Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, we are in Washington, DC. Do you know who
Speaker 2: else is in our nation's capital?
Speaker 3: Lots lots of people are in our nation's capital. Yes,
Speaker 3: right now. I could go on and on. There's a
Speaker 3: lot of people live there permanently, but also a lot
Speaker 3: of people visiting this week, like we are true.
Speaker 2: Okay, So one person in particular is visiting who is
Speaker 2: of note for this particular podcast, and that is Javier Milay.
Speaker 2: He is the President of Argentina and he's meeting with
Speaker 2: Trump today. They're supposed to finalize like the twenty billion
Speaker 2: dollars swap that Argentina just got from the US Treasury. Basically,
Speaker 2: Argentina is getting there like a teenth bailout. I tried
Speaker 2: to count all of them, but then I stopped because
Speaker 2: I was like, I have a life. But normally a
Speaker 2: lot of those bailouts come from the IMF. This one's
Speaker 2: coming from the Treasury, so it's fairly unusual. It also
Speaker 2: comes with a lot fewer terms than some other deals.
Speaker 2: But this is a good time to talk about Argentina
Speaker 2: and why it seems to constantly be in financial trouble
Speaker 2: and either defaulting or on the verge of a default.
Speaker 3: You know, I'm like traumatized by Argentina topics. Right, Wait, what, Well,
Speaker 3: I've probably said it once or twice before on the podcast,
Speaker 3: but you know, well, the first time I applied for
Speaker 3: a job in New York City was with Brad Setzer.
Speaker 3: He was like, and in the middle of the interviews, like,
Speaker 3: how would your character this is two thousand and six,
Speaker 3: maybe it's like, how would you characterize the struggles of Argentina?
Speaker 3: And I just totally blanked. I like literally didn't get
Speaker 3: a word out and I didn't get the job obviously,
Speaker 3: So I've sort of this is a huge blind spot
Speaker 3: for me, and it's almost like a blind spot I'm
Speaker 3: afraid to revisit. But we have to dive in. I
Speaker 3: have to learn more. Eventually, one more bailout. This one's
Speaker 3: gonna work, right, this one's.
Speaker 2: Going to be the last one more lane bro Yes. So,
Speaker 2: And you know, the other interesting thing about this is
Speaker 2: Malay was he was initially praised for reducing inflation. I
Speaker 2: think it was something like over two hundred percent, and
Speaker 2: it got down to thirty three percent, which by US
Speaker 2: standards is still pretty high. But he did that by
Speaker 2: slashing government spending and selling Argentina's FX reserves to prop
Speaker 2: up the peso. And now fast forward a little bit
Speaker 2: of time and that approach doesn't seem to be working anymore.
Speaker 2: So again, there's lots to talk about.
Speaker 3: There's so much about Argentina that confusies me, including like
Speaker 3: why is it like this? Because there are lots of
Speaker 3: countries that have institutional struggles of various sources. Yeah, a
Speaker 3: lot of countries that are poor. There are a lot
Speaker 3: of countries that whatever. I can't think of any other
Speaker 3: country that just is always always at the travel like this.
Speaker 3: It is not that poor of a country, et cetera.
Speaker 3: I don't really understand why this is this persistent thing
Speaker 3: distinct to this country.
Speaker 2: All right, our first question will be why is Argentina
Speaker 2: like this?
Speaker 3: Argentina like this?
Speaker 2: And then after we record this interview, you can write
Speaker 2: a little essay for Brad Setzer and send it to him.
Speaker 3: Forge job, Yes, okay, hire me.
Speaker 2: All right, Well, I'm very happy to say that we do,
Speaker 2: in fact have the perfect guest. We are going to
Speaker 2: be speaking with Gregory Makeoff. He is the author of Default,
Speaker 2: the landmark court battle over Argentina's one hundred billion dollar
Speaker 2: debt restructuring. I read this book when it first came out.
Speaker 2: It was absolutely fantastic, And even though it's about, you know,
Speaker 2: a very complex court proceeding, it's it's a page turner
Speaker 2: and there are lots of really interesting anecdotes and lots
Speaker 2: of interesting personalities as well. So, greg thank you so
Speaker 2: much for coming on the podcast.
