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What condemns us is the present, not the past
Perfil
September 07, 2008

By Enrique Szewach

Let us understand what this means. For a hereditary defaulter such as Argentina, paying off a long-standing debt in cash to a group of important countries and their respective financial organizations should always be seen as good news.

However, any decision of this nature should be analyzed from the strategic point of view in terms of the objectives it is after. In that sense, the good news part tends to become a little cloudy.

Argentina's problem today in financial matters is that it has limited access to international capital markets with reasonable interest rates. In other words, Argentina today is paying the same interest rates as those paid by companies considered to be high risk in the US. While Brazil, Peru, Uruguay or Chile pay far less. Why is Argentina considered to be a high-risk debtor? It is not "because the past condemns us", as the president Cristina said, but rather because we are defrauding in the present. Let me explain. Until mid-2007, Argentina paid approximately the same rate as the other countries in the region, despite "our past". Since then, Argentine risk began to rise at the same rate as the increase in the "lies in the INDEC inflation figures" and the overflow in public spending, which reduced the fiscal surplus available to pay off debt. In other words, the rise in rates which the country faced and still faces, with its high cost for the private sector, is not the result of a "bad extrapolation of the past" of which the K government is a victim, but of appalling policies in the present, led by the K government.

If the objective of paying off the Paris Club were to try and revert the image of Argentina as a bad payer abroad, such a payment has little influence in this matter. Firstly, because the causes leading to the lack of confidence have not been reversed. The INDEC continues to lie and spending continues to grow. Secondly, we are increasingly vulnerable to negative changes in the international scene. Particularly with regard to the drop in commodities prices and the revaluation of the dollar (although both movements are expected to be moderate). Thirdly, because in reducing the "freely available reserves" of the Central Bank, there are less funds available to meet the needs, eventually, of the payment to the holders of Argentine debt bonds (many of these bonds are in the hands of Argentine banks, where we have our deposits and savings - and the Pension Funds our future pensions. Thirdly (sic.) because the sign given by a cash payment is a sign of a bad administration, faced with the alternative of negotiating a three-year grace period and low repayment interest rates. The message is "I prefer to spend 7 billion dollars rather than negotiate with the international financial community". Fourthly, because, institutionally, to continue to appropriate the Central Bank reserves to pay off all kinds of debt is along the same lines as the institutional destruction of the INDEC. Fifth, because in this same week, the Congress has just "bought us" an airline at a cost which do not know, with an operating deficit we do not know and that in just one month cost us 400 million pesos. And also the high chance that we are purchasing ourselves a court case with probably unfavorable result. Sixth, because we do not accept to pay as ordered by international arbitration courts to which we agreed by signing bilateral investment guarantee treaties with several of the countries belonging to the Paris Club. And seventh, because one of the "advantages of the payment made is that it unblocks the development of the monumental Bullet Train plan.

Distribution: it is true that this may free up some credits to import capital goods for Argentina companies, or other credits for local projects by multinationals, which should be valued appropriately. But, sadly, the costs outweigh the benefits.

In synthesis, paying up is never bad in absolute terms. But in relative terms, this payment will not help much to diminish Argentine risk. Basically, because the problems which led to the explosion of the risk had their origin in the past but grew larger in the present. And as long as the Government does not put into place an integrated program to beat inflation and a serious commitment for institutional reconstruction, all payment will be "applauded" by the creditors and "suffered" by contributors, in particular the poor who are paying the costs of inflation and who travel by train. This is the present that has to be modified in order to aspire to a future different to the past which has condemned us.