The government of Latin America’s third largest economy, Argentina, has sent a draft bill to Congress in order to begin the restructuring of the country’s approximately $100 billion debt.
Negotiations have been taking place with international creditors as well as the IMF, to whom Argentina’s owes approximately $44 billion. Gross debt is currently equal to roughly 93 percent of GDP.
Recently inaugurated President, Alberto Fernández, has repeatedly talked about the need to renegotiate the debt. His proposal has been seen by many as an attempt to buy time whilst the country tries to revive the economy.
Other proposals from the government include raising taxes on some of the country’s most productive sectors such as an increased export tax on wheat and corn from 12 percent to 15 percent, as well as raising the tariff cap on soya beans from 30 percent to 33 percent.
The Government is also trying to increase its social spending in order to improve consumption amongst the working and middle classes.
Fernández recently signed a “social pact” with business groups, unions and social movements which stated the most urgent problems are “the social and public debts.”
The document also stated, “We express our confidence and support for the management (of the debt) that, before private creditors and international organisations, the new Argentine Government will carry out.”
The previous administration of Mauricio Macri signed a record $57 billion bailout agreement with the IMF last year. Under his centre-right Cambiemos (Let’s Change) coalition, Macri sought to bring investor confidence back to Argentina through a process of economic liberalisation and spending cuts.
However, under the weight of such a huge sovereign debt and one of the world’s highest inflation rates, he was unable to increase production, continually resorting to assistance from the IMF, and in the end increasing the deficit.
Despite the economic incompetence shown by Macri, he remained the IMF’s choice in the 2019 presidential election.
“The IMF lent Argentina 11 times its quota of funds available to supplement state reserves…(and) delivered 80% of the committed funds in just 13 months, right before an election,” writes Juan Grigera, Lecturer in the Political Economy of Development at King’s College, London.
During his four years as president (2015-2019), the Argentine peso lost 83 percent of its value against the U.S. dollar.
A BREAK WITH THE OLD?
Argentina has experienced 8 sovereign defaults in its history. Trying to stave off an anxious nation’s fears of yet another default or adjustment, Finance Minister Martín Guzmán recently said that “2020 is not a year in which fiscal adjustment can be made.”
Guzmán, who is responsible for the debt negotiations, has stated he will try to avoid spending cuts and look to production-oriented policies instead. However, he has repeatedly reassured international creditors and the IMF that his government has every intention of honouring the debt.
“The willingness to pay is there – we’ve always said that – but in order to pay we have to be able to generate capacity, and for that, we have to grow, and that’s why it’s fundamental that there be relief of the debt burden,” he said.
But not all parties and groups agree the debt has to be honoured. Andrea Lanzette of the Socialist Workers’ Movement (MST), part of the FIT-U coalition which consolidated itself as the fourth largest political force in last year’s elections, told Decembrist the “debt is illegal and illegitimate.”
According to Lanzette, “the people also question the means in which the debt has been incurred and where all this money has gone. It’s public knowledge that the money goes missing and there is agreement amongst large sections of society that it needs to be audited, now more than ever.”
The FIT-U is the only major political force in Argentina with a policy of non-payment of the debt.
The role of the IMF in South America has been heavily criticised in recent months. Mass protests in Ecuador in response to an IMF package forced that country’s Government to relocate from the capital and ultimately cancel the deal. Similarly, the IMF has been a consistent target of ongoing protests in Chile.
For this reason, it’s possible the IMF may try to protect its image and offer the new Argentine Government a more favourable deal.
In recent years, Argentines have suffered a deterioration of living standards and increase in poverty. A recent report by the “Observatory on Social Debt” found that over 40 percent of the population (16 million people) are living in poverty.