MercoPress. South Atlantic News Agency

Opposition candidate wants to re-profile Argentine sovereign debt following on Uruguay's case in 2003

Fernandez said that Argentina needs to lower interest rates and that currency controls are not the solution to developing the economy, but a transitory measure.

Argentine presidential candidate Alberto Fernandez indicated he would tackle the country's debt problem by adopting a strategy similar to that of Uruguay, which successfully extended its bond maturities in 2003.

“It’s not going to be that difficult to do something similar to what Uruguay did,” Fernandez said at a business conference in Cordoba, adding that the goal would be to buy time to repay the debt without imposing a haircut to investors. “I’ve spoken to many investment funds and they’re aware that that can be a way out.”

Alberto Fernandez said that Argentina needs to lower interest rates and that currency controls are not the solution to developing the economy, but a transitory measure.

He added that, “under current conditions, Argentina can’t repay its debt”, and insisted, ”we have never said there would be a haircut. What we say to bondholders is that we need to grow to pay. If not, there is no way to pay.”

Uruguay is often cited as a successful case of debt restructuring in emerging markets. Without changing coupons, the government succeeded in launching a voluntary debt exchange that lengthened debt maturities on 18 international bonds. An overwhelming majority of creditors accepted the terms of the new bonds, avoiding a default while Uruguay’s economy recovered.

At the time IMF advisors strongly recommended Uruguay to default, as did Argentina, but then president Jorge Batlle refused point blank and appealed directly to IMF chief, the Fed and ultimately President George Bush, who supported the alternative, since the country has had an impeccable record regarding its international debt and payments.

Finally the Fed extended a 1.5 billion bridge loan to Uruguay with Bush's approval which was followed by the IMF backing enabling the successful negotiation with sovereign bond holders.

At the time the opposition, headed by now president Tabaré Vázquez openly supported the IMF and Argentine solution of having Uruguay default. Batlle managed congress to approve the scheme with the support of the banking and financial workers' union. Furthermore this union strongly criticized the opposition at the time which is the current ruling coalition.

Alberto Fernandez defeated President Mauricio Macri in an Aug. 11 primary vote by a wider-than-expected margin. The Argentine currency and bonds have since sold off as investors priced in larger chances of default in the coming years. Argentina holds presidential elections on Oct. 27.

Fernandez emphasized that boosting exports and consumption in Argentina are critical, and that one doesn’t have to be chosen over the other. He also considers Macri’s current re-profiling proposal to be the same as a default. “They call it re-profiling but what they’re saying is they can’t pay,” Fernandez said. “In other times, it was called default.”

The idea of re-profiling Argentine debt, following on the Uruguay example sounds nice and tempting but it seems to forget probably the most significant factor: the long term political and financial background and transparency of Uruguay.

And it must be underlined that Dr. Batlle was both fluent in English and German, which made negotiating directly with president Bush and IMF Managing Director Horst Köhler (later German president) so much easier.

Likewise that the Uruguayan debt situation 2002/03 was a direct consequence of Argentine citizens flocking on Uruguayan banks to collect their deposits. Argentines for decades have never trusted their own financial system or currency and historically have taken refuge overseas and in the US dollar, with Uruguay the first handy next door stepping stone to flee.