Argentina seeks to end 15 years of financial isolation on Monday when it sets out to borrow cash on international credit markets for the first time since a 2001 default.
The country is looking to boost its struggling economy and settle a 15-year lawsuit by US investment funds which its ex-president Cristina Kirchner branded “vultures”, AFP reported.
This week’s debt issue “is an important, epoch-changing event,” said Gaspard Estrada, a specialist at French Latin America affairs observatory OPALC.
“It serves partly to pay the vulture funds, to finalize an agreement with the remaining creditors, and to give the government room to maneuver to restart the country’s economy.”
Economist Marina Del Poggetto warned however that the country will also have to lower its public deficit—currently 6% of output—and strengthen the economy.
“In the long term, it will have to correct imbalances because going into debt is not a strategy in itself,” Del Poggetto said.
Now that a US court has cleared the way for Argentina to start borrowing again, the government plans to issue up to $15 billion in bonds on Monday and Tuesday.
The court ruling was seen as a victory for Conservative President Mauricio Macri.
He has been scrapping Kirchner’s protectionist policies and opening up Argentina’s diplomatic and financial ties. He has lifted currency controls and raised utility prices, generating angry protests by Argentines who say their spending power is declining.
Higher Rates
South American countries generally borrow at 3-4% interest, but analysts forecast Argentina would have to offer a higher rate in its new bond issue.
Edward Glossop, an analyst at research group Capital Economics, estimated it would have to offer investors a yield of between 7 and 9%.
“The issuance of external debt is likely to have a significant impact on the economy over the medium term,” he said.
But after the 2001 crisis, some Argentines object to taking on new debt—not least Cristina Kirchner and her allies.
“Once again history is repeating itself and catching the Argentines out. Debt, devaluation, layoffs, political persecution, price rises,” Kirchner said in a speech this week.
“These are just a few of the calamities that the new government has caused in barely four months.”
Her former economy minister Axel Kicillof said the new debts would be followed by further painful public spending cuts that will affect the poorest Argentines most.
“Paying off the vultures without a word is just the first condition for the foreign banks to lend Macri the money he needs. Then they’ll be suggesting a rescue program from the International Monetary Fund,” he said.
“The Fund makes sure the country’s resources aren’t used for social welfare and that all its assets are sold to pay the debts.”
