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authorities could request exemptionsbe authorizedthe by national government,and metropolitan areas morewith than 500,000 inhabitants theand possibility of flexibilizationin area conditions weremet. that epidemiological relate factorsto the types and scaleactivities of allowed (see page 3 following the April 25 government hasauthorized an increasing number of activitiesto resume inareas with few or no confi recorded 13,228 COVID On of Argentina’ exemptions new increasing with continues, lockdown Argentina’s Argentina’s nationwide“mandatory, preventative social i midnighton March 20, has now beenextended foratotal offive timesintwo increments and i inAires Buenos and several other urban areas, but the over p focused initiallyon COVID Fernández administrationpromised has to push forward with its delayed reform agenda. Separately, after missing the final deadline maketo interest payments, Argentina was officiallydow restricted default by Fitch Ratings, although toseem be advancing towardsa deal in the near future. zone zone remains understrict a lockdown the as number ofnew daily COVID politicized. The economicimpacts becoming are more thedrags crisis andon, the governmentmoving is extend to economic reliefmeasures to support companiesand individuals. Meanwhile, Congress hasresumed activityvirtually with an agen Argentina’s mandatory social isolation,in place since Marchhas 20, been extended several times and isnow set to last through at least June 7. However, recenthave weeks seen an increasing return t industrial and commercial activityacross much the of c theoutside of Buenosmetropolitan Aires area. The nation’s capital Report Climate Political May

POLITICAL CLIMATE CLIMATE POLITICAL REPORT

increasing exemptions were authorized for authorized within the province, if strict ENTINA

G private construction, certain professional health protocols are followed and private transportation is used. In announcing the

AR activities, and commerce and industry in

– many parts of the country. measure, the president noted that 19 of Argentina’s 24 districts had not registered

PCR PCR any cases the previous day and 10 On May 8, the president announced the provinces had not registered confirmed extension of the mandatory social isolation

cases in at least a week. As such, the rest

through May 24. However, this marked

of the country can continue the gradual a turning point, as on May 11, much of reopening of many sectors of the economy the country transitioned to “phase 4” with appropriate health and safety of the lockdown, which allows a procedures in place (apart from some “gradual re-opening” of non-essential urban areas with higher rates of economic activities with appropriate transmission). Most provinces have safety protocols that receive national already begun authorizing a return to government approval. more regular economic and social activity. On May 25, Corrientes Province The exception was Buenos Aires City announced that it would be the first to and the metropolitan area, which pass to “phase five”, or the “new normal”, remained under a stricter lockdown. and would be reopening bars, restaurants Nevertheless, both Buenos Aires City and and gyms with safety protocols (clubs and the province sought and received large-scale events remain prohibited). permission from the national government for resuming additional activities in mid- May such as opening neighborhood shops Government moves to mitigate and segmented recreational walks for economic impacts of health crisis children. However, newly opened businesses must present special health The government faces the difficult protocols and organize transport for their challenge of managing the dynamics workers; public transportation remains around the impacts of the crisis on open exclusively for essential workers. In Argentina’s economy, which was , recreational walks already struggling even before the as well as local retail stores are being mandatory social isolation. The authorized on a district-by-district basis, at opposition has focused its recent criticism the request of mayors. on the negative economic impacts of the lockdown, pushing the government to On May 23, Argentine President further loosen restrictions in the interest of Alberto Fernández announced the the economy (see below). However, the next phase of the country’s mandatory Fernández administration has sought to social isolation period, which began avoid suggesting that the current situation on May 25 and lasts through June 7. is as simple as a choice between stringent Conditions will remain strict in Buenos public health measures and revived Aires City and the metropolitan area, economic activity, but that if forced to where controls on transportation and choose, said it will prioritize health. mobility will be strengthened. COVID-19 cases in Argentina are concentrated in Political positioning aside, the these districts, which account for about lockdown is greatly impacting the one-third of the country’s population and country’s already-limping economy. In more than 90 percent of recent COVID-19 early May, the head of national statistics cases. Private construction works and agency Indec warned that 70 percent of commercial activity will not be allowed to GDP and two-thirds of jobs are affected by resume in these districts; only local shops the lockdown measures. will remain open. Industrial activity will be

