At each change of government in Argentina, the incoming government makes sure to communicate the heavy legacy that the outgoing government leaves behind. Unsustainable levels of unemployment are weighed up. financial debtcontingent commercial debt, repressed inflation, restrictive commitments with multilateral organizations, expropriations, magnitude of public spending and non-existent international reserves in an endless number of reproaches that are often logical. The short-term approach to managing public accounts and the inevitable focus on mid-term elections often lead to two of the four years of government involving levels of public spending that are incompatible with a long-term economic policy.
It is to be expected that Argentina will have to exaggerate its desire for change every time it tries to approach the international financial market. Beyond the historical defaults, what is notable is that repayment to creditors has been interrupted three times in the last ten years.
In 2014, the so-called “default “technical” and in 2020 the restructuring due to the alleged unsustainability of the debt. Even more serious was the one in 2019, a default disguised in its definition of “re-profiling” that included the capital sin of affecting the debt in local currency.
Argentina has not only earned a reputation as a serial defaulter, but has also aggravated the situation to the point that the requirements for regaining access to the international debt market are unprecedented.
Mauricio Macri In 2015, he took office as head of a country with a fiscal deficit, a defaulted foreign debt, double-digit inflation and a currency trap. His promise of change guaranteed him access to the international market, and he was able to resolve the default shortly after starting his government.
The vote of confidence from the international market was total, generating a climate of euphoria in stocks, bonds and even in our eternally unwanted local currency.
Although the first years of management were encouraging, the outcome was not happy and investors were disappointed. Part of the cost of this falls on the current government.
The promise of change is valuable, but it is no longer enough. Coupon payments and bond maturities are applauded, but bonds continue to trade at restructuring prices. We have twin surpluses, but the market is demanding an accumulation of reserves. The demands on Javier Milei’s government are brutal.
Having achieved a fiscal/financial surplus for six consecutive months, in a recessionary context and keeping the president’s image practically intact, is a historic milestone. Argentina has a unique opportunity to tackle excessive public spending once and for all, given that rarely has an Argentine president had a popular mandate for adjustment and austerity. Being over-fulfilling the target should be a sufficient condition for Argentina to open up to international debt markets; it would have been in almost any other situation. But no. Now, guarantees of continuity are required, a guarantee of reserve accumulation. Guarantees. They only lend us dollars if we have dollars. Today, Argentina has better macroeconomic figures than several neighboring countries, the same ones that can issue debt without problems.
New governments no longer inherit the imbalances of the previous one, but rather receive a baggage of unfulfilled promises that have raised the bar to clean up our reputation to impossible levels. It is not enough to be a good student, we have to prove that we will be one from now on.To do so, we must increase our commitment to being a normal country and embark on structural reform that transcends changes in government. Otherwise, the legacy will become increasingly heavy and the chances of moving forward will become smaller.
CEO Max Capital Asset Management
Source: Ambito
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