May 30, 2020

Debt, the burden of the Argentine economy for four decades


Far from that first loan for a million pounds sterling taken in 1824 to the Baring Brothers in London (United Kingdom), the public debt has become in the last four decades the nightmare of Argentina, which weighs down its growth and puts in check cyclically to its economy.

The history of public debt has had ups and downs throughout Argentina’s history and today, at a new critical point, it complicates the government of the Peronist Alberto Fernández, who assumed power in December with the nation on the brink of a new cessation of Payments.

And just as the South American country took almost a century to pay off the Baring loan, external indebtedness marked its development throughout its republican life, but it further complicated its economy since the last civic-military dictatorship that ruled between 1976 and 1983.

The regime headed by General Jorge Rafael Videla perpetrated serious human rights violations and also dealt a severe setback to the national economy with the opening of imports and a plan to impose a neoliberal model that demanded funds for its financing.

This led to an external debt almost six-fold during the dictatorship, leaving as a legacy to the new democratic process a liability of 45,000 million dollars.

OVERDEBTEDNESS IN DEMOCRACY

In the return to democracy, the problem of public debt could not be solved and, on the contrary, worsened with each new administration.

The radical Raúl Alfonsín (1983-1989) expanded the taking of credits, driven by the crisis that marked his last years in government and led him to hand over power to the Peronist Carlos Menem six months ahead of schedule (1989-1999).

Menem decided in 1992 to add Argentina to the Brady Plan designed by the then Secretary of the Treasury of the United States, Nicholas Brady, to restructure the debt of developing countries with commercial banks, particularly after the crisis of the 1980s.

But Argentina’s indebtedness grew again throughout the 1990s, although this time no longer with foreign banks but with multilateral and international organizations, savers and investment funds.

AFTER THE FAILED SAVINGS, THE “DEFAULT” OF 2001

The impact of the crisis in Southeast Asia in 1997, the wear and tear of the convertibility plan of the Argentine currency, which was significantly overvalued against the rest of the currencies and hit exports, plus a public debt that climbed to 146,000 million dollars , they left the new government of the radical Fernando de la Rúa (1999-2001) at the forefront of what would become a perfect storm.

Without access to the international capital market, Argentina turned to international organizations such as the International Monetary Fund (IMF) and Spain in December 2000 to manage a financial assistance package called “financial shield”, which, when unsuccessful, leads the government to negotiate in May 2001, a “mega-swap” of debt, followed months later by another.

In the midst of a deep economic, political and social crisis, De la Rúa resigned on December 21, 2001 and in the whirlwind of the five presidents that Argentina had in seven days, one of the provisional leaders, Adolfo Rodríguez Saá, declared 48 hours later the cessation of payments of the sovereign debt of 144.400 million dollars, unleashing applause and cheers in the Legislative Assembly.

A HISTORICAL REMOVAL IN THE RESTRUCTURING OF THE ARGENTINE DEBT

The government of the Peronist Néstor Kirchner (2003-2007) proposed in 2003 a debt restructuring for 94.302 million dollars, without recognizing the interests and with a reduction of 75 percent on the nominal value, an offer that later improved to close two years later, the historic operation with the refinancing of bonds for 81.8 billion dollars, on which a 65.4 percent discount was finally applied.

The offer achieved a membership of 76.07 percent of creditors, a level that grew to a total of 92.4 percent with the reopening in 2010 of the restructuring process.

Meanwhile, Argentina canceled in January 2006 in a single payment the total of its debt with the IMF, for a total of 9,500 million dollars, and years later, in 2013 under the government of the Peronist Cristina Fernández de Kirchner (2007- 2015) agreed to pay the debt with the Paris Club in installments.

WITH MACRI, A HIGH DEBT THAT OPENED ANOTHER “DEFAULT”

The center-right Mauricio Macri (2015-2019) assumed the Presidency with a public debt of 223,000 million dollars and four years later he left an estimated 320,000 million, as a result of a bond festival and a financial aid agreement with the IMF granted in 2018 for about 44,000 million to alleviate the crisis.

The economic scenario that Alberto Fernández received was further complicated by the coronavirus crisis: “There is no debt payment that can be sustained if the country does not grow,” the president warned this Thursday, when the markets already took for granted the income of Argentina in a selective suspension of payments for non-compliance with a maturity of 500 million dollars.

“We are not going to subject Argentina to new commitments that we cannot fulfill. I want the world to see us as an honorable country that fulfills its commitments and therefore we are not going to do more than what we must do so that the commitments that let us assume with our creditors that they do not mean a new postponement of our people, “stressed Fernández, while requesting more time to negotiate the restructuring of the debt issued under foreign law for more than 66,000 million dollars so as not to enter into a total” default ” .

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