Interview: Argentina faces major challenges to debt-management scheme, says economist

Source: Xinhua| 2020-09-07 10:38:57|Editor: huaxia

BUENOS AIRES, Sept. 6 (Xinhua) -- Despite its restructuring efforts, Argentina remains saddled with high debt burdens amid the stalled global economy and domestic growth, which calls for reflection on its traditional financing mechanisms, a leading Argentine economist has said.

The South American country has customarily opted for a carry trade strategy, attracting short-term capital with the high interest rates of the local currency and a stable currency exchange, said Jorge Marchini, a professor of Economics at the University of Buenos Aires. However, the strategy has cost the country a lot.

"External indebtedness has not been linked to a question of productive restructuring or infrastructure projects, but above all to financial movements. The source of indebtedness has not been direct foreign investment but rather short-term financing. This influx and outflow of capital is very unstable and is, in the long run, very costly," he explained.

"This is a matter that, right now, Argentina is questioning very much, and it will have to introduce policies to stop repeating this phenomenon," he added.

Currently, it is difficult to estimate the size of the foreign debt and its percentage of gross domestic product (GDP) due to numerous factors, including the continued devaluation of the peso, the wide exchange gap, and the fall in the GDP due to the COVID-19 pandemic, "which could be as much as 10 percent by the end of the year," said Marchini.

"The important thing is that the foreign debt has not increased because Argentina, being in default, has no access to new credit, and has no access to the international capital market. And its loan from the International Monetary Fund has been suspended," said the economist.

According to data from the National Statistics and Census Institute (INDEC), Argentina's GDP in the first quarter of the year stood at 25.3 trillion pesos (about 327.38 billion U.S. dollars), while total foreign debt amounted to 274.247 billion dollars at the end of March.

However, its GDP fell 5.4 percent in the first quarter, followed by COVID-19 lockdown measures that idled parts of the economy.

Although the pandemic has worsened Argentina's economic outlook and led to a ballooning fiscal deficit, negotiations with creditors over foreign debt have improved the country's financial landscape, said Marchini.

"What's more important is that the negotiations led to a kind of re-accommodation of the debt issue, which resulted in a much lighter payment structure than it was previously planned," he said.

Another positive aspect is that "Argentina always has the capacity to generate foreign revenue through its basic production (primary products)," he added.

Still, the impact of the pandemic could be substantial, he noted, especially since the cost of the health crisis was mainly paid by the state printing more money, which is bound to generate greater fiscal pressure.

"The big question is who is going to pay for this crisis" in the long term, he asked.

That question has led to "a debate" about whether "the greatest relative weight of this crisis should be placed on those sectors that have greater tax-paying capacity, which would be charged higher taxes ... which also generates discrepancies," said Marchini.

The fiscal deficit could be around 8 percent of the GDP by the end of the year due to the country's containment of the epidemic, he said.

For the foreseeable future, "the impression is that the state will have to continue to be present" through welfare programs designed to alleviate the impact of the pandemic, noted Marchini. Enditem