Speaker 4: Thank you for having me.
Speaker 2: So uh, I guess I should start with that first question,
Speaker 2: what's up with Argentina.
Speaker 4: Well, for the history, they start from the very they
Speaker 4: spend too much, Okay, but lots of countries spend too much. Well,
Speaker 4: they've they're particularly politically divided and do have a reform effort.
Speaker 4: Countries have a crisis than they reform. Hopefully they embed
Speaker 4: the reforms and they graduate to a certain level of stability.
Speaker 4: But whereas the Mexicos and the Brazils and the Perus
Speaker 4: and the Columbias and the Panamas did succeed in the
Speaker 4: nineties and their Brady programs and have not defaulted since,
Speaker 4: Argentina and Venezuela have been distinct in not reforming and
Speaker 4: massively over spending. That's the big difference. There's no magic
Speaker 4: or no mystery here.
Speaker 3: Well, can you explain, maybe just I think this might
Speaker 3: be helpful for me. What is it about the political
Speaker 3: environment of Argentina, which is not the poorest country in
Speaker 3: the world by any stretch. What is it about the
Speaker 3: political environment of Argentina such that it's never been able to,
Speaker 3: as you put it, embed reforms in the ways that
Speaker 3: other countries that struggled in the nineties.
Speaker 4: Were able to machine politics coronism.
Speaker 2: So all I know about Argentina comes from basically your book.
Speaker 2: I covered the New York court case a little bit
Speaker 2: when I was at the ft, but also all my
Speaker 2: knowledge comes from andre Lloyd Webber's musical Ivida, which is
Speaker 2: fantastic and I highly recommend. But can you explain what
Speaker 2: paronism is?
Speaker 4: Yeah, Paronism is kind of a shape shifter, but it
Speaker 4: goes back historically to one Parone who was the president
Speaker 4: or dictator for a while in the fifties, and he,
Speaker 4: in the post war world, was aligned with labor forces
Speaker 4: and cut the country out from the outside world. Nationalistic.
Speaker 4: It became a political machine that controlled apparatus of government
Speaker 4: and the unions and everything, so it embedded itself. Carlos Mennem,
Speaker 4: the president in the nineties who were formed, was a Proonist.
Speaker 4: He had the political machine, but he was a reformer,
Speaker 4: an imperfect reformer. Broke down in two thousand and one.
Speaker 4: But then the Kirchners were also Prohists, and they have
Speaker 4: a particularly virulent version of Pronism, which is really what
Speaker 4: we're talking about here is Kirchnerism. So pironas come in
Speaker 4: many different flavors, and when we're talking about the current situation,
Speaker 4: it's really the Kirchner version of pronism versus the Milai
Speaker 4: version of let's finally balance our budget.
Speaker 3: I want to get to Malay obviously, but just go
Speaker 3: into this a little bit more machine politics. Again, not
Speaker 3: something that's alien to other countries in the world. That's
Speaker 3: fairly common talk about the sort of application or every
Speaker 3: country is some kind of machine politics. What makes that
Speaker 3: Kirchnerism et cetera so powerful and difficult to dislige?
Speaker 4: How is it operationalize the way the cash moves Okay,
Speaker 4: in that if you get a bailout check during you
Speaker 4: get it from the federal government in the mail. In
Speaker 4: the two thousand and one crisis, some of the emergency
Speaker 4: money that was allocated, even from international institutions, was given
Speaker 4: to Argentina, who was given to party operatives to hand
Speaker 4: out in the barrios. You literally get checks from party
Speaker 4: operatives or in regions, from the party governor under a
Speaker 4: picture of the governor in paron. So in many cases
Speaker 4: the cash flow looks like a gift from the leader
Speaker 4: and the party. And then when the leader says, oh,
Speaker 4: there's a Peronist rally in Buenos Aires, we'd like you
Speaker 4: to get on a bus, the people who depend on
Speaker 4: them for the check say, I guess I gotta go. Wow.
