A Conversation With Martín Guzmán

Economy Minister Martín Guzmán discusses the state of Argentina's economy, how the coronavirus has affected it, and the challenges it confronts as it works to restructure its external debt.

The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

RUBIN: OK, thank you. I’m Bob Rubin. I’ll preside over today’s meeting. It is, as you know, Council on Foreign Relations C. Peter McColough Series on International Economics. We are deeply honored to have the economics minister of—or minister of the economy, I should say, of Argentina, Martín Guzmán.

The way this will work is I will—the minister will begin with a few minutes of comments or remarks. Then he and I will have a discussion for a while. And then it’ll be open to questions from all of our members. In keeping with the practices of the council, I won’t recite from the minister’s resume, but as you can see it is highly distinguished. I will make one observation, which is that prior to becoming minister of the economy he was affiliated with Columbia University and worked very closely with Joe Stiglitz, Nobel Prize-winning economist, and somebody all of us know very well and respect very highly.

With that, Mr. Minister, I will turn the program over to you for your opening remarks.

Guzmán: Good afternoon, everyone. Thank you, Secretary Rubin. It’s an honor and a pleasure for me and for us to have this conversation with you and with the whole audience, and we’re honored by your presence. Let me also thank the Council on Foreign Relations for making this event possible. It’s very important for us to have the chance to have a broad discussion about the contours of what’s happening in Argentina, the macroeconomic and the debt crisis that the country is going through, and the ways we are trying to resolve the situation.

I know I have seven minutes, so I’ll be brief in my introductory remarks. What I want to explain is where we are, and how did we get where we are now, and how do we see the way forward. Now the country is experiencing a deep economic crisis, that includes a sovereign debt crisis. How did we get here? In 2016 Argentina—we access international trade markets, and it starts to borrow under the assumption and premise that the country will be able to go through a positive cycle of inflows of foreign direct investment that would lead to increases in production, increases in particular in production of tradable goods, so the country will be able to create the debt service capacity in order to get sustainability to the path that it was embarking on.

After about three years and a half, in April 2018, expectations changed. There was a classic sudden stop. Argentina had had large portfolio inflows for two years and a half, but there had not been a significant inflow of foreign direct investment, and the country was still suffering from the same structural problems that it suffered before. The current account imbalance had deepened. And in that context, and also in context of revisions of expectations at the global level, the country suffered a sudden stop. There was a currency crisis that came with the sudden stop. And there was an agreement after that—shortly afterwards with the IMF, and a stand-by arrangement that was supposed to help the country to restore macroeconomic stability. But it did not happen. So the situation continued getting worse. And the country suffered three currency crisis in two years, two in 2018, one in 2019.

And all the economic and social indicators deteriorated. GDP fell in three out of the last four years. Poverty increased, today about 35 percent. Child poverty is 52.4 percent today. Unemployment reached two digits. So the situation was quite bad. We took office in December 10—on December 10. And we already recognized that debt was in a position of unsustainability. We had to engage into a debt restructuring process in order to restore economic and social stability in Argentina. But led by President Fernández, what we planned to do was to invest in having an orderly resolution of this crisis. For Argentina, it’s very important to maintain a healthy, long-term, long-lasting relationship with its investors, with its creditors. And we want to have a chance to have an orderly resolution through a constructive engagement with creditors and have a deal that is effective to restore the debt sustainability and return the country to economic growth, and also to allow the country to sustain economic growth over time.

So in December 2019 when we took office, we asked congress for a allowing us to use part of the foreign reserves to continue serving our debt with foreign bondholders so we could have an orderly process. And we did that. We continued serving our debts for a more than four months. And throughout, we establish conditions of transparency, good faith, and sustainability in order to continue that restructuring process. We received a mandate from Congress to do it. There was overwhelming support to the process we embarked on from congress, and from all the governors in the country, and from the society in general.

And we engaged with our creditors. There were meetings. The logistics became more difficult. We were hit by COVID-19. COVID-19 as an absolutely massive shock for Argentina's economy. Argentina was a patient that was already ill and was hit by coronavirus. So that was very tough for us because we were facing very tight constraints. We had to protect sectors of the society that fell into a situation of vulnerability. We adopted a strict lock down because otherwise the health system wouldn't have been able to deal with what the spread of the virus would have implied.

But that, of course, had economic consequences. And we adopted the number of measures that entailed high fiscal costs in a context in which we were trying to move towards fiscal consolidation, and in which we didn't have access to financing. So that increased the fiscal deficit, but it was important to do it to protect the people and also to protect the firms that will still be valuable. It will be very important that those firms remain alive when the COVID-19 is over. That's essential in order to have conditions for an economic recovery and not make the effects of COVID-19 too long lasting.

