Argentina is today seeking to end 15 years of financial isolation when it sets out to borrow cash on international credit markets for the first time since a 2001 default.
The country is looking to boost its struggling economy and settle a 15-year lawsuit by US investment funds which former Argentine president Cristina Fernandez branded “vultures.”
This week’s debt issue “is an important, epoch-changing event,” said Gaspard Estrada, a specialist at Observatoire Politique de L’Amerique latine et de Caraibes.
“It serves partly to pay the vulture funds, to finalize an agreement with the remaining creditors and to give the government room to maneuver to restart the country’s economy,” Estrada said.
However, economist Marina Del Poggetto said that the country would also have to lower its public deficit — currently 6 percent of output — and strengthen the economy.
“In the long-term, it will have to correct imbalances because going into debt is not a strategy in itself,” Del Poggetto said.
Now that a US court has cleared the way for Argentina to start borrowing again, the government plans to issue up to US$15 billion in bonds today and tomorrow.
The court ruling was seen as a victory for Argentine President Mauricio Macri.
He has been scrapping Fernandez’s protectionist policies and opening up Argentina’s diplomatic and financial ties.
He has lifted currency controls and raised utility prices, generating angry protests by Argentines who say their spending power is declining.
South American countries generally borrow at 3 to 4 percent interest, but analysts forecast Argentina would have to offer a higher rate in its new bond issue.
Capital Economics analyst Edward Glossop estimated it would have to offer investors a yield of between 7 and 9 percent.
“The issuance of external debt is likely to have a significant impact on the economy over the medium-term,” he said.
However, after the 2001 crisis, some Argentines object to taking on new debts — not least Fernandez and her allies.
“Once again history is repeating itself and catching the Argentines out. Debt, devaluation, layoffs, political persecution, price rises,” Fernandez said in a speech this week. “These are just a few of the calamities that the new government has caused in barely four months.”
Former Argentine minister of economy Axel Kicillof said the new debts would be followed by further painful public spending cuts that would affect the poorest Argentines most.
“Paying off the vultures without a word is just the first condition for the foreign banks to lend Macri the money he needs. Then they’ll be suggesting a rescue program from the International Monetary Fund,” he said. “The Fund [IMF] makes sure the country’s resources aren’t used for social welfare and that all its assets are sold to pay the debts.”
Argentina did not borrow in the 12 years under Fernandez and her late husband and predecessor Nestor Kirchner, Estrada said.
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