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Table 1. Argentina’s phased response to COVID-19

ENTINA

G

AR

–

1 2 3 4 5 PCR PCR Strict Administered Geographic Progressive New

Lockdown Lockdown Segmentation Reopening Normality

Essential Provincial Authorized New authorizations Provincial exceptions New sustained services exceptions habits of hygiene and safety

All other National National Prohibitions National prohibitions activities prohibitions prohibitions --

Up to 10 Up to 25 percent of Up to 50 percent of Up to 75 percent Up to 75 percent Mobility percent of the population the population of the population of the population population

Duplication of Less than 5 More than 25 5 to 15 days 15 to 25 days Cases days days --

Geographic Epidemiological Homogeneous National exceptions Local restrictions Homogeneous Area segmentation

-Buenos Aires City - Buenos Aires Metro Area Example -Chaco Province Regions - Specific - Most remaining -- -- -Corrientes Currently In municipalities in districts Phase Chubut and Buenos Aires Province with local circulation of virus

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The first monthly economic activity this context, the government has been ENTINA

G indicator released since the start of the mediating with unions and business

quarantine showed an 11.5 percent drop in chambers to reach sectoral agreements in

AR

– activity year-on-year in March, when the which workers retain their jobs but receive lockdown was only in place for 10 days. less remuneration (often around 25

PCR PCR percent less).

Cognizant of this, the government has

continued instituting measures aimed The government has also extended

at helping affected sectors weather several measures it put in place to the crisis. Overall, the government’s help individuals, and lower-income approach remains characterized by efforts sectors, in particular. Among other to promote employment, and prioritize measures, it has extended price controls maintenance of jobs, while offering on a basic basket of goods (see April PCR support for vulnerable sectors (see April for background) through June 30. It is also PCR for background). evaluating the terms of offering a second “Emergency Family Income”, a bonus for Amid cries that companies are suffering lower-income independent and informal and support has not been sufficient, the workers. government has expanded the Programa de Asistencia al Trabajo y la Producción Concerns that social security agency (Assistance Program for Work and Anses, which manages the Production) to more sectors and for distribution of benefits for retirees another month while also imposing new and recipients of social plans, was not requirements that participating companies offering an agile enough response led cannot repurchase shares, pay dividends to the first ousting of a high-level or transfer profits to family companies political appointee in the Fernández based in low-tax jurisdictions. Through this administration in late April. Cabinet program, the government offers Chief Santiago Cafiero requested the reductions or exemptions from employer resignation of Anses head Alejandro social security contributions and partially Vanoli, who had taken heat for delays and assumes the payment of wages to confusion related to the “Emergency employees of companies in sectors Family Income”, as well as poor planning deemed to be affected by the COVID-19 that led to long lines at banks when measures. retiree’s pensions were paid (see April PCR for background). He was replaced by Additionally, in late May, the government Fernanda Raverta, the former minister extended the decree prohibiting layoffs for of community development in Buenos reasons of force majeure through July 31 Aires Province, who has been tasked (see April PCR for background); it is also with ensuring that the organization—a considering a request from unions to key institution in mitigating the extended the decree mandating double economic impacts of the lockdown— several payments for dismissals without offers a more dynamic response to cause, which is set to expire on June 9. address the needs of its target These measures have transferred populations. much of the burden of the economic crisis to companies, who are unable to The above-mentioned measures, lay off workers but are struggling to along with efforts to prepare the pay salaries with reduced income. health system, have resulted in a Industry groups and business chambers notable uptick in public spending that have been warning that the measures is exacerbating the country’s fiscal implemented to date are not sufficient to deficit. In April, the primary fiscal deficit ensure the survival of many companies. In hit ARS 228.8 billion (USD 3.4 billion),

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nearly doubling the primary fiscal deficit of However, some recent polls suggest ENTINA

G ARS 124.7 billion recorded in March. At the that the president’s approval ratings

same time, as dollar reserves in the may be dropping, and recent weeks

AR

– country drop, the government has have seen increasing restlessness and increased restrictions on the exchange pushes from some sectors to advance

