Is Argentina Making Progress on Debt?

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Argentina’s name is now associated with debt and billionaires like Paul Singer who have made money collecting on Argentina’s debt. But Argentina has been slowly looking to make progress on its debt. It has been in talks with the International Monetary Fund (IMF), an entity you do not necessarily want to have debt negotiations with. If you are making deals with the IMF, you are typically in a poor situation.

But it looks like it is making progress step by step. It is even looking at more interesting solutions like swapping out debt to support the “fight against climate change.” For instance, the President of Argentina met with the current Pope and talked about poverty alleviation, debt, and other matters at a recent visit to the Vatican.

The current pope is an Argentinian Jesuit who continues to talk about the necessary fight for justice in the world. Pope Francis, reportedly asked the Argentinian president if he was interested in a green debt swap, according to Climate Home News.

Let’s understand what a green debt swap is after understanding Argentina’s debt situation.

Argentina has Defaulted on Debt Several Times

Argentina is a country that has been stuck in debt for a while. It has defaulted on its debt nine times. It is essential to note that it has implemented austerity packages that have been tied to its high poverty rates and unfortunate levels of increased unemployment. Almost fifty percent of Argentina is in poverty and over ten percent of the population is unemployed.

Climate change investing might elevate Argentina and its situation. Indeed, Argentina is leaning into woke policies. It recently issued non binary gender neutral ID cards. If it stays in line with the narrative, it can potentially please debt holders.

Fernandez, the president of Argentina noted similar lines as others in more politically powerful countries, instead of saying the “great reset”, he said, we need to “renew the financial architecture” through various methods but also by “swap[ping] debt for environmental actions,” Fernandez noted at a recent climate summit hosted by the US, one of the main countries with a presence in the IMF.

Not surprisingly,  Georgieva, head of the International Monetary Fund (IMF) thinks this is a good idea. “Green debt swaps have the potential to contribute to climate finance.” She thinks that they can bring about further initiatives in countries like Argentina. 

But while green debt swaps sound like a fantastic idea, people wonder if it is an ambiguous idea that would be hard to quantify, with regard to its benefits. Further, they do not want to head down the path of even further slicing and dicing of nature.

The green debt swaps would have to follow a different economic model that accounts for nature and minimize environmental impact.

As noted earlier, developing countries like Argentina that are stuck between debt and hard place are thinking more about debt swaps for climate and nature swaps. The response to the pandemic has pummeled many of their economies and they need to lean into more “woke” creative ideas to survive and thrive. 

They require more participation and investors from elsewhere to sustain themselves and they can easily jump onboard to the climate change narrative if it will help their debt situation.

For instance, Argentina found itself in many economic issues before the pandemic and saw those issues grow due to the response to the pandemic. It had to increase its debt position, it now sees debt is at 104% to GDP.

So, it is no wonder that the environment minister, Juan Cabandié state: When we think about the dollars that we have to {obtain or raise} to {meet the maturity of the debt}, we must put special focus on the need to generate a debt swap for environmental action which, in the end, will translate into compensation for the benefit of all humanity.”

Argentina is seeking to work with the IMF to eliminate past debt and instead institute holistic and sustainable initiatives to preserve their ecological value in the area. It notes that if it has a clear slate, it can work toward implementing actions that help promote ecological preservation that contributes to the world as a whole.

It is an initiative that looks like it is gaining steam as the IMF is said to be in talks with the World Bank with regard to this green debt switch. They want to have some forward movement on this initiative by November.

If all goes according to plan, then Argentina will be a leader in this green new deal. But of course, will it happen? Maybe. But many people in Argentina do not think it will take place. The IMF has not provided favorable terms to Argentina in the past. It asked for extreme and restrictive financial measures that would restrict spending.

This is par for the course, many supranational financial entities ask debtor nations to significantly curb spending to obtain the credit terms they need to survive. But the problem is that it has a negative impact on the economy as initial investment is taken away.

It Is Woke But Is It Broke?

We know that Argentina is broke. It is has been perpetually broke for quite sometime now. But is the idea of cleaning Argentina’s debt slate for it to reinvest into ecological preservation efforts broke? Remember that this idea would be that other countries, in a similar state would follow. The critical question is how they would restructure the debt, assess the efforts and how much control they (the debtholders) would have on the country after wiping the slate clean. Also, how would it affect the current other debtholders? How would they get paid? Would they get paid?

The reason why this is important is because if the debt is restructured and it is in Argentina’s favor, in that they could move forward with their economy, spend, and invest in it unencumbered, then that should present a viable opportunity for Argentine stocks like IRSA, CRESY, and other similar compelling stocks.