Struggle continues in Argentina

José de San Martin, Argentina s 19th-century general and liberator, knew to quit’while ahead. He achieved victory, then rejected a political career and left for Europe. He made the right choice. Two centuries on and Argentina battles itself.

The past weekend’s presidential election returned the populist Peronist party to power. Yet again the country’s finances are in a mess, and electing the moderate Alberto Fernández does not inspire much hope of a recovery.

For one thing, his vice-president, Cristina Fernández, seems unlikely to stand idly by should he reconsider financial rectitude. He owes at least part of his victory to the former president’s popularity with the masses. She distrusts the IMF and foreign debt holders, yet they hold more than half the federal government’s debt, of which 80% is in foreign currency.

Since this duo won its primary election in August, the peso has fallen by a third against the dollar. Contrarians might be tempted to think Fernández could surprise positively. He has raised a solution to Argentina’s debt crisis by suggesting no hard losses on these bonds, just an extension of maturities.

Good luck. Fernández does not enter office until early December. But already the central bank has tightened capital controls, restricting dollar purchases to $200 monthly, from the $10,000 limit set in September.

Argentina has $30bn of its debt due by the end of 2019, thinks Capital Economics, and another $50bn due in 2020. While most are local bonds, a portion are foreignexchange denominated nonetheless.

Fernández will want to liberate Argentina from foreign debt oppressors. Yet the country lacks the savings to fund the economic growth for which the electorate voted. All bondholders, locals too, will have to suffer heavy losses before growth can resume there. /London, October 29

© The Financial Times 2019