TheEconomistAugust 8th 2020 291A
t alberto fernández’sofficial resi-
dence in a suburb of Buenos Aires, the
mood mixed relief and caution. “We’ve
dodged a bullet,” said an adviser to Argenti-
na’s president after the government had
reached a deal with creditors on August
4th. The news came just as the country re-
corded 166 covid-19 deaths, a daily record.
“The challenge is a path out of pandemic
and deep recession,” said the adviser.
The summing-up is accurate. Mr Fer-
nández, a Peronist who became president
in December, had appeared to be on a colli-
sion course with holders of $65bn-worth of
foreign-law bonds. That is about 40% of
the government’s foreign debt and equiva-
lent to 16% of this year’s gdp. The economy
minister, Martín Guzmán, initially de-
manded big cuts in interest payments and
a delay until 2023 in resuming them. Ar-
gentina, now on its ninth debt default,
looked set for yet another legal battle with
creditors, which would have weakened the
peso, quickened inflation and prolonged
its exile from international credit markets.
The government’s agreement with the
main holders of the debt has probably
averted that danger. It is offering new
bonds worth almost 55% of the face value
of the ones they own, up from an original
proposal of 38%. It will start to pay a bit ear-
lier than it had first proposed (interest due
every March and September will instead be
paid every January and July). It has also
agreed to make collective-action clauses,
which allow a supermajority of creditors to
force others to agree to a debt restructur-
ing, more favourable to investors by mak-ing it harder for Argentina to make a sepa-
rate peace with a subset of creditors, then
turn on the rest. Argentina will now have to
renegotiate its $44bn debt to the imf.
The agreement with creditors is “great
news”, says Federico Sturzenegger, a for-
mer head of the Central Bank who has been
a critic of Mr Fernández. Most Argentines
are less enthusiastic. “I can’t pay my taxes,
so how can I celebrate us paying debts?”
asks Ricardo as he opens his small grocery
store in downtown Buenos Aires. His first
client, Marta, a cleaner, scoffs: “People are
starving. We need the money, not the for-
eign banks.” Mr Fernández’s approval rat-
ing has recently dropped, from 61% to 51%.
What comes next “is the hard part”, says
an imf official: the intertwined tasks of
suppressing the pandemic and restoring
growth. That is what will improve the
mood of people like Ricardo and Marta.
The Fernández government acted early
in response to covid-19. It imposed a na-
tionwide lockdown in mid-March and has
maintained it in the most densely populat-
ed areas. That has kept Argentina out of the
ranks of the worst affected countries. De-
spite the lockdown, though, the number of
cases and deaths has jumped in the capital
and the surrounding province of Buenos
Aires, home to 45% of Argentines.
The cost has been high. The imfexpectsArgentina
Fighting on fewer fronts
BUENOS AIRES
A deal with foreign creditors is good news. Overcoming the economic and health
crises will require much more
The Americas
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