Speaker 2: I had no idea that happened. Okay, So Millay campaign
Speaker 2: on a platform of massively reducing government spending in order
Speaker 2: to bring down inflation and all types of austerity. It
Speaker 2: wasn't necessarily IMF style reform, but it was supposed to
Speaker 2: be a reduction in spending. And yet here we are
Speaker 2: and Argentina is getting its twenty billion dollar bailout do
Speaker 2: the politics of economic pain. I guess the idea of
Speaker 2: people no longer handing out checks in the barrios and
Speaker 2: stuff like that. Does that make serious spending reductions just
Speaker 2: untenable in Argentina.
Speaker 4: We should back up a bit and get a bit historically,
Speaker 4: because the people voted in twenty twenty three for Mila,
Speaker 4: because they were in such economic chaos. They voted for
Speaker 4: a complete outsider with a very particular message that had
Speaker 4: a lot of truth for them, and his promise was
Speaker 4: pain now, success later. Let's finally have reform and sustain
Speaker 4: it to stop the two hundred years of boom bust
Speaker 4: evaluation in default. Now, the context of this, just from
Speaker 4: two thousand and one is the country, the program of
Speaker 4: the ninety of men falling apart and facing a devaluation
Speaker 4: in default, one hundred billion dollar debt default. As I
Speaker 4: talk about in my book, the people were in the
Speaker 4: street screaming they all must go, and they were banging
Speaker 4: pots and pans clink, clink, and the president left in
Speaker 4: a helicopter from the top of Casa Rizata. And they
Speaker 4: had a reform program. They ran a very tight budget,
Speaker 4: tighter even than mille is running between three and oh five.
Speaker 4: But then they didn't sustain the reform, and after twenty
Speaker 4: ten they've been in the boom, then the bust in
Speaker 4: default from twenty ten to twenty three. So again they
Speaker 4: voted for Milay because they were saying they all must go.
Speaker 4: The rest of the political class who couldn't deliver must go.
Speaker 4: We want stability. Now. The brilliance of Milay is he said,
Speaker 4: we spent too much, we print too much money, we
Speaker 4: have inflation. And that was true, and he symbolized it
Speaker 4: with a chainsaw, right, because it was the problem in
Speaker 4: the solution. I've seen pictures of him at a rally.
Speaker 4: He's not even talking, he just holds it up.
Speaker 3: That's really powerful.
Speaker 2: And he lent that chainsaw to Elon Musk as well.
Speaker 1: Oh he did.
Speaker 2: Yeah, that was that was Malay's change.
Speaker 3: Wait, what happened to that other guy?
Speaker 2: Was?
Speaker 3: Is there some guy that around twenty sixteen or twenty
Speaker 3: seventeen that all the international community loved that thought he
Speaker 3: was going to be the great neoliberal reformer there?
Speaker 4: That was Macri?
Speaker 3: Oh yeah, Macri right, what happened to that guy?
Speaker 4: Well, the people were tired of the chaos of Christina
Speaker 4: Fernandez de Kirchner, who was present for two terms after
Speaker 4: her husband Nestor was present for one term. He died
Speaker 4: after her first term. He was going to run again,
Speaker 4: so she had two and things were bad, including on
Speaker 4: the bond default and all the litigation, and Macri is like,
Speaker 4: I'm going to bring a normal country, and he did
Speaker 4: some great things at first, but his program fell apart,
Speaker 4: which brought back an even worse Peronist administration with Alberto Fernandez,
Speaker 4: who had been the chief of cabinet for Nestor Kirchner,
Speaker 4: with Christina Fernandez de Kirchners the vice president, and COVID hit.
Speaker 4: They did default again and they handed over the reins
Speaker 4: to Milley with like one hundred and fifty percent annualized inflation.
Speaker 4: So there was an urge to reform under Macri, but
Speaker 4: he had such a bad imbalance of too much monetary
Speaker 4: emission in the local market, he couldn't get out from
Speaker 4: it fast enough. He tried to slow walk it and
Speaker 4: be gradualistic, and he couldn't make it through.
Speaker 2: So Malay took a chainsaw to government spending in Argentina.