It was in that context that we were restructuring the debt. And we decided to continue. So in fact, we continue paying until we made an offer because we were absolutely committed with the premise of having an orderly resolution. And it was in that context that we made an offer that—it was an offer that we consider responsible because it’s an offer that we can fulfill and will—and that is based on what's Argentina's debt service capacity. We were working with the IMF also to assess our debt service capacity. The IMF produced a technical note on debt sustainability that it was also an important reference for us at the moment we made an offer to our creditors.

This offer included a grace period of three years, an average coupon of 2.3 percent, and principal reduction of 5.4 percent. So it's a modest reduction in principal, and the biggest bulk of the reaction is in the coupons that Argentina was borrowing at 7 percent, but Argentina did not manage to create the capacity to meet average coupons of 7 percent,. So 7 percent cannot be paid, and we want to be a good debtor. And a good debtor is a debtor that has the capacity to meet its commitments. And the offer that we made was based also on that premise.

Some of our creditors accepted the offer, and others did not. And over the last few days, we continued engaging with our creditors, there's been a positive dialogue. And we continue working with them. We are of the view that we need to have a collaborative process with all sides acting responsibly. The lives of millions of people will be affected by what happens now. And also, of course, this will also have connotations for emerging markets in general. And that's what we want now. For us, success means achieving a deal that works for putting Argentina back on its feet. That's what’s success to us. Not just a deal, but a deal that is sustainable, a deal that we can commit to, and that we can fulfill, and that we will fulfill. And we will continue working with our creditors towards that goal.

And now we, of course, face a very complex situation—very complex at the economic and the social level. And we are giving every possible step in order to deal with the situation that Argentina is going through now. The context of a double crisis—the macro crisis and the COVID-19 crisis. So thank you very much for allowing me to make these introductory remarks. And I look forward to our conversation and discussions.

RUBIN: Thank you, Mr. Minister. That that's a very thoughtful framing. And as you say, it’s an issue not only of Argentina, though Argentina is extremely important, but many emerging market countries unfortunately have dollar or euro—mostly dollar but also euro-denominated debt, and severe economic contraction. So in a sense—not in a sense. I think, Argentina, and what you do in Argentina, could have an effect on emerging market countries around the world. So it is doubly important.

Let me ask you this: As I understand it, the creditors are saying that you have projected a relatively low rate of growth for the long term. And it's in the context of that rate of growth that you have determined—you estimated your debt capacity, and it's sort of consistent with the technical advisory from the IMF. What they're saying is that they think it's unrealistically low, and that a more realistic estimate would enable you to have a higher coupon, and therefore better net present value for their bonds. What is your answer to them when they say that you're being unrealistic about the longer-term economic forecast for Argentina?

Guzmán: Thank you, Secretary Rubin, for this thoughtful question. So with respect to the assumptions on economic growth, what we did was to work within a macroeconomic framework of consistency. We laid out a path for the fiscal side, for the trade balance, and as well as for foreign reserves accumulation, which for Argentina in the current juncture is very important in order to build resilience that would allow us to ease the tight capital controls the economy has today that were adopted in August 2019, in the context of high economic anxiety.

And there are two elements that were important at the time of designing that macro framework and obtaining the real GDP growth path that you, Mr. Secretary, referred to. One is the balance of payments constraint. Argentina has gone through a long history of booms and busts, failed reforms, balance of payment crisis. It’s very common—what always happens is that when the economy grows, real demand grows, therefore imports grow. In order to maintain macroeconomic consistency, exports also have to grow.

And in Argentina, exports over the last decade, almost—over the last eight years—have been stagnated. So the numbers we included, which are the country conversion to real GDP growth of 2 percent, will require an increase in exports growth between 4 and 5 percent per year, which is higher than what the country has been experiencing recently. And it's a parameter that, given Argentina's history, is not easy to achieve. In fact, it’s somewhat ambitious. And also, historically Argentina has had much trouble to achieve real GDP growth rates of 2 percent.

So we think of this as a platform for economic growth. But of course, we want to grow more. And we are adopting policies, starting with restoring macroeconomic stability, and we have economic plans that have the intention of growing more. So something that we with a defined and shared with our creditors with the restructuring guidelines, something that we included restructuring guidelines, was a possibility of VRIs, contingent instruments. There could be part of the coupons tied to GDP growth. But there wasn’t much enthusiasm about those instruments. So that’s why they were not included in the offer we made. But certainly they were—they were proposed as a possibility.

RUBIN: Well—(laughs)—OK. I was going to ask you about a VRI, because I didn’t know that you’d made that offer. But tell our members what a VRI is, and then explain why the creditors wouldn’t find that an interesting—it seemed to me that’s an interesting and creative way to bridge the difference between what they think a more realistic estimate would be, and the estimates you’re making.

