Yet another default in sight (it would be the ninth) for Argentina, but the Government breathes a sigh of relief. It may seem a paradox, but the IMF's visit to evaluate the accounts of what was once the second largest economy in South America gave a negative response ("The debt is no longer sustainable and the primary surplus necessary to reduce it is not economically or politically feasible,” said the Washington emissaries), but at the same time offered a way out to the new executive led by Alberto Fernandez (elected in August but took office two months ago) and by his deputy and former president Cristina Kirchner, who among other things celebrated her 67th birthday just Wednesday.
“The Fund's words are a very good signal for the Government – Casa Rosada announced in a statement -: it is the result of what we have always supported: transmitting certainties and, above all, telling the truth. And that is that the debt is payable and that we need help to get out of this situation”. The solution proposed by the IMF, which would further undermine Argentina's credibility, but would help significantly reduce junk bond exposure (currently very high: Buenos Aires has to repay 100 billion), is to ask for a sacrifice precisely from the holders of those bonds, the foreign private investors, who could be asked for a "significant contribution" (haircut or non-repayment of part of the value of the bonds).
Fernandez therefore collects a partial victory, obtained also thanks to the intense diplomatic activity exercised in the first weeks of his mandate, in particular through a long mission in Europe where he met Emmanuel Macron and Angela Merkel (as well as Pope Francis). So while former president Mauricio Macri, whose "cure" was in reality a disaster, denied the problem, the new Peronist government faced it head-on. However, the situation remains critical, with the fundamentals showing no signs of improving: inflation continues to rise, GDP has lost 6% in the last two years, debt has reached 90% of GDP and the poverty rate has soared, to the point that in 2019 more than one in three Argentines were below the poverty line.
For now though, the decision is postponed to next week, when it will be decided on the fate of Argentine bonds and on the possible umpteenth default.
