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President Macri was elected on a program of ending Argentina's capital controls and getting Argentina out of default (on its international bonds). So there is a deep irony that Argentina will have come full circle by the end of his term ...


There will be much written on the errors made by Macri (and likely the IMF). But the most obvious one was a simple error of debt management. Borrowing too much in foreign currency early on ....

External bonded debt doubled in a very short period of time.

That's the classic error made my pro-market reformers in Argentina.

They are tempted to borrow abroad because of Argentina's low level of domestic savings & small banking system. Yet Argentina cannot support a high level of external fx debt b/c of its small export sector

Argentina now has no choice but to adjust (and part of adjusting is limiting access to fx and thus limiting capital flight). The initial IMF program was generous -- it fully made up for the fall off in bond financing over the last year.

This is another way of showing the initial generousity of the IMF program - net reserves have been falling by $25-30b a year to cover a similar amount of private outflows (using a broad definition of net reserves that counts all borrowed reserves)

Argentina needs a period where it runs a sustained current account surplus -- which implies a weak exchange rate, and that in turn has consequences for public debt sustainability

But I also think that it is important that the IMF be willing to support Argentina through an orderly restructuring -- something it didn't do in 2002-03 (The Fund exhausted its willingness to lend in 00-01 trying to avoid a default and a move off convertibility)

At end of the day, a country with a limited export base can support a high level of external debt (in fx) only if that debt has a low interest rate and a long maturity (so little need to refinance). A reprofiling at this stage will likely need to be aggressive -

& I wonder if the IMF will conclude that Argentina needs to restructure the full stock when it sits down with the next government - jumping from "sustainable, but not with a high probability" to "unsustainable, so any further IMF lending needs to be matched by debt reduction"
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