PCR PCR market. This is putting pressure on the with a more widespread opening of

unofficial exchange rate, which now has an the economy. The above-described re-

approximately 66 percent gap with the opening of many activities in large swathes

official peso-USD rate. Moving forward, of the country, albeit with protocols and these dynamics will exert additional limitations, will also help contain pushback pressure on a government struggling and give the government some breathing to balance competing economic and room. Nevertheless, managing the social demands. political dynamics around the COVID- 19 containment measures is becoming Political dynamics around COVID- increasingly challenging as the 19 government turns its attention to containing the outbreak in Buenos Aires and seeks to advance a Government’s response measures proactive agenda in Congress (see remain popular below).

The Alberto Fernández administration Increase of cases in Buenos Aires has continued to enjoy broad support generates tensions in metro area from the public for its handling of the coronavirus crisis (see April PCR for background). Through mid-May, polls The scenario remains favorable for the showed support for the government at Alberto Fernández administration, around 70-80 percent and for its measures which has amassed political capital in to fight the pandemic in the mid-high 80s, recent weeks. Despite some tensions depending on the poll. These were down stemming from what appeared to be a lack slightly from the highs seen at the end of coordination ahead of the national of March when the lockdown was first government’s late April announcement announced, but nevertheless indicated that it would allow recreational outings widespread support for the nationwide (several provinces stated government’s approach. shortly thereafter that they would not be permitting this), leaders from across the political spectrum have continued to Support for the anti-COVID-19 demonstrate support for the social measures has likely dropped isolation measures. Buenos Aires somewhat due to both fatigue with Governor Axel Kicillof and Buenos the lockdown and increasing anxiety Aires Mayor Horacio Rodríguez about the economic impacts of an Larreta, leaders from opposite ends of extended shutdown as the costs of the political spectrum, have flanked implementing social distancing the president during his last two measures become clearer. announcements to show political Nevertheless, ongoing public support for support. the measures can in part be explained by the polls that show, that, until recently at least, were more concerned While most disputes have been about either themselves or their loved relatively minor, in mid-May tensions ones being infected than the economic began to simmer as the focus of impacts of social isolation. containment measures turned to Buenos Aires City and Province, which are governed by the opposition Juntos

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por el Cambio and governing Frente issue with the city, rather public health ENTINA

G de Todos, respectively. In particular, concerns.

attention has turned to the worsening

AR

– situation in villas (vulnerable On May 23, President Fernández neighborhoods), which along with elderly announced the continuation of the

PCR PCR homes and homeless shelters, have mandatory isolation period through become the key focuses of the outbreak, June 7 with new mobility restrictions

in part due to the increased difficulty of in Buenos Aires City and the

respecting social distancing measures in metropolitan areas, where public dense and overcrowded areas where public transport will be restricted to service coverage is lower. As of May 27, essential workers (who must now the villas accounted for nearly 40 percent request a new, more standardized of cases in the city. Increasing cases in national circulation permit) and vulnerable neighborhoods also contributed controls at highly-transited areas to the highest-every daily case numbers strengthened. The city will also limit the reported in late May. opening of some commercial businesses in highly transited areas. Although the first case in Barrio 31, located in the heart of Buenos Aires and The announcement followed a home to some 50,000 residents, was not meeting with the leaders of Buenos detected until late April, by late May it Aires Province and City to standardize concentrated nearly 70 percent of the their approach following the political cases detected in the city’s vulnerable tensions discussed above. In the press neighborhoods. The May 17 death of a conference, the parties attempted to show high-profile community leader from a unified front: the president offered COVID-19 who had been denouncing a implicit support for Buenos Aires Mayor cutoff of running water by the state water Horacio Rodríguez Larreta, who had been company and lack of hygiene measures in coming under pressure from some parts of Barrio 31 generated outrage and concern his coalition to advance with more over the potential domino effect on economic activities; in turn, Larreta sought neighboring areas. to highlight his administration’s coordination with the provincial and The increase in cases in vulnerable national governments. All leaders sought neighborhoods coincided with Buenos to highlight the relative success of the Aires City passing Buenos Aires lockdown to-date in limiting spread and Province in mid-May as the district allowing the health system time to with the highest number of reported increase capacity. cases. At the same time, the city had begun reopening many commercial shops. Moving forward, the national Some opposition mayors from the government will focus much of its surrounding districts criticized this as attention on implementing early “irresponsible” and expressed concern detection programs in vulnerable given the fact that many residents of neighborhoods, where it is loosening the metro area travel to the city for the criteria for getting tested and work. Sparks flew after the health working to establish centers and minister of Buenos Aires Province pointed support to allow individuals and to Buenos Aires City as a focal point of families to self-isolate. The Buenos transmission, and the city accused Aires city and provincial governments are opposition leaders of politicizing the crisis. also working to strengthen testing and They later clarified that they are working support for vulnerable communities and together closely, and Provincial Governor restrict mobility to essential workers. In Axel Kicillof has stated there is no political late May the Buenos Aires Province

