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Argentina Bears Warn of More Pain as Cristina Fernandez Returns

Ben Bartenstein

(Bloomberg) -- The mood in Manhattan couldn’t be much gloomier toward Argentina just days before President-elect Alberto Fernandez takes office.

At a panel discussion on Tuesday, the warning from investors and analysts was that the International Monetary Fund may not offer further support, the odds of a hard default remain high and incoming Vice President Cristina Fernandez, who led Argentina from 2007 to 2015, will actually call the shots.

Creditors appear “on the losing end” as Cristina Fernandez is “completely in charge” of the next government, said Jorge Piedrahita, chief executive officer of Gear Capital Partners. She probably had significant influence over the new president’s economic team, said longtime Argentina analyst Siobhan Morden.

They were speaking at a Debtwire event in New York alongside Greylock Capital Management’s AJ Mediratta and Jose Luis Vittor from Hogan Lovells. While Morden said it’s conceivable that Argentina, creditors and the IMF could reach a “mutually beneficial solution,” the general tone from the panel was far from the muted optimism in the days after Alberto Fernandez’s election in late October.

IMF Threat

For one thing, Mediratta said the IMF is Argentina’s only obvious source of foreign capital at the moment. The risk, according to Piedrahita, is that the U.S., the Fund’s largest shareholder, could use its leverage to withhold further support from Argentina as punishment if Fernandez pursues a softer approach on Venezuela and a deeper relationship with China.

The IMF has said its “decision to support a country’s economic program with IMF lending is a prerogative of the IMF’s Executive Board which represents the 189 members of the Fund.”

Why Venezuela Will Influence Argentina’s IMF Talks

A more pressing concern is that Argentina probably won’t get the rest of its current IMF disbursement, according to Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities. She said the odds of a hard default are “quite high,” and that it’s unrealistic to expect the nation to complete a debt restructuring in just a few months, especially when Alberto Fernandez appears to be prioritizing foreign policy over the local economy.

“He hasn’t addressed the problems,” she said. “He’s just saying whatever is politically convenient to say.”

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‘Time Bomb’

Investors view the Province of Buenos Aires as an initial test for how the Fernandez government will treat creditors. The province has more than half a billion dollars in debt coming due next month and scarce funds to pay.

“It’s not clear where the money comes from,” Mediratta said. “It’s a ticking time bomb.”

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Carolina Wilson at cwilson166@bloomberg.net, Alec D.B. McCabe

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