Even though the Argentine government has finally managed to reach a deal restructuring its $65 billion sovereign debt after months of deadlocked discussions with creditors, its economic outlooks still looks uncertain considering the history of setbacks over the last two decades, analysts told Sputnik
MOSCOW (Pakistan Point News / Sputnik - 12th August, 2020) Even though the Argentine government has finally managed to reach a deal restructuring its $65 billion sovereign debt after months of deadlocked discussions with creditors, its economic outlooks still looks uncertain considering the history of setbacks over the last two decades, analysts told Sputnik.
Argentina has always been a default-prone country having suffered a major default in 2001 and a minor one in 2014. Over recent years, Buenos Aires was also rocked by a currency crisis and economic depression. After failing to find common ground with private bondholders, which include US investment management giant BlackRock, the Argentinian government in April laid out a proposal to restructure its debt. Months of heated discussions followed.
However, the saga of restructuring Argentina's debts is far from being over. It now needs to renegotiate payments of a $44 billion load provided by the International Monetary Fund, due to start next September. But the Latin American country faces pressure of a recession, exacerbated by COVID-19, and its GDP is expected to shrink by at least 10 percent in 2020.
Buenos Aires needs better financial management in order to dig itself out of the debt hole, James Robinson, a prominent economist and a professor with the Harris School of Public Policy at the University of Chicago, told Sputnik.
"Isn't this the ninth time Argentina has defaulted? I would say it is certain that it will default again in the future unless Argentina can change its institutions and the way that its politics works," Robinson said.
The Argentinian government should have focused first at coming up with an economic program, Arturo C. Porzecanski, a distinguished economist in residence with the School of International Service of Washington DC-based American University, told Sputnik.
"The government has insisted on a very unusual policy sequence: first you obtain debt relief from your private creditors (bondholders); then you obtain debt relief from the IMF and other official (bilateral) creditors; and then you come up with an economic program. The more sensible, best-practice has always been to proceed in the opposite order, namely, first you put together an economic program and then you make projections of your debt-service capacity which you use to negotiate debt relief from your private and official creditors," Porzecanski underlined.
The talks on restructuring the debt with the IMF may reportedly begin this September and, according to Porzecanski's expectations, would drag on at least until the end of the year.
"In the meantime, we should expect no major economic policy decisions other than to continue running growing fiscal deficits that are financed by the Central Bank, with all the inflationary potential that it implies for next year and beyond. In terms of the badly needed improvements in the country's business and investment climate, they are nowhere to be seen on the horizon. Let us hope that the IMF insists on them in exchange for whatever new loans and debt postponements they provide," the American University economist noted.
In order to secure a healthier economic outlook, Argentina needs to lay off over-borrowing in the international markets again, Diego Sanchez-Ancochea, the professor of the political economy of development with the University of Oxford, told Sputnik.
"For the medium and long term, one thing that is important is to avoid over-borrowing in the international markets again. This will mean paying more attention to the tax agenda in Argentina as well as in a more effective management of state-level spending," Sanchez-Ancochea, who also heads the Oxford Department of International Development, said.
But Argentina's fate will also depend on how the global economy evolves and whether the price of primary exports recuperate, the Oxford professor noted.
