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Argentina: Fernandez names Martin Guzman economy minister – initial reaction

    Stuart Culverhouse
    Stuart Culverhouse

    Chief Economist & Head of Fixed Income Research

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    Tellimer Research
    7 December 2019
    Published byTellimer Research

    Martin Guzman was named economy minister last night by President-elect Alberto Fernandez in a highly anticipated announcement ahead of his inauguration on 10 December. 

    Views on Guzman’s appointment may be mixed. Compared with some of the key names in the running, investors may prefer him to the more unorthodox and interventionist Matias Kulfas (who is minister of production) and Guillermo Nielsen (appointed head of state oil company YPF), who investors will remember from the 2005 restructuring. However, he is not regarded as investor-friendly as, say, Martin Redrado (a highly regarded former central bank president, who was probably always an outsider). Meanwhile, Miguel Pesce was named as the new head of the central bank, as expected.

    Guzman, a US-trained academic with expertise in sovereign debt restructuring, may be seen as a moderate appointment, rather than representing the more radical arm of Peronism/Kirchnerism. He is a research associate at Columbia University, an associate professor at the University of Buenos Aires, a senior fellow at the Centre for International Governance (CIGI) and member of the Institute for New Economic Thinking. His work on sovereign debt crises includes Argentina, Greece and Puerto Rico and he co-chairs a taskforce on debt restructuring and sovereign bankruptcy at Columbia. He has worked extensively with Joseph Stiglitz, himself a critic of the IMF and former president Mauricio Macri’s policies.

    But Guzman has little political or practical policymaking experience and we did not know for sure what he will do in office. We think he might favour a more interventionist approach. He has been critical of Macri’s orthodox adjustment approach through central bank inflation targeting and FX flexibility and gradual reduction of the primary fiscal balance, which he has argued led to too rapid disinflation, and debt-fuelled growth. Indeed, he was critical of Macri’s policies even as far back as April 2017; long before the crisis – perhaps a prescient forecast that it would end in tears?

    Although there may be something in this criticism, it is not clear to us what he would have done instead (a more competitive exchange rate? price and capital controls? central bank financing of the government?), and how he will go about economic stabilisation, and whether his views will be shared by the IMF. Wanting stronger growth, boosting exports and improving FDI inflows, is one thing, but doing it is harder and requires macro stability, strong institutions and a stable business environment, which Argentinean politics is frequently unable to deliver. And his tacit criticism of the settlement with the holdouts may not bode well for future negotiations with bondholders. What investors will agree on, however, is that a future debt restructuring for Argentina (which by now is a given) will have to restore debt sustainability, but we expect views will diverge as to what such a restructuring will look like, the extent of burden sharing and the policy assumptions that underpin it.

    Suggested reading:

    1. The Elements of Sovereign Debt Sustainability Analysis (November 2018) by Martin Guzman
    2. Argentina’s Unseen Fragility (May 2018) by Martin Guzman
    3. The Roots of Argentina’s Surprise Crisis (June 2018) by Martin Guzman and Joe Stiglitz
    4. Macri’s Disappointing First Year in Argentina (April 2017) by Martin Guzman
    5. An Analysis of Argentina’s 2001 Default Resolution (October 2016) by Martin Guzman