Guzmán: Yes, certainly. That’s what we thought. So the VRI, the idea is a contingent instrument. And one of the possibilities was to pay more if the economy grows more. We just wanted to make sure that the commitments we make, we can fulfil them, because we don’t want to repeat the history of the past. We don’t want to repeat the same problems that Argentina has gone through in the past. And this is what we consider a realistic scenario, the one we presented, the macroeconomic framework. But of course, if we grew more, we would be able to pay more. And that’s what we offered.

Why there wasn’t appetite? It’s never clear for us. And I know this is a global debate in general in which there are prestigious institutions and very prestigious economies that have contributed to it, like Olivier Blanchard at the Peterson Institute and the Bank of England, the Bank of Canada, they’ve been making remarkable progress on thinking about these instruments. But still the adoption at the global economy hasn’t been—it hasn’t happened at the large scale. So in our view it’s always been a little bit puzzling why that’s the case, but this is the reality we face.

RUBIN: For those of you who are not familiar with it, what a VRI is, is basically sort of a debt warrant—or, rather a growth warrant. So that if growth is more rapid than is expected than you would increase the yield by whatever the agreement is.

Let me ask you another question, Mr. Minister. I have the impression that the creditors, at least some of the creditors, think that the IMF should take more of a burden and they less of a burden than is currently proposed. What is your response to that?

Guzmán: At the end, what we have is a comprehensive problem of debt sustainability. And we don’t have today the capacity—unfortunately, we don’t have the capacity to make payment with our private creditors, but we also don’t have the capacity to make the payments with the fund.

RUBIN: Exactly.

Guzmán: So we are working also with the fund on changing this, Argentina. There’s a timing issue. We have—the bulk of our payments to the fund are from 2021 to 2023. There are no capital—no capital amortization payments to the fund at all this year. But we have large payments with our private creditors now. So we asked Congress for the possibility of continuing serving our debt with foreign reserves, but our foreign reserves are quite scarce. And we are in a position of very high instability. So that’s why we had to do the restricting with the private creditors first. It’s just a matter of time. But we also seek changes to the terms of our debt schedule with the fund because we are not able to make the payments with the fund either.

RUBIN: But presumably, Mr. Minister, whatever you’re—whatever you are offering to do with the private creditors is premised on some assumption about what you can do with the fund. So if you premise a somewhat more stringent arrangement with the fund, where they took more of the burden, then you’d have more left for your private creditors.

Guzmán: Well, and that’s why the debt sustainability analysis—both debt sustainability analysis that have been on the table include different scenarios. And those different scenarios give us flexibility in terms of thinking what could be the different programs Argentina could have with the fund. The modalities of the program with the fund are still under discussion. In any case, we made an offer that was on the high side of these different scenarios. And in fact, we were hit by COIVD-19, which had dramatic effects on the economy. And despite COVID-19, we did not modify the long-term scenarios. We made modifications to the short-term scenarios, and grace period now becomes even more important given the situation in which Argentina is today. But the repayment generating efforts that this offer entails are higher now than before COVID-19.

RUBIN: Let me add another question, if I may, Mr. Minister. In the proposal that you have now with the private creditors, there’s no payment in the first three years, if I remember correctly. On the other hand, from their perspective, I guess, they think some payment would be sort of a sign of goodwill and also give them a little bit more security about the price or—you know, the price of their debt. Is there any—I’m not asking you to negotiate in public what you have to do in private, but it just strikes me that a question creditors could ask is: Why can’t there be something in the three-year period? Not a full payment, but something?

Guzmán: Thank you, Mr. Secretary. Certainly, the grace period has been one of the critical aspects in discussions with our private creditors. The technical note on debt sustainability of IMF pointed out that there was virtually no capacity over the first five years. And then initially in the terms that we set for our initial discussions with the creditors we set a four-years grace period. But it was very important for them to shorten that. But the problem is that we face now very, very tight constraints, and the fiscal deficit will be higher than what we expected before COVID-19. So returning to a primary fiscal equilibrium, which we are fully committed to, and later on primary fiscal surpluses, will take time. So as a gesture of good faith and still understanding that we face very tight constraints we offer some payments in year four.

In any case, we’ve been saying repeatedly that we are flexible in terms of the different combinations of parameters—reduction of interest, reduction of principle, maturity of sanctions, and grace period that will be consistent with the tenant of restoring debt sustainability. We made an offer, and if there are different ideas we always were willing to listen. And that’s where actually we’re waiting for now. We’re willing to listen. It would be a big help for this process if creditors put on the table alternative ideas that reflect their preferences better, if that’s the case, and at the same time respect the constraints that we face today.

