Recent developments marked a significant turnaround from the tumult of the Argentinian market. Based on events set in motion at the start of this year, the U.S. Congress passed a 54-16 vote last week to allow President Mauricio Macri to issue a bond and apply part of the funds to pay holdout creditors. Under his leadership, the country is poised for greater financial stability, with a more optimistic financial outlook than the recent past.
In 2013, the Argentine bond market was in a much different place after the country’s multiple defaults on foreign bonds. While not unique to the South-American country, the frequency with which this situation occurred raised eyebrows globally, causing many to question the decisions of its leader, former President Cristina Kirchner. “Argentina is a special case. Its recalcitrance is the stuff of legend and the risk of this default was well telegraphed,” reported Michael Casey, of the Wall Street Journal, the week after the default.
This situation was a significant low point amidst other struggles that have led the country further into the downward spiral of a nearly 200-year trajectory of serious defaults, which finally resulted in a 15-year market hiatus. Despite being a country that seems to have everything going for it, as pointed out in Deutsche Welle, it seems to continually ensnare itself financially.
“The country of 43.4 million people has a literacy rate of over 98 percent, enormous natural resources, a vibrant export-oriented agricultural sector and a diversified industrial base.” The article goes on to point out that, these accomplishments aside, the country has defaulted on sovereign debt eight times, resulting in a massive economic depression from 1998 to 2002. Even with significant rebounds, resulting in 72 billion Euros with six years of growth at an average of 8.5%, the country has continued to battle high inflation and extremely concerning deficits.
But the “recalcitrance” The New York Times reports is being addressed. When President Macri was appointed in December of 2015, it came with significant other personnel changes to ensure that “Argentina shifted from being administered by populists with a tendency to nationalize industries, to being governed by bankers looking to make Argentina play by the rules of global markets.” Alfonso Prat-Gay, who formerly ran currency research unit at JP Morgan Chase in London, was appointed finance minister, and Federico Sturzenegger, an economist and former president of Banco Ciudad, was appointed the head of Argentina’s central bank.
Carefully leveraging these new appointees in his government, Macri has ensured swift change. In an effort to regain access to foreign debt markets, President Macri put plans in place for a $4.65bn cash payment for four “holdout” creditors who refused to restructure debt after the country’s 2001 default. Coupled with several other funds, this positioned Argentina to bring in $15bn in debt funds from foreign creditors, making it the largest bailout since Mexico’s $16bn deal 20 years ago.
Now post vote, the bond is expected to raise at least $12 billion, of which $11.68 billion will be used to pay the holdout creditors, with the extra $3 billion going toward closing out the government’s fiscal gap.
According to an article in CNBC, this vote has been lauded as a huge accomplishment for President Macri, who had to win over former supporters of Kirchner’s, and was the last big challenge he faced before being able to launch the bond.