71% of GDP if all balances were to be normalized (with the calculation of the parallel dollar, or 65% with the official rate) versus the current 53%, which is very similar to the level before the 2001 crisis.
For the director of the Center of Financial Research from the University of Di Tella, Guido Sandleris, "to reach an agreement for paying the sentences from rulings in the ICSID will surely help unblock credits from international organizations like the World Bank; this would happen even if the other issues don’t move forward, and if it comes together, the effect would be a net inflow of hard currency into the country.” In turn, Sandleris said that “with the Paris Club the resolution of the issue is conceptually simple, but difficult in political terms for this government, in that it requires accepting a review of the accounts by the IMF, which would mean a big change from what has been the official strategy in this direction and would place the INDEC in the news again.”
For his part, Marcelo Blanco, ex-president of Deutsche Bank and economist, said that “Argentina would benefit strongly from a return to the global capital markets, by the axiom of interest rate versus growth, by eliminating the difficulty of continuing to finance growth on the local market.” According to Blanco, “there is a high excess of liquidity at the global level waiting for alpha returns, contradicting the slogan that “the world came upon us,” now that Argentina could go from being the receiver of the next and imminent migration of portfolios as a consequence of the relativity of prices with their neighboring countries.”
Luciano Cohan, director of Elypsis, indicated that “the main cost is more political than economic, because it contradicts the discourse of the government of “living on our own” which it argued in recent years.” In turn, he clarified, “from the economic side, it would mean a simple documentation of contingent balances, which didn’t cease to exist simply for not being documented, which will not change the very good debt indicators that the government is showing.”
In terms of the positive influence that it could generate on investments, Cohan said that “it will crucially depend on the reading of those movements, which, I suspect, will have to be accompanied by changes in the cabinet, in a scenario in which the government has already started to move toward a more moderate economic policy.”
Also Agustín D'Attellis, of the pro-government group, La Gran Makro, admitted that the arrival of more capital in the medium term “doesn’t depend exclusively on this but the continued sustaining of expansive policies that currently allow for strengthening the internal market, stimulating effective demand.”
As such, former Finance Secretary Lisandro Barry argued that “facing the scarcity of hard currency coming out of the cloud of mistakes and inconsistencies from the economic policy, there is no other path than to seek the deferring of payment timetables, if they don’t want to provoke a financial collapse in the short term.”
"To avoid it,” he said, “an integral program would have to be designed, which attacks the problems that are distressing the economy, like inflation, the twin deficits, the loss of competitiveness and the generalized lack of confidence.”
What the President will do when she returns
Monday, November 11, 2013
by Luis Majul, Reporter
The certainty that the President will not be able to exercise her mandate with the same intensity that she was before the operation, and the imminence of changes in the cabinet and also in economic policy, is now a secret among voices inside and outside the national government. It was said to me, in complete sentences, by one of the most loyal leaders to Cristina Fernández de Kirchner, who hopes for recompense for the votes obtained in his province and for his unrestricted defense of the model and the chief of state. He already knows, along with a dozen privileged few, that Cristina promised her children Máximo and Florencia to make her health a priority over the unlimited demands of the administration, and that includes the acceptance of a plan of “stress management” that will impede her from dedicating herself “full life” to the task of governing. The same source, very confidently, explained to me as well that her new manner of governing will necessarily mean a stronger and more solid cabinet chief, and at the same time coordinate the actions of the ministers, like what has been done until now by Legal and Technical Secretary Carlos Zannini. One with the profile and personality of the governor of Entre Rios, Sergio Urribarri, or current Interior and Transport Minister Florencio Randazzo.