RUBIN: I think another question—that seems, to me, a very thoughtful answer. Another question would be this, minister: The creditors, I presume, are figuring that if they have whatever arrangement they have with you, then their bonds will trade at some present discounted value based on the cash flow. And I’ve been told, at least, that they think an appropriate present discounted value would be 12 percent, and you think it would be maturely lower than that, and that obviously will determine where the bonds will trade if they make an arrangement with you. Given that Argentina’s had eight defaults, why do you think that a discount rate—why do you think your suggestion of a lower discount rate is more realistic than theirs of a higher discount rate?

Guzmán: Thank you, Mr. Secretary. This is, of course, a great question. And it came up a number of times in our conversations with the different stakeholders. First, true, Argentina has had a history that has been very turbulent. And it has created much pain for many. And it has damaged many time the relationship of Argentina with its investors. And that’s what we want to change. So it’s very important not to build on illusions and very optimistic scenarios. We want to build on realism. And Argentina was paying 7 percent—coupons in U.S. dollars of 7 percent in a world of almost zero interest rates. And that means that there is a compensation for risk that is embedded in those coupons. And that also makes Argentina risky.

We economists, we speak of multiple equilibria. If the country had been paying low, safe coupons, it wouldn’t have had any problem on the debt front. It’s what happened in other countries in the region. COVID-19, other countries in the region can deal with it differently because they borrow, some of them, even in their own currencies and at lower coupons. At 7 percent, the country becomes very fragile. A shock like the one that hit Argentina, the change in expectations that Argentina suffered in 2018, leaves the country in this situation. This is a situation that is not good for anyone. It’s not good for the country. It’s not good for the creditors. No one wants to be here. That’s why we need to resolve this together.

And now the offer we made is an offer that we consider sustainable, because Argentina can pay average coupons of 2.3 percent, and it will pay average coupon of 2.3 percent if there was an acceptance along these lines. So that’s why we think—but it’s up to the creditors to value the assets. To me, as the minister of economy of Argentina, and to us as the government of Argentina, what we can do is to lay out what it is that the country can sustain year by year. It’s up to the creditors to give value to that. Of course, in our view, the bonds that we’re offering, they should trade well. Twelve percent return, it’s unrealistic. Argentina will never be able to pay 12 percent return. So in our view, the discounting factor should, of course, be lower, and these instruments should trade better. But this is, of course, up to our creditors. It’s up to them to value these assets.

RUBIN: One final question, Mr. Minister, and then we’ll turn it over to our members. If you can’t work this out by May 22, which is the date when the interest payment is due, what are the possible scenarios? What are the possible scenarios that may—and I’ll just add one observation to that. If you do default, it seems to me there’s not only a risk to Argentina, but a risk to the rest of the emerging market world in terms of contagion. So this is really an important issue. Obviously for Argentina, which is a very important country, but also for emerging markets more broadly. So if you don’t—if you don’t reach an agreement by May 22, what are the possible scenarios, as you see it?

Guzmán: Thank you, Mr. Secretary. OK, with respect to the second point, the implications at the global level, let me share a very enriching conversation I had a few days ago with a very respected investor, very experienced investor as well. He was referring to the situation Argentina is going through today as the situation of the chainsaw paradox. The chain store paradox. The chain-store paradox, let me explain what this means. So say we—someone owns a big store. And there is a small store that is open right next to this big store. That small store is not going to affect the sales of the big store significantly. Then there can be a second small store, and a third, and a fourth, and a fifth, et cetera.

So while the first small store does nothing to the big store, it may be optimal for the first store not to allow the first store to be open, to say, you know, make sure that the first store does badly. But then there is the second, and the third, and the fourth. So what I was hearing is that now Argentina is doing this, and we are making a responsible offer that is sustainable. And it is aligned with what the IMF says is sustainable. And then there could be others doing the same. And in a context in which there will be many countries that will enter into situations of distress given the COVID-19.

The problem that I see with that logic is that—I see two problems with that logic. First is that acting that way at the global level would hurt an entire class of assets. So that’s a serious problem. And it would affect the lives of hundreds of millions of people. So that’s why we now need positive leadership around the world and positive leadership from those who have power and that have the chance of making good to the world. But that’s at the global level. When it comes to Argentina, under the leadership of our president, we are fully committed to change the turbulent history of Argentina. And we want to have a long-lasting, healthy relationship with our creditors.

