Can A Stiglitz Protégé Fix Argentina’s Debt Woes?

Argentina's bondholder brace for haircuts.

“Argentina doesn’t want confrontation with creditors. It wants to be constructive,” Martín Guzmán, the country’s new economy minister, told a press conference on December 11. He added that his team would soon meet with investors in an effort to delay the amortization of some $100 billion of the nation’s debt. “We are going to fix the virtual default the country is in,” he pledged.

Some bondholders in New York, who are fretting over possible haircuts as Latin America’s No. 3 economy continues to deteriorate, have faith in the 37-year-old Brown University PhD who helped lead Columbia University’s research agenda alongside his mentor, Nobel laureate Joseph Stiglitz. One industry observer called him a “straight shooter, and definitely prepared on the academic side.” Accordingly, bondholders hope the person in charge of Argentina’s $470 billion economy will be more generous than the predecessors who forced them to take losses in restructuring after the nation’s 2001 default.

Guzmán has provided few details of his plan to restore growth in Argentina while continuing to service the country’s debt, which also includes a $57 billion loan from the International Monetary Fund (IMF). The biggest bailout in IMF history, that loan is linked to an austerity package that Guzmán and Stiglitz blame for Argentina’s economic plight. The country has recorded GDP contractions over most of the past two years, and unemployment is projected to remain above 10%. Guzmán has called for Argentina to refuse additional IMF assistance and suggested loan deferrals should be diverted to help the economy recover.

Ray Zucaro, chief investment officer at RVX Asset Management, says the IMF could do more to help. “Six percent is a very handsome interest,” he says of the fund’s current loan rate. “They should also push out maturities to make it smoother for the country to grow and make its amortizations.”

A two- to three-year freeze on the country’s debt service could also help, some say, so long as creditors can opt for warrants or higher principal payments to offset losses.

Zucaro believes Argentina can emerge from its doldrums—“as long as they are not looking to take out large chunks of flesh from creditors.”