Public Debt Defines First Year of Fernández Presidency

The pandemic and economic recession in Argentina are challenging Alberto Fernández’s aspirations to emulate his mentor Néstor Kirchner.

December 18, 2020

The closing rally of Alberto Fernández and Cristina Kirchner's campaign in October 2019. (Mídia NINJA)

December 10 marked one year since Alberto Fernández’s inauguration as president of Argentina. He won in a landslide victory over incumbent president Mauricio Macri. Fernández’s political career took off in the early 2000s when he served as Néstor Kirchner’s campaign manager and Chief of Staff.

Both on the campaign trail and since his election to the Casa Rosada, Fernández has repeatedly stressed the continuity between Kirchner’s political project and his own program. As he declared, visibly moved, on the tenth anniversary of his mentor’s passing: “in my life there has been a before and an after Néstor,” adding: “my duty is to finish the task that Néstor started and that Cristina continued,” referring to Cristina Fernández de Kirchner, ex-president (2007-2015), current vice-president, and Néstor’s widow. “We’re going to put Argentina back on its feet, like Néstor taught me.”

Since his election, Fernández has tried to give a second wind to the progressive Kirchnerista project that governed Argentina between 2003 and 2015.  He has taken steps in this direction by providing political asylum to ex-president of Bolivia Evo Morales after the coup he suffered in November 2019 and fully supporting the legalization of abortion that is currently being debated in Congress. The Chamber of Deputies voted in favor of the law on December 11, but it still needs to be approved by the Senate. However, the economic recession, ongoing negotiations with the International Monetary Fund (IMF), and the Covid-19 pandemic might very well shatter the center-left president’s dreams of following in his mentor’s footsteps and bring social progress and economic growth to Argentina.

Public Debt and the IMF: from Kirchner’s “Transcendental Step” to Macri’s “Return to the World”

Managing public debt and dealing with the IMF have been two of Argentina’s most enduring issues in recent years. As Néstor Kirchner put it in his inaugural address in May 2003, he aimed to “turn a page in history,” leaving behind the neoliberal model that led to “the consolidation of poverty and the condemnation of millions of Argentines to social exclusion, [to] national fragmentation, and an enormous and endless external debt.”

After the previous government declared the largest public debt default in history in December 2001, reducing a highly debilitating public debt–140 percent of the GDP–was high on Kirchner’s agenda. His confrontational approach towards foreign creditors eventually paid off and, in March 2005, he proudly announced that the country had successfully completed “the largest debt swap in world history.” By 2010, 92.6 percent of bondholders had accepted the government’s debt swap proposal, which accounted for a loss of 66 cents on the dollar.

Then, in January 2006, Argentina paid the $9.81 billion it owed the IMF in one payment, well ahead of the 2008 deadline. In a highly critical speech, Kirchner accused the financial institution of having brought “exclusion, poverty, indigence, and the destruction of the productive apparatus” to Argentina and declared that the repayment of the debt represented a “transcendental step, which will… …help us build a more just, inclusive and equitable future.”

Following the repayment of this debt, the IMF was prevented from conducting any monitoring activity in Argentina until Mauricio Macri’s election in 2015. Re-establishing relationships with the IMF and ensuring the country’s return to international capital markets were central to Macri’s political project. As he put it, apparently oblivious to Néstor and Cristina Kirchner’s promotion of regional integration, “we want to be part of the world again and cut isolationism.”

After inviting the IMF to resume monitoring activity in the country, Macri also put a stop to the Kirchners’ policy of independence from international capital markets. He happily caved to the demands of the “vulture funds,”  a small minority of bondholders who refused to take part in the successive debt swap programs and waged a years-long judicial battle against the Argentine government. The 2016 agreement allowed NML Capital, the most important holdout, to pocket a 1,180 percent return on investment.