For having a long-lasting and healthy relationship with our creditors and our investors in general, we need a deal that can be sustained. Sustained at the economic level, at the social level, and at the political level. That’s why for us this is not just government policy. This is a state policy. We got almost unanimous support of congress for moving in this direction. And we got the unanimous support of the governors of the country—the twenty-four governors of Argentina are supporting what this government is doing now. So the sooner this is resolved, the better for everyone—for everyone. But we—no matter what happens, we will continue working constructively with our creditors in order to achieve a resolution and give our country the conditions to get back on its feet, and the creditors also the conditions to engage with a healthy country.

RUBIN: Mr. Minister, thank you for your thoughtful responses. We will now open the floor to questions from our members.

STAFF: (Gives queuing instructions.)

We will take our first question from Henri Barkey.

Q: Thank you. Thank you Mr. Guzmán and Secretary Rubin.

Mr. Minister, you said that the plan you have assumes that you’re going to have a 4-5 percent increase in exports. And this, given the history of Argentina, is almost unrealistic. So my question is, what happens if you don’t achieve that? And to achieve it, what is it that you have to do in terms of exports? Where are those exports going to come from?

And, by the way, my apologies. Henri Barkey. I’m from Lehigh University and the Council on Foreign Relations.

Guzmán: Thank you, Mr. Barkey, for your question.

So, first, we do not think this is unrealistic. We think it takes work, but it’s an outcome that can be achieved. And it’s an outcome that requires, first, macroeconomic consistency, stability, which the country doesn’t have today. So that’s why we laid out a path towards stabilization. We need fiscal consolidation and a pace that is consistent with not decreasing economic activity further, especially in the context of COVID-19. We need a path of trade balance that is consistent with that fiscal path, and we need a (condition ?) of foreign reserves. So we need macro stability on one side.

Second, we need to have—to create now the conditions for increasing the levels of savings in the country. Savings has always been an important constraint for economic growth. So that’s why it’s so important for us to work on the development of the capital markets and being able—giving the population the possibility to save in our own currency. We have to regain the confidence in our own currency. And developing a debt market in our currency as well—a peso debt market. And these are two fronts on which we’ve been working. And it’s going well. Argentina recovered an access, of course, moderately, to financing in our own currency. This had been lost, and we’ve been working since December on this. And Argentina after COVID-19 will be able to grow without an increase in investments because will be massive (utilization ?) of capacity. But that’s just for the short term.

In order to maintain growth in the medium and long term, the country will need to have higher investments. And for having higher investments in a sustainable way, we will need to have higher savings. So that’s why that’s very important. At the same time, the state also will play an important role. Energy, knowledge, science, infrastructure—three very important aspects of the proactive policies in which the state need to have the capacity for implementing what the country needs, and therefore give the private sector the conditions in order to be able to increase the productivity and the competitiveness in the country. So those are the broad contours of how we see both the necessity of having an increase in exports and how we are going to get there. Thank you.

STAFF: We will take our next question from Doug Rediker.

Q: Hi, Mr. Minister. And hi, Bob. Doug Rediker from Brookings and International Capital Strategies.

Mr. Minister, you mentioned several times that you didn’t want to repeat the history of the past, which I think a lot of people would hope would be the case of the Fernández government. And I also understand why you want to come up with a deal with the creditors before you have a new IMF program. But you can also understand why creditors would like to see how you’re going to handle the $44 billion of IMF debt and what reforms you would embrace under a new IMF program. Currently, I believe the Argentine government has said that they’re going to have an Article 4 mission with the IMF this year, and wait to discuss a new IMF program, and still presumably next year.

So my question is, what is the likelihood that you would engage with the IMF on a new program sooner than that? And as part of that IMF program discussion, what would be the appetite of this government to actually take a look at some of the structural reforms that the IMF will traditionally like to see in Argentina, and that might actually get Argentina off of that path of repeating its past history?

Guzmán: Thank you, Mr. Rediker, for your question. Again, I appreciate the fact that it was—the characterization of my answer about why the timing made addressing the problem—the crisis before this year. And the reality is that if risks materialize, it’s worse for every side. So despite the fact that we don’t have a program—a new program that replaces SBA with IMF yet, it was important to move forward with the negotiations and the restructuring process with our current creditors. We are working with the IMF, and we have been having a very constructive engagement within revising the premises on which the previous program, the SBA was based.

Let me explain to the whole public venue—a few, of course, already know this—but there were two main assumptions in the SBA program in ’12 and ’18. The country was already in a recession. And assumptions were that contracting and fiscal policy was going to restore confidence and contracting and monetary policy was going to be affected to reduce inflation. What happened was that contracting fiscal policy did not restore confidence, and it led to an even further contraction of the economy. And contraction in monetary policy was not effective to reduce inflation. In fact, inflation increased. And it increased to 53 percent almost in 2019.

