Americas Quarterly | Wed, Mar 3, 2021
by Arturo Porzecanski
The seeds for the latest chapter in Argentina’s long history of confrontations with the International Monetary Fund were planted about a year ago, on the eve of the global pandemic. President Alberto Fernández and Economy Minister Martín Guzmán were putting the finishing touches on a proposal for major debt relief from the government’s bondholders at home and abroad. Fernández had come into office in December 2019 criticizing the IMF’s huge emergency loan negotiated by his predecessor, and announcing his intention to seek debt relief from Argentina’s domestic and foreign creditors, including the IMF.
The resulting fear and uncertainty among investors meant that both the outgoing and incoming administrations lost their ability to roll over maturing obligations – much less obtain new funding – whether in pesos or dollars, except from captive state-owned entities and local commercial banks.
That dearth of investor financing came on top of an economy that was already stagnating in those early months of 2020, with expectations that GDP would contract by about 1.5% over the course of the full year. Inflation was running close to 50% year-on-year. The government budget deficit had reached the equivalent of 4% of GDP and the prospect was that it would widen more in 2020. Cut off from access to capital markets, Fernández and Guzmán became heavily reliant on cash advances provided by the central bank.
Then came COVID-19. News in early March of a first confirmed case, and soon after of a first death, raised the specter of a potentially devastating public health and economic emergency in the months ahead. That led Fernández and Guzmán to hold off on finalizing their proposal to bondholders until mid-April. In May that first draft was rejected by bondholder groups large enough to prevent the super-majorities needed to modify the bonds’ indentures, which specified a requirement for affirmative votes by between two-thirds to 85% of bondholders to change the payment terms.