Peronist gradualism
The Economy Ministry’s unexpected announcement of a Us$1-billion sovereign debt buyback took the market by surprise, proving once again how skillfully Sergio Massa has been playing his cards in order to generate the perception of continued success. Whether it’s actually an efficient measure is another matter, and it does not seem to matter too much to the Economy Minister what the “haters” say. At the end of the day he’s not an economist but a politician who’s always in the right place at the right time, apparently playing the long game. In an electoral season where President Alberto Fernández, seeking re-election, is dragged into Cristina Fernández de Kirchner’s battle with the Supreme Court, and the opposition continues its cannibalistic infighting, Massa can try and stick his head above the water if he manages to keep the macroeconomic bomb from exploding. In order to do that he needs to portray an image of success, even if inflation came in at 94.8 percent last year, for example, it didn’t make it to the triple digits. Everything goes in the land of Diego Maradona and Lionel Messi if you’ve won the World Cup and the Summer Doldrums have everyone vacationing on the beach, be it Mar del Plata or Punta del Este. Reality can wait.
The move was unexpected because there was no talk of a potential buyback in the market — even though a few quick traders appear to have “jumped the gun” and bought bonds en masse just before the announcement. Repurchases are quite common in the stock market and are an instrument through which highly capitalised firms “give back” to their shareholders, buying their own stock in order to push its price up both by increasing demand and decreasing supply. Massa’s plan, though, is a risky gamble in that he’s using some 15 percent of his extremely scarce dollar-denominated foreign exchange reserves for the purchases. Buying Argentina’s sovereign debt would push the price of the bonds up and therefore the implied interest rate down, reducing the country premium (“riesgo país”) and improving the country’s debt profile, making it more sustainable in the medium term. At the same time the plan is designed to help reduce the black-market premium, or the spread between the official and highly controlled dollar-peso exchange rate and the socalled “parallel rates” which are generally seen as the barometer of the market’s trust in Argentina. Indeed, while they’re almost always going up, the “financial” exchange rates (“dolar bolsa” or MEP and “dolar contado con liquidación” or CCL) started a consistent upward move around mid-november that took them to record highs. The spread with the “contado con liqui” is near 90 percent currently, while the supposedly “illegal” blue chip rate (“dolar blue”) is at 100 percent. Nothing good happens when it’s that high and ultimately it feeds into inflation through the pass-through effect.
According to “background” information given by Massa’s people to a couple of close journalists, they had already been intervening in bond markets in order to stem the rise of the parallel exchange rates. This is a practice not commonly approved by the International Monetary Fund, which has an important stand-by agreement with Argentina that involves quarterly economic reviews before disbursing fresh funds, which are then used to pay Argentina’s previous debt with the IMF. Indeed, several Argentine assets had been on a powerful rally for the past three months or so. The main stock market index, the Merval, is up nearly 25 percent since mid-october, similar to the performance of Argentina’s dollar bonds which gained some 50 percent in some cases. This prompted several analysts to question Massa’s timing, noting that not only were they substantially cheaper not too long ago, but also that announcing the debt repurchasing defeats the purpose by increasing the price. This, coupled with an accusation by Twitter user @Traductorteama indicating record purchases of Argentina’s global 2030 bonds (GD30) suggesting the Ministry “leaked” information to “friendly hands” who made a killing on the announcement, has put the opposition on high alert. Juntos por el Cambio is already calling on Massa to go to Congress in order to explain the measure and whether there had been insider trading. More of the usual stuff in a world of polarisation and “grieta.”
Thus, once again Massa has taken the spotlight. As the electoral year gets going, he seems to be placing his bets on managing to bring inflation down toward an annualised rate of 60 percent while keeping the economy in positive territory to become the main candidate for the panperonist coalition, Frente de Todos. President Fernández looks out of tune with reality claiming he’ll run — some speculate it is part of a strategy to avoid becoming a “lame duck” ahead of time — while the Kirchnerite candidates look inadequate, from Interior Minister Eduardo ‘Wado’ de Pedro to Buenos Aires Province Governor Axel Kicillof, who wants to retain his position. Fernández de Kirchner already excluded herself from the race after the guilty conviction in the “public works” corruption case and Massa knows he has a chance, especially in the face of a fractured opposition. Buenos Aires City Mayor Horacio Rodríguez Larreta, a longtime buddy of the minister, has been campaigning for years now, yet his lack of charisma could outweigh his management track record, particularly in the face of an outspoken candidate like Patricia Bullrich, who is said to respond to Mauricio Macri. Parts of the Civic Radical Union (UCR) are calling for a break with the Juntos por el Cambio coalition, and neurosurgeon Facundo Manes could emerge as an outsider in the race. Finally, there’s the ultraliberals led by Javier Milei who could eat from everyone’s pie as long as there’s a generalised feeling of discontent with the political class.
As usual the main focus appears to be centred on the political long game, and not necessarily on what’s best for the economy and ultimately society. Massa and his team, which includes economist Gabriel Rubinstein, had expressed interest in implementing some sort of shock stability plan that would help balance relative prices and lower inflation. This was quickly discarded for political reasons (i.e. Cristina’s veto), and therefore Plan “I will survive” was born. Peronist gradualism, in a way. Whether it will work out remains in doubt. Until then, we’ll see more of these measures aimed at propping up expectations more than anything.
Once again Massa has taken the spotlight. As the electoral year gets going, he seems to be placing his bets on managing to bring inflation down while keeping the economy in positive territory to become the main candidate for the panperonist coalition, Frente de Todos.