On the contrary, the combination of rising prices and contracting monetary policy led to a fall in the real monetary base and a skyrocketing of the interest rates. The interest rates in Argentina affected, and the interest rates were above 80 percent—80 percent annually, annual interest rates. So that, of course, completely undermines the workings of the economy. It’s very hard for companies, for firms, to produce in conditions in which average demand falls and the interest rates are about 80 percent.

We have been working—constructing with the IMF in revising those premises. And we are hopeful that the new program will be one that will help Argentina, that will help Argentina to set on a path of market stabilization. And that should be the focus of the program—market stabilization. We are a sovereign nation, fully committed from this government with stabilization, and again, stabilization is—that is state policy in Argentina. And there are a number of reforms that we adopt that have to do—we are, of course, in the context of these different shocks that the global economy is going through, monitoring the situation with the energy sector.

Like our president had announced in congress that we will send a bill to determine different rules, different conditions for development of the energy sector. As I explained before, knowledge, science are very important, the development of the capital markets, to have a tax structure that reflects our use of development and that also makes the public finances sustainable as well. So these are all aspects we will work on. And some of them we’ve been working on.

STAFF: We will take our next question from Maria Iglesia. Ms. Iglesia, please click the “unmute now” button.

Q: Can you hear me now?

Guzmán: Si, madam.

Q: Hello? Oh, hola. OK. Gracias. OK. Thank you. I’m Maria Iglesia. I’m from El Cronista newspaper.

I would like to know a little bit about what are the scenarios you are (fearing ?) could happen in Argentina after May 22.

Guzmán: Thank you, Maria, for your question. As I described before, we are working with our creditors in order to reach a deal. It has to be a sustainable deal. And that’s how we measure success. Success for us is having conditions that allow Argentina to get back on its feet. We will continue working on the debt front until we achieve that result.

STAFF: We will take our next question from Tom Glocer.

Q: Hello, Minister. And thank you for sharing your thoughts with us today. If I could take you back a moment to turn of last century. Argentina is one of the world’s leading economic powers, great natural resources, incredibly talented and educated workforce. What lessons do you think Argentina can teach the United States as we pile on unprecedented amounts, and have also copied the Argentine penchant for populism?

Guzmán: Well, certainly that’s not an issue for economy of Argentina. I’m not here to lecture the United States. The United States has a very capable professionals. I mean, I had also the privilege of doing a Ph.D. in the United States, at Brown University, and then working at Columbia University. And it’s a country also absolutely full of talent and people who I deeply respect. So I will leave others to respond on this. Certainly, it won’t be me who will lecture the U.S.

Q: (Laughs.) Thank you.

RUBIN: Mr. Minister, you’ve learned to be a politician.

Guzmán: (Laughs.) Thank you, Mr. Secretary. But I mean it.

STAFF: We will take our next question from Rafael Ruiz.

Q: Thank you very much. Good afternoon, Minister Guzmán. This is Rafael Mathus Ruiz from Argentine newspaper La Nación.

I would like to—if you could comment on whether you have actually received any counteroffer from any of the committees where the bondholders are united, or any other fund that you have been engaged with in conversations, and if you see that that’s the way to move the process forward? Or I would say, how do you plan to move the process forward in case you have not received any counteroffer yet?

Guzmán: Thank you, Rafael. So, so far throughout this whole process we only received one counterproposal, which was not aligned with the principle of restoring debt sustainability. We of course gave fully consideration to it. We analyzed it. And the conclusion is that debt under that proposal would just not be stabilized and the economy would not be able to stabilize. So that’s only one. I haven’t checked my phone over the last hour, or my email, but to my knowledge that’s—so at least until an hour ago, there had not been any counteroffers.

We are—we know that the creditors have been working hard on this, in getting together to make an alternative proposal. And we very much hope that these meetings and these discussions among creditors are constructive and productive. And we are here open to listen. We want to listen. We want to see what alternative ideas we can take in order to reach a deal that works for everyone.

STAFF: We will take our next question from Jean-Hugues Monier.

Q: Hello, Minister. And as I say, I can’t wait to have the border open to winter camping at the Laguna Diamante because you have such a beautiful country. Just a question for you. I’m Jean Monier with McKinsey and Company. I’m a senior partner in New York.

What would you say to cooperation—I’m not talking about debt. I’m talking about corporations, investor companies that are looking at Argentina with its potential, but are, you know, just pausing a little right now regarding investment. What can you give them that will really ensure them that it’s really where they could implant factories, where they can, you know, make investment in renewable, for instance, because I saw that you post the renewable, you know, investment? And so what’s your message more for corporations on that front?

