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EMTA Forum in Buenos Aires - May 10

Thursday, May 10, 2018

Sponsored by
TPCG Group

Tattersall Palermo
Avenida Del Libertador 4595
Buenos Aires

4:00 p.m. Registration

4:30 p.m. Panel Discussion

"Can Argentina Stay the Course?"
Fernando Alvarez de la Viesca (TPCG Group) – Moderator
Lionel Modi (Franklin Templeton)
Gustavo Cañonero (Grupo SBS)
Siobhan Morden (Nomura)
Pablo Albina (Schroders)

6:30 p.m. Cocktail Reception 

Additional Support Provided by Nomura and Thomson Reuters.

Complimentary attendance for EMTA Members / US$695 for Non-members
 / Closed to the Press 


Subsecretary Werning Discusses Argentina’s Decision to Apply for IMF Resources at EMTA Forum in Buenos Aires

“What happened?” asked TPCG’s Fernando Alvarez de la Viesca at the onset of EMTA’s May 10, 2018 Forum in Buenos Aires. The event explored both the causes and possible outcomes of the market sell-off in the Argentine currency that prompted dramatic Central Bank rate hikes, and was sponsored by TPCG. Additional support for the event was provided by Nomura and Thomson Reuters.

Argentina’s Subsecretary of Coordination and Economic Analysis Vladmir Werning delivered the event’s keynote address, and reviewed the steps the government had taken to restore market confidence. Despite the tough measures that had been enacted to meet the budget, and the progress on reforms under the direction of President Macri, the administration had recently announced its decision to seek an IMF Stand-By Agreement as insurance.

“In the past, requesting IMF assistance was the last resort when we had a lack of Central Bank reserves; however, this is not the case today,” he declared. Werning then cited statistics on new job creation, economic growth, and the surpassing of the official fiscal target. “We have the fundamentals now; this is not the same situation as when we came in in 2016, when we had to meet high expectations from the people,” he asserted.

Argentina recognized the need to restore credibility, and to fine-tune and make adjustments as necessary. “The Central Bank took the necessary measures to address imbalances, and the Finance Ministry reiterated our commitment to our fiscal targets,” he noted. The need for a balance between social issues and addressing the Argentine fiscal deficit was a reality that would be taken into consideration.

Werning stressed that laws which would boost Argentine growth prospects must be passed, and the government must remain focused. “We believe that 2018 will require stronger reforms that will provide for long-term economic growth,” he affirmed. While there was criticism from the opposition and some of the media, and one must always address a natural reluctance to change, the Macri administration maintained political capital that it could tap in order to continue its progress. At the same time, pessimistic views could contribute to a realistic approach, and reasonable adjustments were on the table. “We can accommodate candles so they don’t get blown out by the wind,” he stated.

Werning took a variety of questions following his formal address. Pressed for further details of the size, timing and conditionality of the proposed IMF loan, he announced that, “the amount will be the size necessary to reassure the market, and will create a program that will mitigate concerns.” The IMF had previously expressed public support for Macri administration policies, and he suggested programs could take six weeks to fine-tune. “Rest assured that the accord will have all the chances of being successful,” he commented, stressing “I am here today to remove uncertainty that the Finance Ministry and the Economic Ministry are fully committed to pursuing this program."  Should the IMF require changes to the country’s growth or fiscal targets, “we will make adjustments. I believe the IMF could give us a proposal and we should analyze it…there is always a balance to strike, and we have to be realistic.” Werning concluded that the Macri team was focusing on the long-term health of the nation, “the goal is not to make a political career.”

Did the markets over-react? “The people vote for President every four years; the market votes on us every day,” he replied, while reiterating the country’s “solid and robust fundamentals,” and dramatic progress since it took office in 2016.

Prior to Werning’s address, de la Viesca had moderated a panel of industry experts, and asked speakers to review the causes of the recent crisis. Gustavo Canonero (SBS) reasoned that the gradualist approach undertaken by the Macri administration, including a dependency on external financing, was always known to be a high risk strategy. Rising global rates, the Central Bank’s previous failure to address inflation by hiking rates, and popular discontent with utility price increases, had resulted in the market losing confidence and turning hostile. The application for IMF funding was thus a mean to replace market financing of the gradualist approach, he reasoned.

“It’s hard to believe we have come to this point,” opined Siobhan Morden (Nomura), revealing that, on a recent investor trip only weeks ago, most questions had been focused on Venezuela or Ecuador. “The problem is that there were a lot of short-term capital inflows, but not enough Central Bank reserves,” she asserted. However, “this is not 2001, this is a short-term issue; the IMF will support the gradual approach, and that will provide the confidence needed to boost market confidence,” she stated.

The majority of speakers agreed with Schroder’s Pablo Albina that the decision to contact the IMF was “the correct path, despite the political cost.” Morden declared that the government had indeed run out of options after hiking rates and selling dollars. Franklin Templeton’s Lionel Modi, however, offered a dissenting view, stating that the appeal to the IMF might have been put on hold some more time, as he argued that other measures that were being taken including Central Bank rate hikes would have had good chances of solving the problem, which he declared were “confidence-related…and not the result of financing needs.”

Speakers offered predictions on the terms and timing of the IMF accord. Morden believed an accord could be concluded “very, very fast,” and did not expect IMF conditions to differ dramatically from the current economic program. She added that Argentina had geopolitical value to the US, and that thus “a substantial package,” which she specified could be as large as $30 billion, was possible. Modi agreed that IMF conditionality was unlikely to require major changes by the Macri team. “I think the path is clear; they may just ask us to speed things up,” he speculated. Canonero affirmed that the IMF “understood perfectly” the political ramifications of pension reform, but acknowledged the need of tighter fiscal targets
in the coming IMF agreement, absent a broad political support guaranteeing further reduction in the fiscal deficit during the next administration. He foresaw a “generic, pre-agreement” in a couple of weeks with subsequent fine-tuning also taking several weeks.

Going forward, Albina believed that the market should play a role in assuaging popular fears in Argentina. “I think it is important we get this message to the people of Argentina, who are rushing to buy dollars, that there is no massive crisis or default like in the past. This is more of a rebalancing act of the twin deficits,” he stated. Canonero agreed that popular anxiety can be mitigated, and that the IMF will play a key role in avoiding a recession in Argentina. Modi urged the government to be clear that the IMF deal was not a repeat of the past, and that this time was being undertaken while there was still time to stabilize the country. Morden didn’t see a rival to the Cambiemos party “with any strength,” at least for the near future, while concurring with other speakers that there was a political cost.

For the text of Subsecretary Werning’s speech, please click here.

Editor’s Note: Subsecretary Werning resigned his position in late May 2018.