For a decade, as a handful of foreign bondholders waged a scorched-earth campaign against Argentina over defaulted debts, the Argentine government relentlessly vilified its adversaries. The U.S. investors were the perfect foil for Argentina’s populist president, Cristina Fernández de Kirchner, who rallied her base by assailing the so-called buitres, or vultures, as symbols of exploitative capitalism.
It worked. The U.S. federal judge overseeing the litigation became a household name in Buenos Aires. Argentina dragged the issue before the Organization of American States, the United Nations and the International Court of Justice. Eventually, the bondholders—after seizing an Argentine Navy vessel and forcing the country back into sovereign default—became a national bête noir, even among government critics.
As Fernández de Kirchner prepared to leave office in late 2015, the dispute looked like it would drag on forever, leaving Argentina unable to borrow money internationally. After all, the political cost of a settlement would be far greater than any financial benefits.
Or so it seemed.
Just months after his election, Argentina’s pro-business president, Mauricio Macri, agreed to pay bondholders more than $9 billion. The most reviled litigants, the hedge fund Elliott Management, reportedly earned a 392% profit. Yet the opposition-controlled congress, including many Peronist lawmakers, promptly approved the agreement. And Macri emerged without a scratch. In last year’s midterm elections, his coalition finished first in the country’s five biggest districts, including Buenos Aires Province, a Peronist stronghold where Fernández de Kirchner was running for Senate.
Though it now feels like ancient history, the story of Macri’s first two years in office is worth remembering amid dire predictions about his reelection prospects following an International Monetary Fund bailout.
Much like a settlement with the “vultures” had seemed politically radioactive, analysts have long regarded IMF support as a cure worse than the disease. Macri seemed to agree. Though he inherited high inflation, low dollar reserves and a gigantic budget deficit, his advisers made clear they saw no need for IMF funds.
That approach seemed feasible at first, thanks to a helpful Kirchner legacy, low debt. But the government’s view changed a few weeks ago, after a global selloff of emerging market currencies saw the Argentine peso depreciate 20%, forcing the central bank to raise interest rates to 40% and bleed reserves to prop up the currency.
Political analysts, however, have not changed their mind. After Macri sought emergency IMF help, optimism about his pro-market reforms was drowned out by political eulogies.
Even before the currency crisis, the president’s image had been tarnished by violent protests over year-end pension reforms. His approval rating of 63% in May, 2017 had fallen to 54% by December, according to the Poliarquía polling firm. The peso’s recent collapse didn’t help. Last month, Poliarquía found support for the president had dropped to 36 percent. Although Macri went on television and told the country it needed IMF help to “avoid a crisis,” 63% of Argentines said an IMF program would be bad for Argentina.
Skepticism was expected. Before the “vulture” funds, the IMF was Argentina’s number-one external villain, at least since the country’s $132 billion sovereign default in 2001. Argentines blamed the IMF for the economic trauma, after it had steadfastly supported the 1990s economic liberalization policies and currency peg, even as government debts piled up.
In 2005, after a commodities boomed stabilized Argentina’s public finances, President Néstor Kirchner repaid all remaining loans to the IMF, $10 billion in all. Though the loans offered low interest rates, he said he cut ties to shed austerity obligations that brought “poverty, destitution and the destruction of our productive capabilities.” The country cheered.Time did not heal those wounds. In a survey in March of this year, the consultancy Voices! found that 47% of Argentines still had a negative view of the IMF.
Nevertheless, there is reason to believe that today, the political cost of IMF support is being exaggerated.
First, Argentines are less ideological than meets the eye. That is how Macri, a businessman who established a new political party in the Argentine capital, was able to win the 2015 election. It is also why he has managed to advance ambitious reforms, despite lacking a majority in either house of congress.
Second, the peso crisis allowed Macri to demonstrate the value of international re-engagement. He has invested tremendous energy repairing Argentina’s global relationships, after the Kirchners alienated traditional allies in favor of China, Iran, Russia, and Venezuela. Consequently, Argentina’s IMF request won immediate international support. U.S. Treasury Secretary Steven Mnuchin said, “the United States supports President Macri’s vision for transforming his country’s economy and unleashing its growth potential.”
Finally, there are signs that the IMF brand is arguably less toxic than in the past. Historically, the IMF treated troubled governments as beggars, squeezing commitments for sharp budget cuts, despite the political costs. Now, the fund is seizing an opportunity to clean up its image.
Its managing director, Christine Lagarde, is bending over backwards to win over the Argentine public. The $50 billion line of credit requires speedier deficit reduction. But for this year, the IMF accepted the pre-existing deficit target. Future budget cuts, meanwhile, will leave social programs untouched. The IMF program, Lagarde said, is “owned and designed” by Argentina, and will “protect the most vulnerable in the population” while looking out “for the benefit of all Argentines.”
Argentina’s IMF loan has not yet been approved; the fund’s board is scheduled to vote on June 20th. But already, there are signs that Macri’s approval rating is beginning to rebound, up to 41% in the latest survey. Should accelerated budget cuts and high interest rate squelch growth, Macri might find himself in trouble again. But for now, more than a year before the presidential election, it seems the IMF embrace might not be a political third rail after all.