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Fin del principio

24 February 2016 By Martin Langfield

Argentina’s President Mauricio Macri is on the verge of his first major victory since taking office in December. The pro-business leader appears close to a deal with major holdout investors that would end a decade of legal wrangling over the country’s defaulted debt. He will need it if he is to right Argentina’s listing economy.

It’s in dreadful shape, the fruit of years of unsustainable spending and magical thinking by Macri’s leftist predecessor Cristina Fernandez and her late husband Nestor Kirchner. Fernandez’s legacy included inflation running at around 30 percent, a gaping fiscal deficit, depleted reserves and pariah status in global credit markets following a massive 2001 default.

Macri promised to get Latin America’s third-largest economy on track by lifting currency and trade controls, reining in spending and ending the debt standoff. Some 5 percent of investors holding defaulted debt had refused to settle alongside the others in 2005 and 2010. Led by an Elliott Management affiliate, they persuaded a U.S. judge to block the country from paying any other creditors first. Displaying what the judge last week called “contumacious policies,” Fernandez refused to talk with the holdouts, deriding them as “vultures.”

Now the two sides have reached a deal “on economic terms,” a lawyer for Elliott’s NML Capital and Aurelius Capital Management said on Wednesday, involving “a $5 billion transaction.” Further details are unclear, but it looks as though Macri will be as good as his word.

He has also followed through at home, allowing the currency to weaken to a historic low of around 15 pesos to the dollar, slashing electricity subsidies and laying off thousands of public-sector workers. That has led to labor unrest: unions representing government office workers and hospital staff, among others, staged a one-day walkout on Wednesday. A difficult round of salary talks looms with teachers, truckers and other unionized workers who are likely to demand pay hikes to match inflation.

The government expects growth of up to 1 percent this year after GDP virtually stalled in 2015 and hopes its reforms will boost that to 4.5 percent a year between 2017 and 2019. Getting there will provoke more protests, some no doubt fueled by Fernandez supporters. For Macri, a debt deal will be just the end of the beginning.


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