Speaker 2: It seems inflation did come down. Why do they need
Speaker 2: a bailout now? Their umpteenth bailout? Actually I should ask you,
Speaker 2: you might actually know how many times Argentina has been
Speaker 2: bailed up.
Speaker 4: I have the number and how many defaults. Okay, the bailouts,
Speaker 4: we'd have to check the number. But first of all,
Speaker 4: I would term the treasury support is not a surprise
Speaker 4: and was always in the cards from that I am
Speaker 4: a program in April. The IMF program, for what it
Speaker 4: was doing in the negative reserve position they inherited from
Speaker 4: the prior government, was always too thin. They were always
Speaker 4: vulnerable to a speculative attack. They were always vulnerable around
Speaker 4: the midterm elections and a speculative attack occurred, and as
Speaker 4: Treasury hint they would, they stood behind the IMF. This
Speaker 4: is nothing new. This is not a failure of the program.
Speaker 4: This is completely predictable. The way it unfolded in the
Speaker 4: speed leaves a bad impression. But as an observer for
Speaker 4: a long time, this was no surprise. And Besson's word,
Speaker 4: we really need to have an orderly election here this
Speaker 4: is true. The people have to choose. Are we going
Speaker 4: to sustain reform and stop defaulting, or are we going
Speaker 4: to go back to the other way and go back
Speaker 4: to overspending money, printing to value inflation and default. There's
Speaker 4: a very stark difference between what the kissel Off leadership
Speaker 4: of the party will lead the country to and what
Speaker 4: a continued leadership by Mila and a center right coalition will.
Speaker 3: Can you actually explain a little bit further? Reform is
Speaker 3: a nebulus term. Sounds good, but I do know what
Speaker 3: it means. What substantively have we seen from the current
Speaker 3: administration in terms of either spending cuts or so called reforms,
Speaker 3: what's been done so far?
Speaker 4: This single number to focus on is the primary surplus. Okay,
Speaker 4: it's kind of like the free cash flow for a company,
Speaker 4: but it's your net cash flow before your debt payments,
Speaker 4: your revenue in minus your expenses and your debt does
Speaker 4: not stabilize unless that's positive and positive enough to pay
Speaker 4: off your existing debt at a reasonable pace. Countries like US,
Speaker 4: the US, we're running negative primary surplus, which means we're
Speaker 4: incurring more debt and we're refinancing maturing debt with more
Speaker 4: and more, which has debt going up. Argentina, to stabilize
Speaker 4: the situation has to run a primary surplus of let's
Speaker 4: say three percent. Under Minister of Economy Lavagna, who was
Speaker 4: a great reformer from two thousand and two to two
Speaker 4: thousand and five who Encouragedner fired him for being too tough.
Speaker 4: They were running a five percent primary totally stabilized the economy.
Speaker 4: Miller's program is carefully calibrated to stop monetary emission in
Speaker 4: stabilize the economy. There's nothing arbitrary about it. It is
Speaker 4: the kind of macroeconomic stabilization that you have to do.
Speaker 4: It makes sense, and moreover, it is done sensitively. They
Speaker 4: protected the basket of money available to the poorest households,
Speaker 4: so where are they cutting. They adjust a lot of
Speaker 4: different things. Most importantly, they did things like you don't
Speaker 4: get free buses anymore, you don't get free trains, so
Speaker 4: they moved the costs of those things up to a
Speaker 4: market rate. And utilities, because the Kirchers they also defaulted
Speaker 4: on all the utility contracts in two thousand and one,
Speaker 4: they never normalized utility rates. So one of their fiscal
Speaker 4: problems around after twenty ten is they were subsidizing the
Speaker 4: power bills for everyone, which was costing four percent of
Speaker 4: GDP a year. That's why you have a primary deficit,
Speaker 4: and they said, we can't do that. So they corrected
Speaker 4: those popular household subsidies and they did some adjustments including
Speaker 4: to the indexation of pension, and that's a next level
Speaker 4: topic in terms of what the Kirchiners did to reindex
Speaker 4: the whole society.