To honor the deal made with the vulture funds, Macri’s government issued “the largest sum of debt by any developing nation since 1996.” Far from revitalizing the Argentine economy, this sharp increase in public debt, coupled with other neoliberal reforms of market deregulation, pushed the country to the brink of a full-blown economic crisis. This lead Macri to turn to the IMF for help. After years of defiance under Néstor and Cristina Kirchner, the financial institution eagerly supported Argentina’s renewed embrace of the Washington Consensus, granting the Macri government a hefty $57 billion loan, the largest in the organization’s history. Despite, or rather, because of, Macri’s radical austerity measures, the economic and social situation kept deteriorating.

During Macri’s mandate, GDP fell by four percent, the Argentine peso lost 515 percent of its value, and inflation totaled 240 percent. Instead of his much-touted campaign slogan of “zero poverty,” poverty and extreme poverty increased by 17 percent and 31 percent while unemployment rose by 50 percent, reaching levels not seen since 2006.

As Alberto Fernández, who defeated Macri in the 2019 elections, reminded the political and economic elite during his inaugural speech: “behind these terrifying numbers are human beings whose expectations have been destroyed.”

Alberto Fernández and the Return of the Peronist Left: “The Dead Don’t Pay”

Following in Kirchner’s footsteps, Fernández argued that the colossal public debt, which had risen from 52.6 percent of the GDP in 2015 to 89 percent in 2019, constituted an insurmountable obstacle on the path to a fairer and more inclusive society: “the nation is embedded, with a cloak of instability that hinders any possibility of development and leaves the country hostage to international financial markets.”

In January 2020, newly minted Ministry of the Economy, Martín Guzmán, a close collaborator of Joseph Stiglitz specializing on questions of public debt, headed the Argentine team negotiating with its foreign private creditors. The IMF declared that the $323 billion debt was “unsustainable,” urging bondholders to collaborate with the government’s debt restructuring efforts. While this show of support contrasted with the overt hostility with which it treated similar efforts from the Kirchner administration from 2003 to 2005, the irony of the IMF’s statement was not lost on those who, like economist Guadalupe Bravo, underscored the financial institution’s co-responsibility in the explosion of the country’s public debt. Yet, in the same breath that it asked private creditors to accept a debt write-off, the IMF made clear that Argentina would have to repay its debt to the financial institution in full.

As the Covid-19 pandemic was spreading throughout the globe, Guzmán and his team engaged in months-long negotiations with foreign private creditors. In May, a group of renown economists led by Nobel laureates Joseph Stiglitz and Edmund Phelps published an open-letter calling on bondholders to accept Argentina’s “responsible offer.” They wrote, “this is the only way to combat the pandemic and set the economy on a sustainable path.” The letter, which echoed both the IMF’s message and President of the Chamber of Deputies Sergio Massa’s somber comment, “the dead don’t pay [their debt],” evidently failed to convince the bondholders who, a few days later, rejected the Argentine government’s offer. The creditors’ intransigent stance forced Argentina to declare a “technical default” in late May when it failed to pay $500 million in interest payments.

However, the specter of a full-scale default was eventually lifted in August when, in an allocution that drew parallels with the debt restructuring of 2005, Fernández informed the nation that Argentina had finally escaped the “labyrinth” of debt. While the terms of the agreement were much closer to the creditors’ demands than to that of the Argentine government, the bondholders will receive 54.8 cents on the dollar, way above Guzmán’s original offer of 39 cents, it will allow Argentina to save $37.7 billion over the next ten years and will reduce interest rates from seven percent to 3.07 percent. A week later, Argentina restructured another $41.175 billion of its debt with national bondholders, under the same conditions. Despite these successes in debt restructuring, Fernández’s approval rates continued freefalling, dropping from 78.7 percent in March to 35.5 percent in September, as the economic and social situation remains extremely precarious, due to the Covid-19 pandemic. 

