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Of Apprentice, Associate and Argentina's Debt Crisis

Looking into the dynamics of the economy, and if the piling debt can prove to be a more ruthless foe for Argentina than the pandemic.

Argentina, one of the more vigilant countries in its approach to the ongoing coronavirus pandemic, is facing a two-fold emergency - one, a deep recession and more importantly, the virus itself. Argentina’s president, Alberto Fernández, acted early and is being praised by the Argentines for his response to the pandemic. Taking over as president after Mauricio Macri in December, he took sweeping measures to stabilize the financial spending of his government by raising taxes and freezing pensions and salaries. To cap the spread of the COVID-19 pandemic, he decreed to cease movement across borders, operations of businesses as well as domestic transport. Taking these measures as early as March 12th, he scored points from both - the Argentines as well as his bureaucratic counterparts.

“Will he be the creator of a new political hegemony, or author of social chaos if he generates economic havoc?” asked journalist Jorge Fontevecchia in a newspaper column. According to critics, the pressure to ease the lockdown is mounting on Mr Fernández while the curve still needs flattening. It seems that the government has played a gamble to support the economy, one that may end up weakening it further.

At the other end of this picture, comes Martín Guzmán (pictured below), minister of the economy of Argentina. According to The Economist, Guzmán “is a brilliant student of unsustainable debt, which Argentina has in abundance, including $44 billion owed to the International Monetary Fund (IMF) and almost $100 billion of foreign-currency debt owed to private lenders.” A protege of Joe Stiglitz, a Nobel-prize winning economist at Columbia University who once served as chief economist of the World Bank, Guzmán on April 16th demanded that creditors accept new securities to replace $65bn-worth of bonds, almost 40% of foreign-currency debt. Although this figure amounts to a quarter of Argentina’s GDP, the move does not come as a surprise owing to Mr Fernández’s approach to the debt. He had made it clear that he would give ‘greater priority to restoring growth than to paying creditors’.

The picture complicates if we consider two aspects of the current scenario - firstly, the IMF’s reputation in managing debts and its image in the eyes of mentor Joe Stiglitz; and secondly, the fact that Argentina may be headed for its ninth default.

In his book, “Globalisation and its Discontents”, published after the emerging-market crises from 1997 to 2001, Joe Stiglitz reprimands the IMF for imposing ‘unfettered capital flows, fiscal austerity and tight money on vulnerable countries’. Given this bad blood, Mr Guzmán’s links with Mr Stiglitz might have been a liability rather than an asset for Argentina’s minister of economy. However, the Argentines are dwelling upon the notion that ‘the Stiglitz has warmed up to the fund and vice-versa’. The watershed instance for this transformation is traced back to when Stiglitz wrote the foreword for a book published by his University and authored by Jonathan Ostry, Prakash Loungani and Andrew Berg and spoke about the IMF’s newfound concern for the rising inequality around the world, under the leadership of Christine Lagarde.

The IMF’s approach towards the COVID pandemic also seems to be supported by the economic theorist. The fund, which is also called the world's crisis lender, is already shelling out loans. It may yet resort to the special drawing right (SDR), an arcane financial instrument designed in the 1960s to governments in poor countries desperately needing cash to retain investors’ confidence, pay off creditors and buy medical supplies. The concept of SDR is being supported on some fronts as it will give the fund’s poorer members a claim on the currency reserves of their richer neighbours.

Addressing Argentina’s economic standing, the consequences of the looming default could be catastrophic. Dwindling output triggered by the lockdown, squeezed revenue due to the recession as well as piling inflation - all point to an evident economic meltdown. The government wants to extract the maximum relief it can from bondholders without triggering that disaster. Mr Guzmán and Mr Fernández’s strategy is to shield the poor and weaker sections by taxing the more effluent ones. Keeping in mind the pre-existing recession in Argentina, the trade-off between public health and economic growth is even more problematic for them than it is for most countries.

Coming to the IMF’s SDR dilemma, it last approved a $250-billion new allocation of SDRs in 2009, boosting liquidity for cash-strapped countries during the last financial crisis. According to Reuters, “Doing so again now could provide more flexibility to the 102 countries that have already sought IMF emergency loans and grants, and allow aid to flow to high-debt countries that can’t qualify for new IMF loans, such as Argentina and Zimbabwe,” - owing to their history of defaults and other poor indicators.

“The government has given bonus payments to welfare recipients, informal workers and people who work in health, policing and supermarkets. It has imposed new freezes on prices of food and medical supplies. Congress may reconvene to levy a tax on Argentines’ worldwide assets to pay pandemic bills,” what remains to be seen is the Argentine creditors and business owners’ response to the stimulus and its further impacts on the defaulting economy.


  1. Covid-19 and debt: Argentina’s make-or-break moment, THE ECONOMIST (Apr. 23, 11.58 PM) https://www.economist.com/the-americas/2020/04/22/covid-19-and-debt-argentinas-make-or-break-moment

  2. Joe Stiglitz and the IMF have warmed to each other, THE ECONOMIST (Apr. 23, 11.58 PM) https://www.economist.com/finance-and-economics/2020/04/08/joe-stiglitz-and-the-imf-have-warmed-to-each-other

  3. David Lawder, Andrea Shalal, U.S. stalling massive IMF liquidity boost over Iran, China: sources, REUTERS (Apr. 23, 12.00 AM) https://www.reuters.com/article/us-imf-worldbank-sdrs/u-s-stalling-massive-imf-liquidity-boost-over-iran-china-sources-idUSKCN21X0L8

The post has been updated to reflect latest events. Views expressed are solely those of the author.

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About the Author

Bhavya Pandey is a student of Economics at Daulat Ram College, University of Delhi. A voracious reader and declamatory writer, she has grown up exploring and opining on a plethora of subjects ranging from environment to economics. She is a trained Indian classical dancer in Kuchipudi, under the tutelage of Padmabhushan Gurus Raja Radha Reddy and has been performing for more than a decade. Bhavya enjoys penning down poetry besides affixing a monocle and combing library bookshelves in search of classics in her free time. She is also currently serving as the Joint Secretary for the Women’s Development Centre of Daulat Ram College and editing for three collegiate level magazines. Bhavya can have endless conversations about the internet and food.

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