Speaker 2: So we've been very focused on what Argentina itself is
Speaker 2: doing and why it seems to be in a perpetual
Speaker 2: financial predicament. But maybe we could talk about the role
Speaker 2: of external actors a little bit more so in your
Speaker 2: book again fabulous story of the big court case over
Speaker 2: Argentina debt. But one of the criticisms of this whole
Speaker 2: process is that every time you successfully work out default
Speaker 2: to debt or every time you reach a settlement, the
Speaker 2: country can just return to market fairly quickly, right, So
Speaker 2: it's never really punished that much or enough to make
Speaker 2: it seriously think about reducing its debt. Is there some
Speaker 2: truth to that? Are there things that external actors, like
Speaker 2: the court system or the IMF should be doing to
Speaker 2: stop this from repeatedly happening.
Speaker 4: I really think the question you ask is the most
Speaker 4: important one, But it's really about the soul of the
Speaker 4: Argentine people. Have they had enough pain to insist their
Speaker 4: government follows robust financial policies. They either elect people who
Speaker 4: will be straight with them about what they can afford
Speaker 4: and set up policies they will follow, like Gordon Brown's
Speaker 4: Golden Rule and things like that, or they will elect
Speaker 4: politicians who say, oh, I'll make it easier on you.
Speaker 4: And so the people shocked me in twenty twenty three
Speaker 4: on finishing my book. I was depressed. I saw no
Speaker 4: way out of perpetual chaos. And then Milley came and
Speaker 4: they voted for him because the people said, please, we
Speaker 4: want to be in an orderly country. Now we're at
Speaker 4: the midterm, put aside the last six weeks of chaos.
Speaker 4: You're asking the people, will you stick to the plan
Speaker 4: to get to the finish line, or you're going to
Speaker 4: say we're tired, we don't want to try so hard.
Speaker 4: And again they may very well go from Millay and
Speaker 4: Macri and say we do want to complete it where
Speaker 4: we didn't like this blow up that happened. We don't
Speaker 4: want to go there, or they're gonna do something else.
Speaker 4: So no outside party can tell a sovereign nation what
Speaker 4: to do. No judge. The judge makes it worse that
Speaker 4: imf It has to come internally.
Speaker 3: Is the problem democracy? I mean, we've talked about for real,
Speaker 3: like we've talked about this in the context of Fritz
Speaker 3: Bartel wrote a book The Triumph of Broken Promises, similar
Speaker 3: story with the post Soviet states and how they ultimately
Speaker 3: broke apart from the Soviet Union because of this sort
Speaker 3: of difficulty that they had and making difficult decisions and
Speaker 3: these attempts to impose austerity or and live within their means,
Speaker 3: et cetera. And they finally like it didn't work anymore.
Speaker 3: And yet and in the early eighties somehow the UK
Speaker 3: found a way to, you know, sort of do an
Speaker 3: internal adjustment. But these things are like really hard in
Speaker 3: a democracy. They're really hard in a system in which
Speaker 3: every two years there's a referendum on how it's going.
Speaker 3: And if it is painful, I understand why people don't
Speaker 3: want to continue with it, even though maybe long term
Speaker 3: it's beneficial. Like I'm not really proposing this, but like
Speaker 3: in your view, does someone like a Mulay need like
Speaker 3: a nice like ten year or twenty year runway where
Speaker 3: he doesn't have to face the voters. You know what
Speaker 3: I'm saying, like, is this the issue is that these
Speaker 3: difficult things keep coming up for a vote over time,
Speaker 3: and in the middle it's like what are we getting here?
Speaker 4: Yeah, And somebody wrote a book a Black Rock manager
Speaker 4: gave me. He says, Greg, this is the best book.
Speaker 4: It's called A Free Country Deep in Debt. About the
Speaker 4: histories of countries getting in debt is that you don't
Speaker 4: need to know any more than that. But there's this
Speaker 4: challenge between democracy and running a balanced budget. But populations learn.
Speaker 4: And I heard I think it was a Moody's analyst
Speaker 4: or a Fitch analyst last year talking about the debt
Speaker 4: trajectories in Europe. He said, France is going up, in
Speaker 4: this country going up, in the UK is going up,
Speaker 4: but you know what, Greece is going down, in Spain
Speaker 4: is going down, and Italys is going down because the
Speaker 4: crisis country. People don't want to go through the disaster again.