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government ordered a vulnerable

ENTINA Argentina pulls out of Mercosur trade

G neighborhood to be completely locked talks, raises questions about bloc’s down for 15 days. The controversial

AR future

– measures raised questions about structural inequalities and the limits In late April, Argentina’s Foreign Ministry issued an

PCR PCR of public health measures, but it may official statement announcing that it would

be a sign of future, localized withdraw from the Mercosur trade bloc’s future negotiations over free-trade deals. The ministry

lockdowns to come in the Buenos

stated that the decision was part of a move to

Aires area. concentrate fully on the ongoing coronavirus pandemic and its domestic economic impact. Opposition criticizes government’s Foreign Minister Felipe Solá argued that given the security record, calls for economic current uncertain global context, it is not the right freedom time to advance with free-trade agreements that could negatively impact local industries and vulnerable populations. Opposition party Juntos por As discussed before (see April PCR for el Cambio rejected the decision, stating that the background), the opposition Juntos por el pandemic cannot be used as an excuse to stop Cambio has been trying to find its voice in long-term negotiations and that Argentina’s economic recovery will require opening new a situation that has largely derailed pre- markets. Upon learning of the decision, the existing political agendas. As the Paraguayan government—which currently holds the lockdown has extended, it has become bloc's rotating presidency—stated that Mercosur more politicized, and the opposition would evaluate what appropriate legal, institutional and operational measures to take to ensure the has focused its criticisms on several decision does not affect ongoing trade negotiations. issues that are popular with its base, In addition to Paraguay, the group’s other full including the government’s rule of law members, Uruguay and Brazil, are keen to advance record and increasing calls for trade talks.

economic liberation. The Argentine government tried to reduce tensions on April 30 during a meeting with the national For several nights in late April and early coordinators for Mercosur by expressing its commitment to the group and willingness to find a May, the sounds of loud cacerolazos (a joint path forward. The members have since agreed form of protest that involves banging of to jointly advance trade negotiations with South pots and pans) rang out in some Korea, Canada, Lebanon and Singapore. However, neighborhoods of Buenos Aires and other the Argentine government has set some conditions, which it states are aimed at protecting productive major urban areas to protest the alleged sectors and jobs. The conditions include special mass release of prisoners from jails in the considerations to ensure a balance between giving context of the COVID-19 crisis. The access to South Korean industrial goods and protests were spurred by an April 9 ruling ensuring that the Asian nation cannot limit access for Argentine agricultural goods to its market using by the Tribunal de Casación Penal de la sanitary and other regulations. Meanwhile, Provincia (Provincial Court of Criminal Argentina will remain engaged in finalizing the Cassation) that allowed prisoners at risk of already-signed deals with the European Union and contagion of COVID-19 to put under home the European Free Trade Association.

