In a year of worldwide anti-wall Street sentiment, Argentina puts the bankers in charge
Government ▶ President Macri surrounds himself with bankers and traders ▶ The group is “technically skilled” and has “the ability to deliver”
Hours after Argentina cut a deal with New York hedge funds to end a nasty, 15-year-old debt dispute, the government’s top economic officials took to the podium in Buenos Aires to bask in the moment. First to speak that February evening was the finance minister, Alfonso Prat-gay. He’s an old Jpmorgan Chase guy, a currency strategist. To his left sat Luis Caputo and Santiago Bausili, the two men in charge of the ministry’s debt program. They, too, are Jpmorgan alums, and both also did stints at Deutsche Bank. To PratGay’s right was Mario Quintana, deputy cabinet chief for President Mauricio Macri. Quintana founded Pegasus Venture Capital in 2000.
Since winning office in November, Macri, a former businessman, has loaded his administration with bankers, traders, financiers, entrepreneurs, and economists. It’s not the kind of move a leader would consider right now in, say, Spain or Greece, places where anti-wall Street sentiment runs deep. In Argentina, where a decade of state intervention in the economy has fueled runaway inflation and stalled growth, the population is more open to the idea. Macri wants to undo the interventionist policies of the former regime as quickly as possible, and he wants professionals schooled in free markets to do it.
“People got tired of living in a place where the state stuck its nose in everything,” says Miguel Kiguel, executive director of Buenos Aires-based consulting firm Econviews and the country’s finance undersecretary back in the 1990s. In November elections, Argentines voted for an end to “absurd” regulations, he says.
The hirings are helping Macri win the confidence of international investors, a crucial step toward regaining access to global capital markets more than a decade after a $95 billion bond default dropped Argentina from investors’ shopping lists. Kiguel says the group is “technically skilled, strong,” and made up of professionals who “have the ability to deliver.”
That’s not likely something any economist would have said of the staff of Macri’s predecessor, Cristina Fernández de Kirchner. Her last economy minister, Axel Kicillof, was famous for railing against foreign investors, saying that Spain’s Repsol was “looting” the country and that the defaulted bonds held by hedge funds were as worthless as cardboard.
A Buenos Aires native, Prat-gay joined Jpmorgan in 1994, about the same time as Caputo. By 1999, Prat-gay had the top job in the bank’s currency research group in London, a position he left after the default to head Argentina’s central bank.
Prat-gay and his hires have removed restrictions on dollar purchases, allowed the peso to trade freely, and pared back government spending. In the next year they’ll try to stem inflation by working with the central bank to keep interest rates high and tighten the money supply. And they must lure foreign businesses to Argentina so they will hire local workers.
One move that still needs congressional approval is the bond settlement Prat-gay negotiated with billionaire Paul Singer and other hedge fund moguls. Kirchner’s allies are sharply criticizing the terms of the deal as too favorable to international creditors. After the default, Argentina settled with most bondholders for 30¢ on the dollar. In February, Singer and the other holdouts got more than 70 percent of their claims. Therein lies a vulnerability for Macri: the perception that his Wall Street-groomed policymakers may be too cozy with investors. Argentines also recall that the last government dominated by businessmen and bankers, in the late 1990s, created the conditions that led to the country’s default on its foreign debt obligations.
These reservations may prove more of a concern if Macri fails to stabilize the economy. For now, people just want to live in a normal country, says Econviews’ Kiguel. At last count, annual inflation was about 30 percent. Fix that, and people may not care how much money foreigners make.
The bottom line In the U.S., the number of discouraged workers is dropping, while in Europe it’s rising despite a recovery. The bottom line Argentina’s finance minister has hired bankers to produce free-market solutions for the country’s problems.
Edited by Christopher Power Bloomberg.com