Many creditors believe, given Argentina's strong economic performance, the 3% budget surplus it promised the IMF should be increased. Why isn't Argentina saving more?
The international financial community was very flexible with Argentina in the 1990s and didn't say anything when the average primary fiscal deficit was 2.1%. And now, in the middle of a crisis, we've promised to reach a surplus of 3%, something Argentina hasn't done in decades. For us that's more than a sufficient effort. For those who say it's not enough to pay the debt, I'd respond they should've looked at the situation with the same objectivity before.
Analysts say the debt-restructuring proposal doesn't clear the way for investment and credit, and thus a sustainable recovery, to return. How do you respond?
I'm sorry to be the bearer of bad news, but Wall Street is plain wrong. It's just the latest, negative version of the economy from the same people who predicted Argentina would spiral into hyperinflation, which it didn't; of that the recovery was just an Indian summer, which it wasn't; or that we're now heading into a leveling off period, which we're not. Look at the facts: Investment has been positive since last year and now growing at an annual rate of 40%. Credit for the first time in August expanded and will continue to do so as banks are very liquid. Surely we'd always like to see more investment, but it's misleading to say the recovery isn't sustainable.
To what do you attribute the lukewarm reception of the proposal by investors?
I'd say reception has been pretty much as we expected--we knew there'd be a lot of long faces. But it's also true that the only thing shorter than investors'temper is their memory. Look at Russia. Four years after declaring default it has now reached investment grade. Another interesting fact is the country risk on Argentina's performing debt, which went from 2,500 basis points last year to 1,100 today, roughly the same level as Brazil's. One has to always differentiate between stock and flow, the assumed cost of the default and the prospect for the future. That said, it's not our intention to reach an agreement with creditors at any cost just so we can return to the capital markets in short order and begin the debt cycle all over again. It'll probably be three or four years before we return.
How can the government restore the credibility of contract law given the huge rupture that has already taken place?
If there's one fundamental lesson we've all learned from the Argentine crisis, it's that laws without a viable economic model behind them aren't worth anything, and vice versa. Preceding the crisis, Argentina had all kinds of laws on the books to protect investors, obligating the government to maintain a balanced budget and the fixed exchange rate and prohibiting it from touching deposits. All of this collapsed in December 2001.
The 2004 budget contains a 12% increase, a large portion which is subsidies to sectors of the economy that have traditionally run huge deficits, like the railroad and airline industries. Doesn't this go against the government's goal of spending its resources more efficiently?
First of all, these are emergency measures we took to address an unprecedented social crisis. These aren't subsidies to companies but to people who've suffered a huge cut in their purchasing power. And had we allowed these companies to fail we would've been stuck with an even higher tab in the form of welfare payments.