arrest, especially those who were serving It remains to be seen how the remaining members time for minor offences or were at-risk due respond to the conditions set forth by Argentina. to their age or preexisting conditions. Although the decision seemed to be made hastily Similarly, the Cámara Federal de Casación and was poorly communicated, it responds to the political logic of the government, especially given (Federal Chamber of Cassation) advised the currency economic context. Argentina’s decision putting non-violent prisoners on house could push the member countries to work together arrest under electronic surveillance. and compromise in order to advance with the trade negotiations or instead accelerate tensions within the Mercosur bloc and provoke big changes that call High-profile members of the opposition the logic of the bloc into question, such as agreeing including former Security Minister under to individual trade agreements. President Mauricio Macri and current head of the PRO party Patricia Bullrich and

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leaders of the opposition in the national government’s plan to contain the ENTINA

G Congress alleged that these releases were spread of the virus.

supported by the government and accused

AR

– it of supporting delinquents. President After weeks of negotiations about how Fernández and Buenos Aires Province to hold virtual sessions, the governing

PCR PCR Mayor Axel Kicillof attempted to walk a coalition and the opposition were able fine line by saying that this was a public to reach an agreement for both

health decision that they did not favor, but chambers to resume. Congress resumed

that it was a judicial decision for which the sessions on May 13 with an agenda executive did not have responsibility. In focused on COVID-19 relief measures and early May, the highest court in BA province securing governability after a two-month halted releases while it considers the hiatus where the administration governed content of the matter, and the controversy through presidential decrees. The has somewhat died down. The most resumption of sessions posed both a stringent elements of the opposition technical and political challenge since are trying to consolidate their base it required putting together the (the strict-anti-Peronist vote), and it technology and safety measures to has often found that attacks on hold sessions while reaching middle government’s record on security and ground with the opposing coalition. rule of law serve it well to this end. In the Senate, the final decision to At the same time, the opposition has hold sessions remotely came after also increasingly focused vocal prolonged debate with the opposition criticisms on what it argues is the and an attempted consultation with government’s lack of sensitivity to the the Supreme Court. Before consensus needs of the country’s business was reached politically, Vice President and community, as well as accused it of President of the Senate, Cristina governing in an authoritarian and Fernández de Kirchner (CFK), requested a undemocratic manner. In mid-May, declaration of certainty from the Supreme much of the opposition united to reject an Court to clear doubts about whether the executive decree that would allow Cabinet legislative power could function remotely. Chief Santiago Cafiero to reallocate budget On April 24, the Supreme Court stated funds. More recently, on May 25, a handful that it could not make a judicial decision of protestors took to the Plaza de Mayo on without a concrete case to rule on. the night of Argentina’s independence day However, some of the judges stated that celebrations to protest the lockdown and the court could not interfere in the called to be allowed to return to work; procedural changes of another governing simultaneously, cacerolazos were heard in power and urged the Senate to interpret many opposition strongholds in Buenos their own regulation. The Senate Aires. regulation establishes that sessions must be held in the Senate with the sole Argentina holds historical virtual exception of a crisis of institutional gravity sessions in Congress amidst which, according to the governing bloc, is moderate political consensus the current situation due to the COVID-19 crisis. This gave CFK the political backing to realize efforts to resume Congress has been trying to figure out legislative activity. its role amid a crisis that has largely been managed through executive authority and that has tested its However, the hardest-positioned sector of ability to adapt to a new context the opposition where social distancing measures are coalition did not originally agree to hold essential for the success of the virtual sessions and pushed for regular

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attendance in the Senate. The opposition equality training. However, several ENTINA

G made a counterproposal to only discuss deputies experienced technical difficulties

issues related to the COVID-19 crisis and and the session was postponed for the

AR

– allow some senators in the Chamber. After following Saturday. On May 9, a new test debate, the Senate ultimately agreed to session was held successfully.