Speaker 4: So when you have people like Argentina who dealt with hyperinflation,
Speaker 4: they don't want to be lied to. They know the
Speaker 4: cost of no pain now and suffering later. Now Americans,
Speaker 4: we don't know. We're willing to have the government massively
Speaker 4: overspend because we want low taxes now and more benefits now,
Speaker 4: and we don't know what it. Imbalanced budget mean. You
Speaker 4: can go forever, but when you've been in Argentina and
Speaker 4: you've suffered it. You want a government who says I'm
Speaker 4: not going to overspend because you've lived the cost. Countries,
Speaker 4: the people embed that knowledge and their voting behavior and
Speaker 4: they can sustain it year after year. That's called graduating.
Speaker 4: That's the point of this election this midterm. Did the
Speaker 4: Argentine people get the message and they are now going
Speaker 4: to sustain the path because they understand the costs, or
Speaker 4: are they going to just say I'm tired of it,
Speaker 4: let's go back. We don't know the answer. We will
Speaker 4: know on the twenty sixth of October after they vote
Speaker 4: on the twenty seventh. And it's an incredible historical moment
Speaker 4: that we're facing.
Speaker 2: Okay, so the new bailout that's getting finalized today in
Speaker 2: DC between Trump and.
Speaker 3: We're recording this the fourteenth. Oh yeah, October fourteenth.
Speaker 2: I should have said October fourteenth. So the new bailout
Speaker 2: does have direct US involvement. I know you said it
Speaker 2: was part of the earlier IMF agreement, but still people are,
Speaker 2: you know, talking about the US doing a twenty billion
Speaker 2: dollar bailout of Argentina. Do you think that involvement changes
Speaker 2: maybe creditor debtor dynamics in the future.
Speaker 4: I think in the short term right now, it's a
Speaker 4: big bazukah to stop a run on the bank. There
Speaker 4: is a speculative attack on the Argentine Peso at the
Speaker 4: worst possible time, and the piranhas start amping it up.
Speaker 4: Christina Fernandez da Kirchner. I think it was October first,
Speaker 4: is on x saying oh, he's going to devalue right
Speaker 4: after the election, and okay, poor more speculative attacks on
Speaker 4: that's kind of a behavior towards your own country, and
Speaker 4: so Treasury is responding by putting a huge bazuka. It's
Speaker 4: very expensive to be short, and so this should put
Speaker 4: all those shorts out of business. They have an orderly election.
Speaker 4: And you don't even know the extent that these sort
Speaker 4: of external things nobody understand really affects behavior. They're living
Speaker 4: their life, are worrying about their bills. There know their
Speaker 4: local stories about what's happened, what Millie has done and
Speaker 4: hasn't done, and what people are saying. This is just
Speaker 4: another piece of noise in a complicated picture. External creditors,
Speaker 4: that's a different question. This is perceptionally very important. Bonds
Speaker 4: started rallying because you have people likewis at Bob Citron
Speaker 4: and said he immediately bought a lot of bonds and
Speaker 4: they went up, and he's saying, oh, Treasury is backing Argentina.
Speaker 4: You buy long term bonds because of short term bawl out.
Speaker 4: That's a risky thing to do, but it's pro Argentina.
Speaker 4: It helps stabilize the situation. But the market is so
Speaker 4: afraid of kiss a Off in particular, so not just Parrohnism,
Speaker 4: which I explained it had reformer menim in early Nester
Speaker 4: Kirchner was quite reformist, but it has this kissal off
Speaker 4: Christina Fernandez to Kirchner version of Poni which involved notorious
Speaker 4: defaulting and Kissilov was directly involved with the nationalization of
Speaker 4: YPF in twenty twelve, which you know led to the
Speaker 4: sixteen billion dollar judgment in the court because the way
Speaker 4: minority shareholders were treated, the non payment of some GDP
Speaker 4: warrants that were due i think in twenty thirteen which
Speaker 4: led to a one point five billion judgment in the
Speaker 4: UK court, and was deeply involved with Christina Frendanez da
Speaker 4: Kirchner in the redefault under the Perry passu threat. In
Speaker 4: twenty fourteen, Kissilov went to New York and failed to
Speaker 4: negotiate in a deal which was basically on the table
Speaker 4: slightly better than what Macri took two years a year
Speaker 4: and a half later, but wouldn't take it or couldn't
Speaker 4: figure out how to take it. And so foreigners see
Speaker 4: this ghost of default passed as coming back into power.
