22 Nov 2019
The incoming administration will be a broad coalition, so expect slow decision making. But it should have the political muscle to get things done.
Power currently resides with moderate politicians. President-elect Alberto Fernández seems to be calling the shots, rather than Cristina Fernández de Kirchner. Members of the future administration talk of implementing policy on a case-by-case/trial-and-error basis, and it’s not yet clear what they will actually do.
We met with three individuals likely to be given key roles. They are socialists at heart and believe in state intervention in the economy. They appear well-meaning, but it seems that their theories and grand statements are not generally backed up with readily-executable plans. In anything they do attempt, there is clearly considerable execution risk – especially regarding the upcoming negotiations with the IMF and bondholders, and in the aspiration to make coupon payments in December.
The current debt gameplan is possible, but it relies on a lot going right: the target is a primary deficit of 1% of GDP in 2020, then the hope is that growth returns sufficiently to make a neutral budget achievable in 2021. The hope is for a quick and amicable restructuring. Sources suggest a principal haircut of 20% and a coupon haircut of 50%, with a 5-year extension of all debt, but this is very speculative.
The IMF representative we spoke to was more positive than expected and “wants to assist”. We estimate that the IMF might be willing to accept a 1% deficit next year and a neutral budget in 2021, provided there are structural changes to pensions and tariffs. However, the US Treasury’s response will be key, and it is difficult to be sure of the IMF’s stance given the political influence on the decision whether to support Argentina’s debt plan.