PCR PCR hold mixed sessions and allow the

presidents of the blocs and other On May 13, Argentina's Chamber of

authorities of the chamber to be present Deputies held its first official virtual

and the rest of the senators to participate session. Once again, parties had remotely. agreed to vote on issues that were not controversial as part of the first The Senate ran a successful trial session’s agenda. On this occasion, session on May 11 and held the first deputies passed the protocol for virtual official virtual session on May 13. After sessions that had previously been approving the new protocol for remote approved in committee and accepted sessions, the Senate approved the 20 resignations from two deputies who took executive decrees issued by the president office in executive positions. After these, since the beginning of the mandatory the Chamber voted on bills aimed at isolation period on March 20. Eighteen of palliating the situation of essential these were approved unanimously, except workers, which included tax relief for for the decrees that prohibited layoffs and healthcare workers and security forces as the closing of borders, which generated well as a safety plan for first responders. mixed responses from the opposition. Both chambers resumed activities on For its part, the Chamber of Deputies May 21. The Senate approved the bills reached consensus among the that had been passed in the Chamber of authorities of each party's blocs after Deputies the previous week as well as new difficult negotiations. Chamber regulations for Red Cross’ operations in President Sergio Massa had a key role Argentina. The lower house approved in gathering the necessary support to changes to the National Education Law to hold remote sessions. The opposition incorporate online education in the had accused the government of trying to curricula of all educational levels as an silence their voice and move forward exceptional situation due to COVID-19. unilaterally with a wealth tax proposal (see They also passed legislation to allow online below). Massa anticipated the opposition’s medical prescriptions and remote pressure and urged the government to call assistance to patients. a meeting with the opposition leaders, just before opposition deputies drove from Outlook different regions from the country to Congress as a sign of protest. The Now that the political and technical governing bloc’s ability to maneuver difficulties have been managed, wisely was essential since there is a Congress is expected to resume more plurality of actors in the lower normal activities. It remains to be seen chamber, and no agreement could which topics the government and have moved forward if it had not been opposition decide to address next. In the backed by most of the political forces. short-term, the government has a series of bills related to COVID-19 measures and On May 7, the Chamber of Deputies the current situation that it will seek to held the first trial session virtually to advance; in the short- to medium-term, it test the remote system. The deputies has also indicated that it will see to had agreed to test it with a non- advance parts of its initial reform agenda controversial issue and held a gender (see March PCR for background) and

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measures related to controversial issues agenda as the promoters of economic ENTINA

G that are likely to receive pushback from reactivation.

the opposition, such as a wealth tax,

AR

– judicial reform and abortion. The author of the government’s wealth tax

proposal has claimed the bill is ready for PCR PCR

Relief measures for essential workers debate, but it has not yet been sent to as well as help for SMEs and Congress; the challenge is now managing

regulations on telework and online the political dynamics around the

education have been largely driven by treatment of a controversial bill in remote the COVID-19 agenda, and much of sessions. Discussion of a controversial the short-term agenda will remain bill would test the commitment of all focused on uncontroversial measures parties to holding remote sessions. related to the current context. The Chamber of Deputies is expected to vote In the longer-term, the government is soon on a handful of bills that include looking to advance its more reformist changes to the Knowledge Economy Law agenda. This includes the Fernández (see March PCR for background), a bill to administration’s judicial reform, the first declare internet and mobile data as a part of which it has recently claimed is public service, and a bill to establish the ready. The president had announced right to disconnect, as part of efforts to during the opening sessions of Congress regulate telework and remote working. (see March PCR for background) that it The opposition is also introducing three was his administration’s intention to put in bills aimed at helping SMEs, which include place modifications to the justice system. simplification of the process to access Moreover, following a recent meeting, credit and changes in the bankruptcy law representatives from the unions claimed in order to allow bankrupt companies to the president had informed them that the access credit and funds. bill to create a Social and Economic Advisory Body would be one of the first In the near term, one of the most bills that the administration would put controversial bills that could be forward once Congress began working. discussed is a wealth tax proposal, Speculation revolves around these which aims to secure funding for and other issues that were at the top COVID-19 relief measures. The bill, of the agenda before the coronavirus drafted by a national deputy aligned with crisis outbreak, which also includes the governing coalition, allegedly proposes the legalization of abortion. a one-time 2 percent tax on fortunes over USD 3 million that would affect about While there is currently as to which bills 12,000 people. The president received the will be prioritized, the Fernández bill’s author and the president of the administration will need to consider how to governing bloc in the lower house on May take advantage of its strengthened 20. Both he and Economy Minister Martín political position. While the positive Guzmán have broadly signaled support for image of the administration favors the this measure. According to public surveys, efforts to make reforms and validate over 75 percent of the population supports the president’s stamina, the the initiative to tax wealth. The opposition government will need to calculate how has announced an alternative proposal to much it is willing to risk its political tax USD 3 million fortunes in order to fund capital if public opinion doesn’t go its investment aimed at reactivating the way, especially amidst a global health economy and productive activities. The crisis whose impacts on Argentina are main difference between the two proposals not yet entirely clear. seems to be the final target of the funds, which aligns with the opposition's efforts to position themselves in the wider public