Speaker 4: So if they see any big chance of kiss A
Speaker 4: Loov coming back, they're going to run. So that's how
Speaker 4: the bond holders buying dollar bonds in New York think
Speaker 4: they're very happy when Treasury comes. But we should talk
Speaker 4: for a minute about the election and what success means.
Speaker 2: Can I ask one more question before we talk about that?
Speaker 2: Why do investors keep buying Argentina bonds?
Speaker 4: I should play you this tape the Second Circuit in
Speaker 4: one of their two hour and a half hearings. Judge Pooler,
Speaker 4: Rosemary Pooler, who was the nice judge, in very kindly voice,
Speaker 4: at the end of a hearing, look to Argentina's council
Speaker 4: Jonathan Blackman. It said, can I ask you a question
Speaker 4: sort of off the record? He says sure, She says,
Speaker 4: why would anybody who can read ever buy a bond
Speaker 4: from Argentina.
Speaker 3: That's right.
Speaker 4: Jonathan Blackman had the best answer. He's like, they didn't
Speaker 4: default arbitrary. They were suffering a crisis worse than the
Speaker 4: Great Depression. It was like Weimar Germany with middle class
Speaker 4: people selling their furniture on the street. Like he was
Speaker 4: brilliant in that spontaneous answer to the question. But I
Speaker 4: keep thinking of that question, and we're back there. But
Speaker 4: Milley and the Pro Party with macriamiformist, they don't need
Speaker 4: a lot at this election in this sense, with thirty
Speaker 4: three percent of the lower House, they continue to lead
Speaker 4: o legislation they don't like and rule by decreean things.
Speaker 4: So the chance that the Pronas completely take over the
Speaker 4: legislative branch is really low. We're just facing a more
Speaker 4: bigger picture, perceptional question, which direction is the mind of
Speaker 4: the voter going and leading to the next presidential election.
Speaker 4: Are they really tired of Mille and they're going to
Speaker 4: go back to Kisseloff as their leader, or are they
Speaker 4: going to stick in the reformist direction with some complaints
Speaker 4: and demands for readjustment of direction.
Speaker 3: So what should we watch? So, okay, tell us a
Speaker 3: little bit about what date is the election again.
Speaker 4: Twober twenty six?
Speaker 3: Okay, so what should we be watching for on that
Speaker 3: day so that we can be smart and I can
Speaker 3: you know, post a tweet that's inside Force something that.
Speaker 4: So it's first the percentage that Mille's party gets, okay,
Speaker 4: plus the percentage that Macre's party gets, plus then the
Speaker 4: percentage that other center reformists center right parties get. And
Speaker 4: you want to know they have blocking minority, a veto
Speaker 4: proof minority in each house. That's the minimum, but you
Speaker 4: would hope that they get a majority as a coalition.
Speaker 4: And let's say the lower chamber. So there's between the
Speaker 4: best case and the lower case. What the markets, the
Speaker 4: bondholders in New York would fear is a sort of
Speaker 4: blowout for the paronist and a strong message from every
Speaker 4: corner of the country.
Speaker 3: The name of.
Speaker 4: It keeps changing its name, so right now they often
Speaker 4: set up a newly a vehicle for every single election,
Speaker 4: so the name changes so much, so I kind of
Speaker 4: avoid the names.
Speaker 3: Okay, but it's party.
Speaker 1: Yeah.
Speaker 4: Now what they're calling themselves is Force, a Patrea like
Speaker 4: Homeland party.
Speaker 3: Got it? I see? So were the reason these anxieties
Speaker 3: kicked off? Is because there were some small regional elections
Speaker 3: in which they did well, which got people in the
Speaker 3: minds of thinking, oh, they might have a really good midterms.