Urribarri has votes, is considered an unconditional supporter, and the President has him in high consideration He was the one with the original idea and the first to sign up for Football for All and also the one who got on a plane and flew over to London with his fellow Entre Rios native Miguel Galuccio to take control of the management of YPF. By what is known of him, “El Vasco” would prefer to end the final two years left to him as governor without re-election. And he also hopes that Cristina blesses him as her candidate for president in the 2015 elections. “In any manner, he will go where the President asks him to, beyond his personal desire,” they assured me. Another leader that was talking two or three times a week with Cristina until her surgery assured me that supersecretary of Commerce, Guillermo Moreno, is already out of the administration. “He survives only because every week they ask for his head and Cristina doesn’t want to give the pleasure of delivering it to either Clarin nor the opposition,” he said. In that, Sergio Massa is running ahead. Everyone is demanding his firing because they know it is a pure gain and zero political cost. He is the official with the most negative image after Vice President Amado Boudou and, the longer he remains in the administration, the more damage he does to the government. Moreover, in case one of these days he ends up going, part of society will interpret his exit as one of the most recurring requests from the former mayor of Tigre.
The other million dollar question is what will happen with the economic team. Until yesterday, there were a few names in play for replacing Hernan Lorenzino. One of them is the head of ANSeS, Diego Bossio. The other is national Deputy Roberto Feletti. The former is Boudou’s candidate as well as a group of governors close to Daniel Scioli. The second is the candidate of Zannini and another group of governors who remain unconditionally with the President. But there are just as many others that insist economic policy will go in the same direction that is being insinuated in recent weeks. The readiness to pay the ICSID judgments, the agreement with the IMF to organize a more transparent INDEC, and the attempt to pay part of the debt to the vulture funds are the three facts that show that the President would accept taking new debt to get dollars that she cannot recover through the currency clamp. What is still not clear is if a tourist dollar rate is coming with a price similar to the parallel rate, or some other measure capable of restraining the vertical dive of the Central Bank reserves. The macroeconomy is so dislocated, the distortion of relative prices is so big, which is absorbing the capacity of analysis and action of those who govern Argentina here and now. So much effort is required of them that they don’t even have time to take in the blow that came, for the true mandarins of the administration, from the voluntary compliance of Clarin Group. From the President to Martín Sabatella, they know from memory that it isn’t an official triumph, but a status quo that will end up favoring the multi-media sector sooner or later.
I hope that Cristina Fernández understands that she cannot put all her energy and that of her government into that war without quarter. She should reserve it for dealing with the difficult times coming for Argentina.
The fall in reserves revives the fear over the external sector
More dollars go out then come in. This time, the problem is not trade.
Monday, November 11, 2013
by Oscar Martínez
Like in some recurring economic nightmare, the so-called “external restriction”, an elegant manner of calling the scarcity of dollars, has come back to fill the country’s economic horizon with clouds. Simply put, one could say that in Argentina, more dollars go out than come in to maintain the balance of the external sector in a sustainable manner. And none of the new measures that the government could take to halt the exit of hard currency, like a split rate and new exchange restrictions, seems to address the core of the problem.
Different from other historic moments, this time Argentina has a more than respectable trade surplus, albeit low, and a debt in foreign currency that is quite under control. However, the loss of hard currency, reflected in the fall in reserves, turned into the great worry of economists and experts. And the worry is understandable: US$3 billion in less than two months. And the trend is not halting despite that, circumstantially, the Central Bank can add reserves.
“The risk is high of an external sector crisis. Above all because it is expressed, one sees, in the capital account of the balance of payments, which is in deficit like in 2001. A devaluation, as some are asking for, serves to improve the current account, as there are scarce imports and exports are cheap. But nothing more. The trade balance is improving and that could be useful for a time, as happened in recent years. If one recalls, in reality the crisis of 2001-2002 was resolved first by the debt default, which shut off one of the faucets of the capital account, with the devaluation later on,” recalled Jorge Todesca, head of Finsoport and Economy vice minister in 2002.
And he says that “splitting the currency market, to oblige companies to liquidate more hard currency, or measures in that style, could resolve something, but not the core matter, which is the zero inflow of non-trade dollars into the country”; however, he thinks that “the government already took note of that and some movements indicate that some kind of way out is being sought.”
He commented that the agreement by Argentina with companies that sued in the ICSID was something of a precondition for obtaining loans from the World Bank for US$3 billion that, in practice, end up being reduced to US$700 million net. And he concluded with an ironic commentary. “If this goes on like this, it will not be strange for Argentina stops paying its debt or asks for some kind of financial assistance from the IMF ... of course never before December 2015.”