Argentine Crisis Deepens; Primary Election Victor Alberto Fernández Announces ‘We Can’t Pay’ IMF

Aug. 19, 2019 (EIRNS)—The financial chaos that followed neoliberal President Mauricio Macri’s stunning defeat in the Aug. 11 primary election, continued today. Although the Argentine markets were closed today for a holiday, on Wall Street, stocks of major Argentine companies plummeted by 12% or more, and the country risk rate shot up by 14% to 1,900. IHS Markit reported that this morning, the cost of insuring Argentine debt via a five-year Credit Default Swap had shot up by 319 basis points, reflecting fears of default.

Uncertainty is widespread. In an interview with the daily Clarín over the weekend, primary winner Alberto Fernández of the Front for All coalition, said there is only “one incontrovertible reality, and that is that Argentina under these conditions cannot repay the debts it’s taken on.” On Aug. 16 Fitch Ratings and S&P Global downgraded Argentina’s sovereign debt, with Fitch dropping it deep into junk territory from B to CCC, and S&P from B to B− with a negative outlook. Both say “default is a real possibility.” The Aug. 17 resignation of Macri’s Finance Minister Nicolas Dujovne has added to the uncertainty, and for most of today the President huddled in emergency session with his cabinet and Dujovne’s replacement, Hernan Lacunze, former Finance Minister for the Buenos Aires provincial government.

In the context of the looming global crash, it’s not impossible that the Argentine crisis could spread to other emerging markets. The key issue is the “sustainability” of Argentina’s $334 billion in foreign debt—now more than $100 billion higher than when then-President Cristina Fernández de Kirchner left office in December of 2015, and representing more than 100% of Gross Domestic Product.

Continuation of the IMF’s $57 billion standby agreement is therefore in doubt. The Fund is scheduled to disburse $5.5 billion on Sept. 15, but that is premised on future compliance with its austerity conditionalities, which is impossible. If the September disbursement, or those scheduled for December and into 2020 don’t materialize, Argentina will have to use its foreign reserves, to pay the $12 billion interest on treasury bonds due in December. Last week, reserves plummeted by $4 billion out of a total of $15 billion, while the peso plunged by 25%.

As Argentine economist Alfredo Ziait wrote in an Aug. 19 article for Página 12, the only option now is an “orderly restructuring” of the debt, starting with refinancing the stock of very short-term debt (Letes, Lecap and Lecer peso-denominated Treasury bonds), in the amount of $20 billion. Anything else would ensure continued financial chaos, and further destruction of the economy and living standards, he warned.