Covid-19 and Structural Adjustment

Latin America is the region of the world where the social and economic consequences of the pandemic have been most dramatic. According to a recent report, the region’s GDP is set to fall by 9.1 percent, while unemployment rates could reach 13.5 percent and poverty and inequality return to their 2006 levels.

Things look particularly grim for Argentina. Despite having implemented some of the strictest restrictions in the world, Argentina currently has one of the highest mortality rates in the world while economic and social indicators keep worsening. GDP is predicted to fall by 12.5 percent while inflation and currency depreciation continue to plague the country. Unemployment is also rising, affecting 13.1 percent of the population while poverty and extreme poverty rates have surged to 40.9 percent and 10.5 percent. If the situation was not bleak enough, ongoing negotiations with the IMF further limit the government’s margin for maneuver.

As a recent article from left-wing newspaper Página12 put it, “the presence of the IMF in Argentine economy is the heaviest legacy left by macrismo.” Despite Fernández’s pledge to not incur additional debt to repay the existing one, the government is currently negotiating a new “Extended Fund Facility” loan with the IMF. As the financial institution’s website makes clear, this kind agreement involves a “strong focus on structural adjustment.” While the details of this structural adjustment are still unknown, the latest announcements seem to contradict Fernández’s claim that “there will be no adjustment for the most vulnerable.”

While the government recently decided to put an end to the Ingreso Familiar de Emergencia, a financial support program to informal workers affected by the Covid-19 pandemic, its objective of reducing fiscal deficit by over 40 percent in 2021 will notably be achieved through a drastic reduction of social expenditures and the implementation of a controversial pension reform. While the government also implemented more progressive measures, like an exceptional wealth tax on Argentina’s super rich, it appears that the most vulnerable sectors of society will carry most of the adjustment’s burden.

Carrying out Kirchner’s Legacy

On November 12, Fernández reaffirmed his commitment to repeat the successes of Néstor Kirchner’s presidency, bringing economic growth and social progress to Argentina. However, the days of the commodity boom of the early 2000s are long gone. The value of Argentine exports fell by 40 percent between their peak in 2011 and October 2020, and the Covid-19 pandemic and ongoing pressure from the IMF cast a menacing shadow over Argentina’s prospects of economic recovery and social justice. The regional and national context has also changed dramatically, which further complicates Fernández’s task.

While Kirchner was able to build regional alliances with like-minded progressive “Pink Tide” leaders, the region has once again shifted to the right. The contrast is strongest with regards to Brazil, one of Argentina’s most important partners. Kirchner and Lula developed a close friendship and forged a strategic alliance to promote regional integration. Now, Fernández is a frequent target of Jair Bolsonaro’s verbal attacks. In September, the extreme-right president of Brazil said of its Argentine neighbor, “ the left [which was] responsible for the country’s collapse has returned to power and they are quickly moving towards a regime similar to Venezuela.”

On the national front, Fernández also faces intransigent opposition from Macri’s Propuesta Republicana (PRO) party which, under ex-ministry of Security Patricia Bullrich’s leadership is becoming, as historian Ezequiel Adamovsky pointed out, an Argentine version of far-right bolsonarism. Bullrich has become a central figure of the successive “banderazos,” radical anti-government protests that have marked the country since Fernández’ election. The opposition’s radical and intransigent position and its continuous destabilization attempts fuel the increased polarization of Argentine society, further limiting Fernández’s margin of maneuver to carry out more progressive initiatives.

On October 27, Fernández fondly remembered how, on the day that he was sworn in as Kirchner’s Chief of Staff, he congratulated the newly elected president “see Néstor, we made it!,” to which Kirchner replied “what do you mean, ‘we made it’? We’re only getting started!” Seventeen years later, Alberto Fernández still has a long way to go to fulfil his mentor’s dream of building a fairer and more inclusive Argentina.

Hugo Goeury is a doctoral student in sociology at The Graduate Center, CUNY. His research focuses on the articulation of penal and welfare policies in Argentina. You can follow him on Twitter @HGoeury.

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