The Armor Experience (Part 2)

Someone said, “Patricia Bullrich and her economists don’t leave a clue.” How can they mentally return to such horrific experiences?

At the time, financial shielding attacked liquidity risk but was ineffective in reducing the risks associated with the ability to pay debt. International aid gave it a lift, but more was needed to boost the recovery and remove doubts about fiscal insolvency. After the shield announcement, markets decided that risk remained at similar levels, contrary to the economic and financial recovery. A fiasco.

Argentina risk reflected – it climbed over 800 basis points – the deterioration of credibility and the subsequent liquidity risk, it did not maintain liquidity risk nor was there a credibility shock, which improved expectations, nor did it lead to the improvement of Argentina risk.

Concern about the economy’s problems resuming economic growth and the fiscal inability to show that willingness to pay was maintained explained the perception of risk and could not be offset by the improvement in liquidity and reliability in the short term. doAs a consequence of the hedging, there has been no substantial decline in country risk and the absence of signs of recovery has called into question the potential for growth, which was supposed to promote a virtuous cycle.

Shielding was not related to growth, it barely solved the liquidity problem temporarily. Its success depended on compliance with the announced reforms. Armor was the beginning of the end. In two weeks there would be 3 ministers (Machinea, López Murphy and Cavallo).

Shielding was done to stop the degradation of credibility and to express the will to comply with the commitments, it temporarily halted the deterioration but was unable to improve the perception of risk. Concern about fiscal solvency and willingness to pay continued to be at the center of the debate. This prevented risk from declining to levels consistent with recovery.

The ultimate success of this stage hid the real reason for its implementation: “structural reforms” that would please the IMF.

The issue was structural reforms that would guarantee long-term fiscal solvency and condition policy on debt repayment. But despite the announcement of the shield, in the same week the danger of the country increased, which would haunt us on television until the social outbreak. The government’s financing needs in 2001 were US$21.8 billion, resulting from a budget deficit of US$6.5 billion and debt amortization payments of US$14.3 billion, plus other items of US$1 billion.

What did they think in 2001? – because we already know how it ended

Consuming what is available – in 2001 – from international organizations: IMF $6.7 billion, World Bank $800 million, IDB $1.2 billion and Spain $1 billion. They would trade in the markets for US$9,400 million, raising Letes’ remaining stock to US$5,000 million, and notes and $3,600 million of Bontes would be auctioned. They would place USD 2.6 billion in global bonds and USD 3 billion in euro and yen bonds. Local banks have pledged to place Letes, Promissory Notes and Bontes, AFJPs to absorb $2.6 billion of global funds, and proceeds from the euro and yen placement will come from voluntary tenders in foreign markets. They would enter into debt swaps for US$2,700 million, with an impact of the swaps on 2001 financing needs of US$600 million, and assume a replenishment of the treasury bill stock of US$2,100 million.

They would exchange debts.

They designed three exchanges for different types of investors, with different types of instruments. Exchange of euro bonds maturing in the next five years, the first exchange transaction in markets where the majority of investors had the distinction of holding the security to maturity, whereby the government would probably be forced to pay a higher premium during the exchange.

Dollar and peso bond swaps, government debt swap proposal and swap options on short- and medium-term bonds aimed at extending maturities: Bocones, FRB and Bontes. This would be the type of exchange most likely to happen in January 2001, it would be the most expensive in terms of waiting. Coupon Reinvestment Exchange: proposal to reinvest coupons expiring in 2002 held by Argentine investors…(continued)

Director of the Elpida Foundation. https://fundacionesperanza.com.ar/ Graduate Professor of UBA and Masters in private universities. Master in International Economic Policy, PhD in Political Science, author of 6 books