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Argentina enters default as it they would continue discussing ENTINA

G pushes to reach deal with constructively but called for better terms.

AR international creditors

– Argentina’s government has reiterated

On May 22, Argentina failed to make that its initial offer was presented in good PCR PCR

an approximately USD 500 interest faith. Economy Minister Martín Guzmán

payment on several dollar- has said the government will only consider

denominated bonds before the offers that it believes are “sustainable” in

expiration of the 30-day grace period. both economic and social/political terms, The government had previously said it keeping in mind Argentina’s high poverty would not make the payment even if it did rate and other challenges. The not reach a deal with international government has taken a somewhat creditors to restructure approximately USD unorthodox negotiating approach in 65 billion of debt. As a result, the country which it has sought to show broad entered default; ratings agency Fitch support for its position, including Ratings, for example, has lowered the through an editorial Guzmán published in country’s sovereign rating to restricted the Financial Times, meetings with union default. The default came as the two leaders, and finding support from sides seemed closer to reaching a internationally well-known economists. deal, but time ran short, and Guzmán has also said that the costs of a Argentina was unable to avoid its default must be weighed against costs of a ninth sovereign debt default. The bad deal. Nevertheless, the negotiating period has since been government faces social pressure not extended to June 2, with signs suggesting to default, given that most of the that a deal may be within reach. population is in favor of a deal and failure to reach one would impact the president’s popularity and could On April 16, Argentina formally presented provide an opening for the opposition. its offer to international creditors before The International Monetary Fund (IMF), for the U.S. Securities and Exchange its part, has continued to indicate support Commission. The key aspects of its initial for Argentina’s position, which is largely in proposal included a three year-grace line with the IMF’s assessment that period, a 62 percent reduction in interest Argentina would need relief of between payments (the new average rate would be USD 55 and 85 billion over the next 2.33 percent) and pushing maturities back decade to ensure sustainability. to 2030 and later. The offer implied debt relief of approximately USD 41.5 billion, largely through decreasing the interest due Both sides seemed to have been (USD 37.9 billion) and a smaller cut (USD playing hardball but have ceded some 3.6 billion) to the principal. ground as the deadlines have approached. The initial May 8 soft deadline imposed by the government in its Although representing a major cut, it offer for creditors passed with no deal was not as aggressive a proposal as after the Argentine government rejected a some creditors had feared (see April counterproposal from a group of investors, PCR for background). Nevertheless, the which it considered did not meet its three groups that represent the largest sustainability criteria. Shortly thereafter, holders of Argentine bonds all quickly the government formally extended the rejected the offer, and in early May issued negotiating period through May 22. a joint statement saying that the “terms Creditor groups have since presented require that bondholders suffer other counteroffers. The government has disproportionate losses that are not said it is “analyzing the characteristics of justified nor necessary”. They added that these proposals and their implications for the objective of restoring the sustainability

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of public debt." Recent developments ENTINA

G suggest the sides may be getting closer to

a deal. On May 20, Blackrock

AR

– recommended that a group of bondholders move their counter-proposal closer to

PCR PCR Argentina’s, which might signal more

willingness to negotiate.

The extension of the negotiating deadline to June 2 has been accompanied by statements from bondholders and the government that suggest that a deal may be reached soon. For now, the negative impacts of the default have been limited due to the ongoing talks and Argentina's already limited access to international markets. In the longer term, the government will need to reach a deal to avoid a lengthy and costly litigation process, such as the one that followed the 2001 default that was only completely resolved after more than a decade.

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