Argentina says wants debt deal as fiscal deficit balloons
Argentina’s new finance minister said it was imperative to resolve the country’s legal dispute with U.S. creditors over unpaid debt because financing of the country’s fiscal deficit this year may depend on progress on the issue.
Solving the more than decade-long debt battle would enable Argentina to return to global credit markets and stop financing the deficit with the printing presses, a tactic which helped fuel double digit inflation under the previous government.
Finance Minister Alfonso Prat-Gay said the negotiations would be tough but it was in the country’s interests to reach a deal.
The previous government’s failure to do so had cost the economy, he said, with creditor claims in New York having risen to $9.9 billion from $2.943 billion originally.
“We’re not going to ignore the issue. It’s not our mess but we have no problem in cleaning it up,” Prat-Gay told a news conference.
Former President Cristina Fernandez had refused to settle with the funds that bought Argentine bonds on the cheap after its massive 2002 default and then held out for better terms when Argentina restructured its debt.
They are broadly known in Argentina as “vultures” for picking on the carcass of the economy after the default plunged millions of Argentines into poverty.
Finance Secretary Luis Caputo met with for the first time with the funds on Wednesday in the New York office of the U.S. court-appointed mediator Daniel Pollack for preliminary talks.
In addition to the debt battle, Argentina’s new center-right government, which took office in December, also inherited a primary fiscal deficit of 5.8 percent of GDP in 2015, Prat-Gay said.
“The primary fiscal deficit is at its highest in 30 years,” he said.
Fernandez’s two terms were characterized by heavy government spending that aimed to boost the domestic economy.
The new government aims to reduce this deficit to 4.8 percent of GDP this year and 3.3 percent in 2017, in part by eliminating subsidies for public services for the 30-40 percent of wealthiest Argentines, Prat-Gay said.
Subsidies would be maintained for those who needed them, he added.
Inflation has already eased back to levels seen before Argentina’s 26.5 percent devaluation in December, Prat-Gay said.
The new government aims to bring it down to between 20 and 25 percent this year from 28 percent in 2015.
By the end of Macri’s term, in 2019, inflation should be around 5.0 percent, the minister said.
Source :CNBC news
Human rights abuses, a floundering economy and the disastrous Falklands War left military leaders disgraced by the 1983 election. Spending increased under the next president, Raúl Alfonsín, but government revenue all but disappeared. Only 30,000 citizens paid income tax in 1989 and inflation increased to over 5,000 percent. Power passed to Carlos Menem, who slashed import tariffs and privatised industry, while widespread corruption scared off many investors.
The government stopped payment on more than $100bn in debt, the world’s largest sovereign debt-default. In the space of two weeks, five different presidents held office. Unemployment soared above 20 percent, with people leaving the country in droves, as Argentina entered a deep recession. The national economy shrunk by a fifth. As part of a debt-restructuring plan, the majority of creditors accepted new bonds that were worth roughly 35 cents to the dollar.
2003 – 2014
Néstor Kirchner was elected in 2003 and brought with him a return to populist politics. His leftist policy focus on social welfare and economic intervention initially steered the economy out of trouble. He was succeeded by his wife, Cristina Fernández de Kirchner, in 2007, who continued what would become known as Kirchnerism. The economy slumped in 2010 following Néstor’s death. With inflation steadily increasing again, Argentina defaulted on its national debt in 2014.
By Patriotic Zambian