Guzmán: Thank you, Mr. Monier, for your question. And I’m glad you like my country, which it’s a beautiful one, certainly, like France as well.

So we are doing absolutely everything to have a process of stabilization that makes Argentina a country with a solid, positive business climate. We have outlined what are the policies at the macroeconomic level, which those were the most urgent ones, and we also have online what our use of economic development are, and what are the priorities, both in terms of developing market conditions that are viable and in terms of the proactive policies that will be more conductive to increases in dynamism, productivity, and competitiveness. So in terms of cooperation and reassurances, I say that we are acting in a way that we consider responsible, led by President Fernández, in order to have an environment that is the environment that I just described.

STAFF: We’ll take our next question from Joan Solely.

Q: Hi, good afternoon. I was wondering, do you feel that COVID-19, which is a worldwide issue, it’s a pandemic that’s bringing many nations to their knees financially, is that having an impact on the negotiating environment? And if so, is it perhaps playing largely enough to your satisfaction, again, considering the global impact on markets, on trading that this is having in them taking into account your position?

Sorry, BBC News.

Guzmán: Thank you, Ms. Solely. Well, certainly COVID-19 did have an impact on the negotiating environment. But this is something that happened to the whole world. We have to adapt our mindsets very quickly to the situation we’re going through now—being quarantined, not being able to leave home—we shouldn’t leave home. And it’s very different to have conversations with creditors in person than to do it this way. I mean, most of our limitations happen through—I’m not going to say any brand in particular—but these video conferences. This is very different. And so we have to adapt entire logistics to that. And at times it hasn’t been that easy for both sides.

But that’s why it also—both sides, it’s us as the government of Argentina and our creditors, we both face massive responsibility. The way we behave, the way we interact with each other, and the outcomes we achieve will affect the lives of millions and millions of people. So we need to rise to the occasion. And that’s what we’re trying to do. And also, this is something that—it has appeared in the conversations we had. This behavior of the last few days, we need to rise to the occasion. So there was an impact, and it’s real. And we have to deal with it in the most positive way to achieve an outcome that is responsible, that is satisfactory for the goals we are all trying to achieve.

RUBIN: Minister, can I ask a follow-up question? It strikes me that—to go back to something I asked you about before—one way to resolve or to reconcile the differences in your views and the creditors would be with this value recovery instrument. But you say they don’t want to do that. Is there anything you could do to make that more attractive to them, or make them more comfortable with it?

Guzmán: I mean, we are open to listen. And again, if—that’s why this is related to the question that we’ve heard from Mr. Mathus Ruiz. If there are alternative ideas that are consistent and respectful of the constraints we face, we will listen. We will consider them. So we are willing to listen.

RUBIN: OK.

Guzmán: Thank you, Mr. Secretary.

STAFF: We will take our next question from Kezia McKeague.

Q: Good afternoon, Minister. My name is Kezia McKeague. I work with a consulting firm based in Washington, McLarty Associates. And also an American who loves Argentina. And I had the pleasure of meeting you at your impressive presentation at the Council of the Americans in your first trip to New York as minister in January.

I advise a lot of companies in the real economy. And while, understandably, Argentina right now is extremely focused on resolving the debt challenge, truly a solvency challenge, what would you say to companies already invested in Argentina who are struggling about your plan for growing the economy beyond the debt that, of course, you’re extremely focused on at the moment?

Guzmán: Thank you, Ms. McKeague. Good. So, again, there are two pillars here. One is the macro and the other is the productive policies. On the macro, in December 2019 when we took office, what we saw was that, first, the economy was a free-fall. GDP had fell in three out of the last four years, and two years in a row. Average demand was falling. So both the private sector and the public sector were contracting. And the interest—the cost of credit had skyrocketed. So first task was to stabilize the economy. At the same time that we created conditions for medium- and long-term stability. So we had to create the path towards fiscal consolidation and putting the external numbers in order.

And that’s why I said a number of times that Argentina, despite the situation in which it was, it did not have the capacity to make a substantial expansion of the public spending financed by the central bank. That would have been destabilizing by then, in December, at a moment in which the economy was in a very unstable situation. And that’s why in December 2019 we adopted a number of measures in order to increase fiscal readiness, so to allow us to stop this path of fiscal austerity that in a recession was highly damaging to the economy. And at the same time, the Central Bank, engaging through a process or normalization of the interest rates, we were actually suffering from this opposite causality in which, in a context of no access to credit, the increases in interest rates were creating the need for a higher monetary base in the future. Therefore exacerbating the inflationary pressures instead of reducing inflationary pressures. It is a very well-known problem in macroeconomics literature.

