Argentina’s Economy Is In A Technical Default (#GotBitcoin?)
Alberto Fernández in interview partly blames IMF for country’s financial crisis and pledges higher wages and pensions. Argentina’s Economy Is In A Technical Default (#GotBitcoin?)
Argentina’s presidential front-runner said the government’s new plan to restructure its short-term debt shows the country is virtually insolvent, as a crisis of confidence has wiped out private sector demand for government debt.
“Now, there is no one taking Argentine debt, or anyone who can pay it,” said Alberto Fernández, who as candidate of the Peronist coalition is widely expected to win October’s presidential election. “Argentina is in a virtual, hidden default.”
Earlier this week, President Mauricio Macri ’s government unilaterally extended the maturity of all short-term paper and said it wants to restructure its debt with the International Monetary Fund, after the country’s treasury was unable to roll over obligations with the private sector.
Markets reacted negatively, with S&P Global Ratings downgrading Argentina’s debt to selective default on Thursday. “This has immensely stressed debt dynamics amid a depreciating exchange rate, a likely acceleration in inflation, and a deepening economic recession,” S&P said in a release.
The IMF, which gave Argentina a $57 billion bailout in 2018, said Wednesday that it was assessing the measures.
In his first interview with a foreign-media outlet ahead of the election, Mr. Fernández said he was unwilling to support the government’s emergency measures aimed at containing rising volatility. “The market now knows where they’re headed,” he said at his campaign headquarters, referring to the government’s efforts to restructure short-term debt.
The latest bout of volatility hitting Argentine assets was sparked by Mr. Macri’s crushing setback in a primary vote on Aug. 11 that made Mr. Fernández and his running mate, former President Cristina Kirchner, the favorites to win the Oct. 27 election by a wide margin. In Argentina, a nationwide primary vote is held before an election to decide which parties can field candidates, and is viewed as a strong indicator of the final election result.
The 60-year-old Mr. Fernández said that if elected, his administration would aim for a balanced budget eventually. But he first plans an ambitious program to restore purchasing power by increasing wages and government pensions, while containing inflationary pressures with a broad-ranging pact with employers.
“To reverse this cycle you must launch a plan to boost consumption, and I will not ask permission from the IMF for it,” said Mr. Fernández.
The possible return to power of the nationalist Peronist movement, which is expected to unravel the economic overhaul Mr. Macri launched after taking office in 2015, has unnerved investors.
Dismissing market concerns about a potential Peronist victory, Mr. Fernández said that the $57 billion bailout from the IMF, its largest on record, is partly to blame for Argentina’s financial-market slide.
Instead of being used to replace more expensive debt, Mr. Fernández said, the dollars from the IMF have evaporated in capital outflows as the government burned foreign-currency reserves to contain the steady depreciation of the Argentine peso. The central bank has spent close to $1.5 billion to meet rising demand for dollars since mid-August, or about 10% of its net foreign-currency reserves.
“The current crisis is a case of déjà vu,” he said in recalling the country’s financial collapse in 2001 that led to its default on $100 billion in government debt, a record at the time. His disagreements with the IMF’s conditions are also similar, he added.
“What I want them to understand in the IMF is that they are guilty of this situation,” Mr. Fernández said. “It was an act of complicity with the Macri administration. It was humankind’s most expensive reelection campaign, and they gave money to a compulsive spender.”
The IMF declined to comment. It said earlier this week that senior staff members met with Mr. Fernández and his economic advisers “for a productive exchange of opinions.”
Mr. Fernández said he made it clear he doesn’t support Mr. Macri’s austerity measures to balance the government’s budget, which were among conditions agreed with the IMF.
“Mr. Macri’s government caused damage similar to what Argentina suffered in 2001: a debt default, no foreign-currency reserves, a steep devaluation and increased poverty,” he said.
Argentina has defaulted eight times on its foreign debt through its 200-year history. It has also received close to 30 support packages from the IMF, which has had a rocky relationship with previous Peronist leaders.
Many economists say Argentina now lacks the financial firepower to stimulate the economy, which contracted by 5.8% in the first quarter from a year earlier. And not everyone blames Mr. Macri for the country’s latest financial debacle.
“The government made the right decision, taking into account the current situation,” said José Luis Machinea, a former finance minister and central-bank governor. “Political uncertainty linked to the outcome of the primary caused the renewal of short-term debt to collapse. In that respect, it’s hard to blame the government.”
Mr. Fernández, a veteran politician who likes to play guitar and listen to Argentine rock music, has extensive links across a Peronist movement that includes organized labor, far-left groups and conservative provincial governors.
