Analysts at odds over implications

Economists contacted by the Herald yesterday coincided in assessing the agreement reached with the International Monetary Fund in broadly positive terms but disagreed on some of its implications.

Phoenix group economist Marcelo Lascano said that having met the 3.1 billion dollars payment that came due on Tuesday was “a good thing for the country.”

Lascano anyhow advised the government to emphasize on getting IMF authorities and private creditors to admit that they shared a degree of responsibility for lending generous sums of money to Argentina in the 1990s, without properly assessing the country’s repayment capacity.


Economist Jose Luis Espert also rated the payment of foreign debt obligations as “positive news” but said it should not be considered “as a victory” for the administration of President Néstor Kirchner.

“The government says it did not give in an inch (to IMF pressures) but that’s not the impression one gets from reading the successive letters of intent” signed by Argentina, Espert said further to point out that conditions for the country had been getting tougher with every passing deal.

“Kirchner’s bravados have been costly” for Argentina, he told the Herald.

Espert – who has been as critical of Kirchner administration policies as he once was of Convertibility – stressed that government attempts to place all the blame for the country’s debt woes on “auditors and creditors” were “regrettable.” He further stressed that the Kirchner administration would do well to keep in mind that “Argentina had signed (all) agreements with the IMF voluntarily.”


Expressing a different angle, Lascano brought forward the controversial issue of “moral hazard,” pointing out that by the early 1990s it was already clear that “fiscal deficit and a rising foreign debt” were blending into an “explosive cocktail” bound to go off sooner or later.

Lascano recalled that during the previous decade, the country”s foreign debt had grown “at annual 10 percent rates while per capita GDP expanded by an annual 1 percent” in that period.

“There was no repayment capacity and that was clear for all to see,” Lascano told the Herald, further to emphasize that moral hazard applies not only to so-called vulture funds, but also to banks that loaded off Argentine bonds from their portfolios by selling them to individual savers when default was imminent, as was the case in Italy and Germany.

Lascano further stressed that the issue of “shared responsibility” should be emphasized both politically and legally in order “to serve the truth and not as a mere strategy to try and pay as least as possible.”

Asked on the 50 to 66 percent acceptance floor which Economy Minister Roberto Lavagna says would be enough to consider the debt restructuring process successful, Lascano said that he thought it to be a “reasonable” figure. The Phoenix group economist noted that it would not have been convenient to set an acceptance floor in writing, as it may have collided with specific clauses featured in over 150 different bonds issued by Argentina in the 1990s.


Espert also supported the government’s reluctance to have any specific floor mentioned in written form saying that “writing down a figure would give creditors more ground to press” Argentina, but criticized the acceptance target set by the Economy minister.

“Lavagna may believe that a 50 percent acceptance floor is good enough,” Espert said, while stressing that this would mean leaving half of the privately-held debt still in default.

“The international financial architecture simply cannot allow this,” Espert noted.

Abel Viglione, a senior economist with the FIEL think tank, broadly agreed with his colleagues on the convenience of not writing down specific acceptance floors, but acknowledged that the 80 percent figure and the June deadline suggested by IMF authorities were reasonable.

“According to US and British legislation, 66 percent may be an acceptable floor,” Viglione said, but warned that this would leave some 30 billion dollars out of the debt restructuring deal and on the way to the courts. He advised the Kirchner administration to try for the 80 percent target in order to avoid massive litigation.

Referring to the upcoming review of Argentina’s fiscal performance, scheduled for May 10, Viglione predicted things “would go down well.” The FIEL economist told the Herald that there could be more trouble coming in July, when Argentina and the IMF are slated to start negotiating fiscal goals for the 2005/06 period.