the Government admits that it could not meet the fiscal objective

The impact of the global coronavirus crisis, which will reduce growth in all countries this year, will surely complicate the Argentine economy that was already going through a prolonged recession.

One of the risks is that this stand will deepen and the Alberto Fernández government will have to choose between expansionary policies (to prime demand) or comply with the (unambitious) fiscal path set out so far. The data is not less when the Ministry of Economy prepares to go out to renegotiate the external debt. Without growth or tax savings, it is more difficult for creditors to accept an aggressive offerto.

In this sense, and despite the radio silence that reigns in Hipólito Yrigoyen at 200 (Mecon headquarters), the Government has already come to question the fiscal scenario raised on February 12 when the disciple of Joseph Stiglitz went to Congress to present economic guidelines.

At that time, Guzmán stated that Argentina would have -as an achievable scenario- fiscal balance only from 2023 and that in the following years they would go in search of a primary surplus of between 0.6% and 0.8% of the Gross Domestic Product (PBI).

Now, and in the midst of a global “Black Swan”, the Executive has advised the same bondholders that it will try to convince them to enter the renegotiation, that perhaps this scenario will not occur.

This was reflected in writing in an official document presented this Tuesday before the Securities and Exchange Commission (SEC), the regulator of the United States capital market, and to which he had access Professional.

This paper is called “18K” and it is where countries that issue debt in the US have to keep bondholders up-to-date on “news” that may alter their decision to buy assets. With the signature of the Secretary of Finance, Diego Bastourre, this possibility is explicitly admitted after listing Guzmán’s sayings in Congress with the projected fiscal numbers.

“On the fiscal front, the minister indicated that it would not be realistic or sustainable to reduce the fiscal deficit in 2020 and discussed a series of scenarios that could allow the Republic to achieve fiscal balance. Although these potential scenarios for the Argentine economy may have been reasonable when formulated, the actual results depend on events and developments that are not under Argentina’s control. Consequently, the Republic cannot guarantee that the economic results do not differ materially from the information established above.“reads the official document.

Although the paper in Economics does not explicitly talk about the coronavirus, which is reducing growth forecasts worldwide, it seems clear that they are covering themselves in the face of this unexpected outcome, of which there are still many doubts about the future.

In the financial market, this topic had been discussed in recent days, even more after the oil crisis had fully entered the already altered market. This clearly comes to whitewash a situation that on Wall Street was not seen as sustainable and that will surely be in discussion when the debt offer is presented.

How will Guzmán do to convince the bondholders to accept a major drawdown if he cannot assure him of the undemanding fiscal path that he presented almost a month ago? Is the question heard in the market.

Skepticism was already reflected in several reports from foreign and local investment banks. Citibank, for example, came out to say in recent days that there is little reason to be optimistic about Argentina.

And they pointed out that the observed policies may be necessary for the government to consolidate itself in political terms (due to the retention rate), but they will affect growth prospects in the medium term. In fact, they don’t expect a tax improvement this year.

Citi, one of the most renowned US entities, recalls that Argentina has not accumulated primary surpluses in the last 10 years and that with current policies it is not clear if this can change. He further predicts that creditors may want to wait until the economic orientation is reviewed and not accept the swap.

In the immediate term, the Government has very weak fiscal numbers in terms of collection. Both in January and February it falls more than 5% against the same month last year. In addition, public spending was flying (according to the Government, for social assistance) much faster than income. These numbers do not bode well when sitting down to negotiate a tough write-off for creditors.

Matias Roig, director of Personal Investment Portfolio (PPI), says that in this scenario of uncertainty, panic and falling commodities, it will further complicate debt renegotiation.

“What the country has to demonstrate to achieve an acceptable renegotiation is its numbers for the future; then, if the commodities fall, it will be more difficult for Argentina to convince creditors that it will have a growth path and lower the fiscal deficit, and be able to meet the macro objectives that they want to set.“he indicated.

It will be seen very shortly what is the offer that Guzmán will present. Because of the financial crisis will you launch something more aggressive or not? In the market there are doubts. For now, it was revealed that the Government will try to restructure US $ 68,842 million in bonds that are distributed among 35 types of securities in the US, UK and Japan.

They will all go to the “slaughterhouse” including the Par and Discount, two that emerged from the exchange of 2005 and 2010 (read are the product of another restructuring), which were (and are) in the sights of the vulture funds since they have action clauses Collective (CACs) most beneficial to creditors.

Different is the situation for those who issued Mauricio Macri as the famous Bond of the Century (which will go to the operation) that has a CAC of 66%. Much easier to renegotiate.

If the country does not have 85% acceptance of this class of Par and Discount titles, it will not be able to successfully restructure them. So the most aggressive investors buy them: to block the deal. Hence the rumor that Argentina could enter a kind of “partial default”, that is, exchange some bonds but not others.

It is impossible because the titles have cross default clauses and if a title is no longer paid, the rest could automatically default because investors would ask for the “acceleration” of the payments.

There is no easy way out. With no forward fiscal commitment and with altered markets demanding some immediate cash, the transaction that the economy minister will face could be complicated.

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