While addressing the nation from the Buenos Aires stock exchange floor, Argentine President Cristina Fernández strongly defended the policy of drastically cutting debts, which guarantees “greater independence”, and of stimulating the economy because only with resources can debts be paid, “the dead don’t pay debts”.
At the Thursday evening event to celebrate the 158th anniversary of the Buenos Aires stock exchange, the president also confirmed that Argentina on Friday will be paying the 2.2 billion dollars Boden 2012 debt as the country reaches “the end of a historic cycle” which puts an end to the infamous corralito.
Corralito was the freezing of banks clients’ deposits and accounts when in 2002 the Argentine economy melted, the financial system collapsed and the country declared the greatest default in recent history. To partly compensate depositors with less than 50.000 US dollars in private banks’ accounts, the Argentine government at the time issued the Boden 2012 bonds.
But “this isn’t a reason to celebrate, but to reflect”, said CFK. “Today we reach the end of a historic cycle. I read on some newspapers that we were allegedly coming to celebrate. So I though to myself: ‘should I wear a party hat and a rattle?’ I don’t think this is a reason to celebrate, but to reflect,” she stated.
The President assured that the Government would pay the final instalment of the money that “should have been returned by the banks to the Argentine citizens” who were caught in the financial “corralito”.
“What a fantastic deal. Not once but twice they ended up keeping the population’s money,” she said as she targeted the private banking sector and investment funds. First when they did not return the money, secondly now because most of those bond holders are foreigners.
“Please, let’s not be stupid anymore. Let’s not be dumb,” she urged to population. CFK said that after the Boden 2012 payment, worth 2.2 billion dollars and scheduled to take place on Friday, it will represent a further decrease of Argentina’s foreign debt.
A 22% of the Boden 2012 bondholders are local, while 78% of them are abroad, the Head of State indicated. She praised the fact that a local union and a local bank were the main Argentine holders of those bonds, while the rest are in the hands of investment funds from the US, Luxembourg, Italy, France Denmark.
“These are the same groups that openly stated that we would never pay. They wanted to scare you to make you sell the bonds cheap and they could then reap huge profits”.
CFK later justified the official restrictions imposed by the Government on foreign currency exchange and foreign trade.
“Argentina doesn’t print dollars. The US does, and it passes on its problems to the rest of the world,” she accused, and said that Argentina obtains dollars through international tourism, foreign investments and the trade balance surpluses.
In that context, she justified her administration’s measures to “control” the foreign currency exchange market and foreign trade.
“We need dollars so our businesses can buy basic supplies in order to maintain production” she emphasized before the Stock Exchange authorities, her cabinet and even Buenos Aires City Mayor Mauricio Macri, also present.
In the speech CFK recalled how Argentina became indebted particularly during the last military dictatorship (1976/1983) and the period when Argentine imposed a One Peso/One Dollar convertibility (1991/2002), all of which ended in the 2001/02 crisis.
Argentina was only able to begin repaying with the recovery of the economy which takes place when her late husband Nestor Kirchner takes office in 2003 and in one of his first trips argued before the IMF the need of no more austerity, but rather growth because “the dead don’t pay debts”.
CFK said that Argentina’s sovereign debt ratio to GDP dropped from 168% in 2002 to 41.8% at the end of 2011. Sovereign debt in dollars in private hands fell from 92% of GDP in 2002 to 9.6% of GDP and “tomorrow (Friday) after paying Boden 2012, most probably to 8.4%”.
She underlined this was achieved mainly through debt restructuring in 2005 and cancelling all liabilities with the IMF in 2006, which was achieved with no access to global money markets. CFK emphasized that ten years ago Argentina needed 815% of its reserves to pay foreign currency sovereign debt in private hands, but nowadays it is down to 88%.
This new profile of the debt gives Argentina “an immense independence to address world market volatility and to act effectively against the club of the ‘debt tempters’” described as “those who recommend Argentina takes debt because they are sure it is the state that will end paying”.
“We must continue on the path of eliminating debts to avoid falling in the dramatic situation of the developed world, which is also having an impact on us”.
Friday’s payment of the bonds “is no merit”; it’s simply honouring an obligation even it is “meritorious for a country that defaulted ten years ago” and “virtuous for a world that is collapsing”.
CFK also blasted private banks for not making long term loans for productive activities, “the same banks that have no problems in lending to consumers in six months, six years…” She recalled banks never made so much money as with her government so it’s time to share, to help the domestic economy.
No kind words were spared for the credit rating agencies, which insist in keeping Argentina down, “despite the fact we honour debts, and despite that in 2001 they never warned about the debacle that was going to sweep the country and the people’s savings and jobs”.
The Argentine government established in this year’s budget that 5.7 billion dollars from surplus Central bank reserves will be set aside to repay sovereign debt.
Argentina’s debt and interest payments this year total 9.8 billion dollars and Friday’s with 2.2bn is one of the highest. The other large payment is next December, 3.4 billion dollars in bonds tied to the growth of the local economy.