Joseph Stiglitz: Argentina could avoid default if economy recovers fast enough
Argentina can avoid restructuring its bonds if policymakers reverse growth-stifling austerity measures in time, Nobel Prize-winning economist Joseph Stiglitz said on Monday.
A crushing defeat for business-friendly President Mauricio Macri in the August 11 primary election at the hands of his center Peronist rival Alberto Fernández (by 15.6%) unnerved investors.
The peso lost 20% of its value last week and Argentine bonds tumbled, pushing up borrowing costs - implying a 77% probability of a sovereign default within the next five years, according to IHS Markit.
GDP growth tumbled from 2.7% in 2015 (the year before Macri took office) to –2.5% in 2018, and –3.1% in the first half of 2019. Budget deficits, however, grew from 3.8% of GDP to 5.1% last year, swelled by rising interest outlays.
"The problem is that (Macri's) policies are not conducive to economic growth," Stiglitz told Reuters. "Austerity and the tight budgets lead to low growth and that makes the debt less sustainable."
Debt and Macrisis
From the very low level of foreign indebtedness left by Macri's predecessor, Cristina Kirchner, Argentina under Macri issued too much debt too fast, Stiglitz also noted.
"Macri began with an almost clean slate and he borrowed too much. He bet big and he bet wrong."
The country's public foreign debt ballooned in just three years from $85 billion to $200 billion - including a record $45 billion borrowed since June 2018 from the IMF, and most of it due in the next four years.
Fernández, now the front-runner for the election, warned on Sunday that a debt restructuring may be necessary.
"I think Fernández is unambiguously likely to have a better policy," said Stiglitz.
"Whether it's enough to avoid the need for a debt restructuring depends on how deep the hole is, that Macri dug over the last three-and-a-half years."
At: https://finance.yahoo.com/news/argentina-could-avoid-default-economy-101310584.html
Argentina's "business-friendly" incumbent, Mauricio Macri, and the likely winner of October's second round, Alberto Fernández.
If elected, Fernández, ahead by 20% in the most recent polls, will inherit a debt crisis not unlike those left behind by two previous right-wing governments: the last dictatorship (in 1983), and de la Rúa (in 2001).
"We can do this because it's exactly what Néstor Kirchner and I inherited in 2003," Fernández said, referring to the progressive president for whom he served as chief of staff.
"We've cleaned up the mess others left behind."
