Financial Markets in Stress over New Argentine Government; IMF in ‘Delicate Situation’
Oct. 29, 2019 (EIRNS)—Financial markets and allied media are in a tizzy, threatening and speculating about how Argentina’s new Fernández-Fernández government may deal with the nation’s debt and economic crisis. A period of cat-and-mouse games between the vulture funds/creditors’ cartel on the one side, and the Fernández-Fernández government on the other, seems likely.
The vultures will threaten and possibly run capital flight—which is already massive thanks to Mauricio Macri’s policies—to try to convince President-elect Alberto Fernández to not take the more “radical” route they say is associated with Vice President-elect Cristina Fernández de Kirchner, and negotiate instead. They may even agree to some sort of a haircut so long as the new President plays ball, and the rating agencies don’t call it a credit incident, since that would trigger all the credit default swap (CDS) clauses, and could lead to the blowout of the entire global financial system.
Alberto Fernández could threaten creditors with going the more radical route, if they don’t give him concessions. But, right now he is playing his cards very close to the chest. He has said he intends to be pragmatic, won’t ask for a restructuring, preferring instead a plan to extend maturities, without a haircut. He has yet to name his Finance Minister.
BlackRock executive Axel Christensen told Bloomberg Oct. 28 that the “markets” have already priced in an Argentine debt restructuring. But here’s the reality: Argentina has close to $300 billion in foreign debt, which is unpayable. Mauricio Macri contracted $100 billion in new debt over the past four years, $57 billion of which was with the IMF. As Christensen emphasized, the IMF is facing a “very delicate situation.” Over 60% of its loan portfolio is made up of Argentine debt. The debt repayment schedule to the Fund, arranged by Macri is, $5.6 billion in 2020; $21 billion in 2021; $22 billion in 2022; $7.5 billion in 2023. And this of course, excludes other debt payments, interest on public bonds, etc. There are no funds to cover any of those payments.
Is the IMF nervous? New Managing Director Kristalina Georgieva congratulated Alberto Fernández onhis election, tweeting “we look forward to engaging with his administration to tackle Argentina’s economic challenges and promote inclusive and sustainable growth that benefits all Argentines.” But the Wall Street Journal worried today in its editorial that Alberto Fernández “is courting the Chinese as creditors instead of the IMF.”