And we have been working on the economy, but again we were hit by COVID-19 which puts enormous stress on the economy. But our plan, step one, continues being stabilizing the economy. Stabilizing the economy is one of the three necessary conditions for a process of inclusive development. The other two is to have a structure of production that creates jobs for the different sectors of our society. And the other one is have a structure of production that is dynamic, that increases productivity, that makes the country more competitive in the global economy, that there is value added.

So while on the macro front we continue working on stabilization, and the debt restructuring is just a piece of that. It’s a necessary condition in order to have conditions of stability, but it’s not sufficient. On the other front, we are planning the reforms that I laid out before, some of them we have already been working on, to give the economy conditions that are consistent with the real GDP growth path that we discussed before. But it has never been easy for Argentina to sustain over long periods of time.

STAFF: We’ll take our next question from Natalia Donato.

Q: Hi. Good afternoon, Guzmán. Natalia Donato from newspaper Infobae.

Sorry I’m insisting on this point, but I would like to know if you don’t achieve an agreement next Friday what would you do, if a default is a possibility for the government? And if not, if you are thinking of assigning a stand-still achievement or with new creditors?

Guzmán: Thank you, Ms. Donato, but I’ve answered this question before, so I have to repeat my answer. For us, what success means is to help to achieve conditions that allow Argentina to get back on its feet. And the sooner it happens, the better for everyone. But we’re fully committed to continue working towards that goal.

STAFF: We will take our next question from Rodrigo Campos.

(Background noise.)

We’ll take our next question from Patrick Gillespie.

Q: Hi, Minister Guzmán. Patrick Gillespie with Blomberg News.

Thank you for your time. In your paper on the 2001 Argentina debt restructuring, you talked about pre-judgement interest of 9 percent, which is the interest that accrues on bonds after default and before a civil judgement comes from a judge. You called pre-judgement interest punitive for Argentina. Would the 9 percent pre-judgement interest apply to the bonds that the government is currently trying to restructure? And are you concerned that this pre-judgement interest incentivizes creditors to seek litigation instead of negotiation?

Guzmán: Well, Argentina’s bonds are still performing. So it’s certainly—thank you, Mr. Gillespie, sorry, for the question. Argentina’s bonds are still performing, so certainly there’s no pre-judgement rate that applies now.

STAFF: We will take our last question from Ángel Melguizo.

Q: Hi. Good afternoon, Minister. Thanks a lot for your time, your effort, and for the—(inaudible). I’ve been attending many of your conferences. It’s always great. So it’s Ángel Melguizo from AT&T Latin America. And obviously, we wish you the best—we wish you the best in the negotiations. As you know, AT&T has been in Argentina for more than twenty years, and with DirecTV and—(inaudible). So it’s all in the interests of everybody to be moving forward. And Minister, it’s an honor to be with Secretary Rubin.

The question to you is going back to the economy. How are you seeing the economy in the short term? And I mean, in the next four to six quarters? Do you have a letter that you prefer—a V, W, L, a Nike logo? And is there any sector or any industry in which you are particularly optimistic for the short term in order to get to this 2, 3 percent potential growth, and all that respect? Thank you very much.

Guzmán: Thank you, Mr. Melguizo, for the good wishes. And we thank you for your interest in our country. We very much value your interest in our country. And we much hope to be effective at restoring conditions of stability that are good for everyone.

With respect to your question, we are all—and I think this is true all over the world—we are all trying to understand the persistence of the shock—of the unprecedented shock that the global economy has gone through. So it’s very difficult to make forecasts today for the short term. Of course, we all expect at some point the COVID-19 to finish, to be resolved, the COVID-19 crisis. and we expect the world to be back on its feet. But how persistent the shock is going to be is quite difficult to assess.

On the good side, we have some sectors of our economy that, given the characteristics of production, are more resilient to this shock. And in particular, there’s some sectors in which Argentina is competitive at the global level and sell to the rest of the world. So we see that there are aspects of the economy that gives us some robustness. But certainly this is a very difficult situation for everyone all over the world, an even more for an economy that was already ill, as I said before. So we expect Argentina’s economy to decline again. It’s going to be the third year in a row. And this is the situation we’re going through in the context of COVID-19, where we’re doing everything, you know, to restore conditions that would allow the country to grow after COVID-19.

RUBIN: Mr. Minister, thank you. You have been extremely thoughtful. We wish you the best of luck, both for the sake of Argentina and the globe. And we’d also welcome you back at the Council anytime you’d like to come.

Guzmán: Thank you very much, Secretary Rubin. I’ve actually been at the Council three times in person. And very glad that we’re having this meeting. And it’s also for me, at a personal level, a pleasure—a big pleasure that you are the one presiding this session. Thank you very much for your thoughtful questions, and thank you, everyone, for your questions as well.

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