He is also seen as more pragmatic than Mrs. Kirchner, who nationalized foreign companies and imposed capital controls when economic conditions deteriorated toward the end of her term.
Mr. Fernández said he is against capital controls and expropriations. He said that if he wins, he will seek to attract foreign investment, focusing on efforts to continue developing the vast Vaca Muerta formation, home to one of the world’s largest deposits of shale oil and gas.
“For us, it’s startling that the world believes that Macri is the solution,” he said.
Argentine Government Imposes Capital Controls
Measures aim to restrict dollar sales, contain foreign-exchange depletion ahead of presidential election in October.
Argentina’s government imposed capital controls in its latest bid to prevent a depletion of foreign-currency reserves amid a crisis of confidence that has fueled dollar outflows and financial-market turbulence.
The unexpected measure, which takes effect on Monday, comes after President Mauricio Macri ’s government sought last week to unilaterally extend the maturity of all short-term paper after it was unable to roll over obligations as a result of plunging demand for government debt.
“It’s Macri’s latest gambit to regain control of the situation,” said Matías Carugati, an Argentine economist. “These are very challenging times, and people are beginning to panic. It’s no surprise that the government is working on the fly, and the improvisation has some costs.”
The central bank has been selling dollars at a faster pace in an effort to contain a sharp depreciation of the Argentine peso. Mr. Carugati said reserves have fallen by $12.2 billion since Aug. 9, or about 20% of foreign-currency reserves. The peso has shed more than 20% of its value since Mr. Macri suffered a crushing setback in a primary vote on Aug. 11.
Alberto Fernández, the presidential candidate of the nationalist Peronist coalition, and his running mate, former President Cristina Kirchner, emerged as the broad favorites to win the Oct. 27 election, which would threaten Mr. Macri’s austerity policies. Mr. Fernández told The Wall Street Journal last week that Argentina was in a “virtual default.”
The government responded to the backlash from voters by freezing gas prices, increasing the minimum wage and providing a bonus payment to state workers as Mr. Macri seeks to win support ahead of the election.
In a decree released on Sunday, the government said the central bank would limit dollar sales, requiring companies and banks authorization to purchase hard currency. The country’s exporters would be required to repatriate all hard currency from sales abroad.
Individuals seeking to buy dollars will have a limit of $10,000 per month. Bank transfers abroad by individuals will also face a monthly limit of $10,000. Dollar purchases by nonresidents will be restricted to $1,000 a month, and they won’t be allowed to make bank transfers abroad.
Given the recent financial-market turmoil and political uncertainty, it is “necessary to adopt temporary and urgent measures to regulate the foreign-exchange market with greater intensity and strengthen the normal functioning of the economy,” the decree said.
The goal, the government added, is to “reduce financial-market volatility and contain the impact of fluctuations in financial flows on the economy.”
‘Buy Bitcoin’ Says Expert As Argentina Imposes $10K Limit For Citizens
Argentina has reimposed capital controls, limiting citizens’ and businesses’ freedom to buy foreign currency.
As Bloomberg reported on Sep. 1, the increasingly troubled South American nation took the step as the Argentine peso (ARS) suffers overwhelming losses against major fiat currencies such as the U.S. dollar.
Argentina Puts $10K Limit On Dollar Access
Argentina has shown an affinity for Bitcoin (BTC) in recent times, with trade volumes accelerating as uncertainty around the economy grew. Last month, a premium appeared on the country’s cryptocurrency exchanges.
Now, access to hard currency is restricted to just $10,000 for individuals looking to dump ARS on the market, despite its exchange rate falling 34% in USD terms since Aug. 2.
Demand for Bitcoin, a cross-border asset which is impossible to control, should therefore increase further, some suspect.
“Buy Bitcoin,” cryptocurrency-focused attorney Preston Byrne tweeted following the news.
Volume data showed Argentinians trading more in ARS on P2P crypto exchange Localbitcoins last week, a trend which may continue if circumstances follow those of embattled Venezuela.
Draper May Force Bitcoin Switch
Argentina’s economic woes may not match those of Venezuela, yet Bitcoin advocates appeared to preempt the crisis months beforehand.
As Cointelegraph reported, billionaire investor Tim Draper even met with the country’s president earlier this year to bet on Bitcoin outperforming ARS.
Should Draper win, he demanded Argentina shun the peso altogether, adopting Bitcoin as its new official state currency.
“That would be a perfect decision, as there’s a lack of confidence in this coin,” he reportedly commented at the time of the meeting in March.
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