Can President Fernández Cure the Country’s Addiction to Debt?
How President Alberto Fernández handles Argentina’s foreign debt crisis will define his legacy. When he took office in December 2019, the South American country was already in the midst of an economic meltdown and dangerously close to default. Fernández took emergency measures to alleviate the crisis: he tightened existing currency controls to preserve dwindling foreign exchange reserves, partially froze pensions and salaries, and increased taxes to refill the government’s empty coffers. His government also started negotiations with the country’s creditors with the aim of reducing and deferring debt repayment. But even with a favorable agreement, which is far from guaranteed, Argentina faces an uncertain economic future.
Over the past two years, the value of the peso has plummeted, and the economy has suffered from a serious recession. Fernández blames his pro-market predecessor—the businessman-turned-politician Mauricio Macri—for the current situation. Indeed, foreign debt increased markedly under Macri, ballooning from 50 to 90 percent of GDP. The lion’s share of this debt belongs to the International Monetary Fund. In 2018, the IMF granted the Argentine government a $57 billion bailout—the largest in the institution’s history—of which it paid out $44 billion. Unfortunately, the loan did little to stop the crisis, since private investors continued to flee, skeptical of the country’s capacity to meet its debt obligations.
As global oil prices collapsed over the last two years, regional governments have started to lose their leverage in the energy industry. To attract international investors, they must offer increasingly favorable terms, which means ceding more of their own control.
As Latin American countries reassess their energy policies in light of lower oil prices, there is an opportunity to apply lessons learned from the US experience to enact regulations that mitigate environmental risks, strengthen public support, and attract investment.
The election of President Mauricio Macri may signal the start of a new era in Argentine energy policy and cooperation with the United States, but the new government still faces challenges to increasing oil and gas production and erasing energy subsidies.