The president is not thinking about the “post-pandemic”
Alberto Fernández has been briefed with a crude prognosis: a vaccine for the novel coronavirus, with a good enough distribution to eradicate the virus, should not be expected before June next year.
This means that the “post-pandemic” scenario that has been discussed so much inside and outside the government has no date in sight, and so the goal is a much more modest one: that the strict lockdown that started last week in Buenos Aires comes to an end as soon as possible. Unless an unexpected solution comes out of the blue, the countries affected by COVID-19 will have to prepare for a longer winter than expected and learn to co-exist with the virus.
No funding sources
The president needs to get out of this second hard lockdown not only because of the growing social weariness about it, but because he does not have the financial shoulders to sustain a level of money printing as high as that of the last 100 days.
The motto of protecting lives still has high social approval, but it is not enough to compensate for an economy that has been in recession for 30 months, with four years of austerity and almost a decade of decadence and low growth. Other social disruptions could appear if today’s fragile equilibrium starts crumbling down.
With polarization making its way back and business and social sectors pushing against the government, officials at the Olivos Presidential Residency admit that there is no easy way to get hold of new funding sources without undergoing massive structural changes that are not on the horizon right now. With the post-pandemic not on the horizon either, the only option they foresee is a post-lockdown with safety protocols and a broad program to contain the rise of unemployment and the yet-to-erupt social conflict.
Despite all the social differences between the regions, Europe is seen as anticipating what is to come in Argentina. Google data is used to confirm something that the government already believed: even in places where the lockdown has been massively eased or fully lifted, movement is still reduced, so demand does not come back as quickly as supply, and the economic drop does not end with a V-shaped recovery.
The gradual recovery in production and consumption is not enough to bring tax collection close to normalcy. “There’s fear to spend, in Argentina and in the world,” a Presidential advisor says. Societies are preemptively saving their cash, and this complicates the government’s plans. Not all the money that the administration is putting in the pockets of those hurt by the crisis is coming back to the economic circuit; much of it, instead, is going into dollar purchases and pressing for devaluation. Fernández and his closest advisers are drafting an economic package with the goal of boosting certainty and consumption. Propelling demand and employment are among the short-term priority goals of the administration.
The relationship between the government and business leaders has stagnated, and is far from the new social contract that Fernández’s campaign talked about. From helping with salaries to mid-year bonus payments, the demands of the business sector for state subsidies are multiple and hard to satisfy. The government unsuccessfully tried to cut down on subsidies in June and wants to ease the lockdown in order to finally reduce them, focusing only on the sectors that need help the most.
Even the Peronist sectors that have a better relationship with Argentina’s establishment are complaining about double standards, saying that those who often complain about an omnipresent State and demand harsher austerity keep increasing their calls for State help for their particular sector or company.
The same is true with regards to debt re-negotiations, where the select group of companies that still have access to foreign financing (in a context of generalized defaults from the federal and provincial governments as well as many in the private sector) are pressing the government to sign a deal at any price. “They are happy for Argentina to close the deal at a higher value, but this is not what’s in the best interest of the country. They know this, but they act as if they don’t,” sources in Fernández’s Frente de Todos say.
Ending debt talks quicker
The big bondholding groups, meanwhile, have made their best efforts to take Economy Minister Martín Guzmán out of the negotiations, even though Argentina has improved its offer beyond what was expected at first. Lobbyists have knocked on every door they thought as friendly looking to squeeze the last few cents out of the deal. But there’s a confusion on what’s still at stake in this negotiations.
The ACC Bondbolder group, comprised of funds such as Fintech, Gramercy and Greylock, which already reached a deal with Argentina, represents less than 5 percent of the total debt under negotiation. But it is disproportionately in the public eye because David Martínez, the Mexican businessman behind Fintech, has links to many prominently powerful Argentines, from Clarín’s Héctor Magnetto (with whom he is a partner in Telecom), to Banco Macro’s Jorge Brito (who shares interests with Martínez in Genneia), including many leaders of the ruling Frente de Todos coalition. Martínez’s business model was already tested in the 2005 and 2010 re-negotiations, as he bought Argentina’s defaulted bonds prior to the second of those restructurings.
His bondholder minority is over-represented, but you could argue that even the biggest giants in this negotiation, despite their best efforts in Buenos Aires and New York, are also not as decisive as the market sometimes makes it seem. Government calculations say BlackRock, Fidelity, Pimco and Templeton hold less than 14 percent of the debt under discussion, and that 70 percent of the bonds are controlled by smaller creditors that are not part of the discussion, acting in a scattered way instead while the big players simultaneously negotiate with Argentina, Lebanon, Zambia, Sri Lanka and Ecuador. It’s the debt placement agents, Bank of America and HSBC, which have the crucial task of selling the agreement to the rest of the market to justify the millions they will be paid in commissions. Guzmán and Fernández are demanding results from these banks.
Slow, conflictive, and seen as a blueprint for future debt negotiations, the restructuring that President Fernández had originally established as the main goal of his government still has a stretch to go before it’s over. But whether it ends successfully or with another default, Olivos is looking to find an end to this chapter before the still very distant end to the pandemic.
(Originally published in El Canciller)