Speaker 4: Oh no, it's far more fun than okay good, and
Speaker 4: there's a lot of history.
Speaker 3: Okay good.
Speaker 4: It was not as small regional election. It was the
Speaker 4: biggest region of Buenos Aires, who had an off cycle
Speaker 4: early election for provincial offices, and it was a deliberate
Speaker 4: political ploy to bring down Milay. Here's the history. Twenty nineteen.
Speaker 4: In the presidential election, they had the primary and let's
Speaker 4: say July August, the presidential elections in October. The weirdest
Speaker 4: system ever called the passo, is the primary where you
Speaker 4: don't vote by party for your candidate within the party,
Speaker 4: everybody votes for all the candidates, and those who run
Speaker 4: for a party are those who ran better. But it's
Speaker 4: kind of like an early vote on who's going to win.
Speaker 4: And Alberto Fernandez, with the former president Kirchner running as
Speaker 4: his vice president, did so well that the markets tanked.
Speaker 4: It was a self fulfilling prophecy that macris people can
Speaker 4: barely make it to the finish line because the currency
Speaker 4: and local interest rates and bonds were exploding, and so
Speaker 4: that lesson meant. Millay in February said, we do not
Speaker 4: want to have a paso. We don't want to have
Speaker 4: a primary. We just want to have the election in October.
Speaker 4: So they got the Senate to agree to take the
Speaker 4: paso off the table. But then kissel off, where the
Speaker 4: strength of Parnasm is in the Buenos Aires province, where
Speaker 4: a lot of poor people are, he said, oh, let's
Speaker 4: have our provincial election six weeks or whatever before, because
Speaker 4: we know we'll do well. And they anticipated Milley would
Speaker 4: pound his chest, I'm going to get the majority, and
Speaker 4: he might fail, and he did fail. And even though
Speaker 4: we got let's say thirty five percent, which nationally would
Speaker 4: be his veto proof minority that he minimally needs to
Speaker 4: continue to rule, it was less than he said he'd get.
Speaker 4: So he did not manage the perceptions well and his
Speaker 4: political team got stung by that, and he admitted it
Speaker 4: wasn't handled well. So there was a lot of history
Speaker 4: in this early vote being engineered. And as far as
Speaker 4: the Parona Star concern, it was a perfectly executed attack
Speaker 4: on the stability of his program. So the speculative attack
Speaker 4: is not a failure of the program. It was really
Speaker 4: a deliberate political process ahead of an important vote.
Speaker 3: I have a question actually about mile You know, he
Speaker 3: has this whole vibe, sort of a colorful character. I
Speaker 3: think he quotes like Austrian economists and stuff like that,
Speaker 3: call himself a libertarian, sort iconoclastic and all that. But
Speaker 3: setting all that side, look, would you characterize his economic
Speaker 3: program as like fairly normy IMF style regular economics.
Speaker 4: Yes, And you have to separate the political character from
Speaker 4: the policy. And you have behind him. Remember he got elected.
Speaker 4: He did well in the Passo the primary in twenty
Speaker 4: twenty three, I don't know if it was thirty five percent,
Speaker 4: and he beat out Macre's candidate. So Mackrie said, I'm
Speaker 4: going to support you. So he got to fifty five percent,
Speaker 4: trouncing the Pronus opposition with Macre's support. But part of
Speaker 4: the deal was that Millay then took the superstars, the
Speaker 4: financial superstars of Macrey's administration, Caputo and Basili, to be
Speaker 4: his Minister of Economy and his head of his central bank. Already,
Speaker 4: Milay had chosen Federico Sturzenegger, Harvard professor had worked in
Speaker 4: the Macre government too to be. His head of reform
Speaker 4: has been churning out pages and pages of reforms to
Speaker 4: make the country more efficient. He has the tightest, best
Speaker 4: technical team behind him, great economists negotiating with the IMF,
Speaker 4: making sure the execution of the plan is perfect, which
Speaker 4: is not something Argentina has ever seen. Having looked at
Speaker 4: thirty years of history, this is an amazing type team.
Speaker 4: They work together as a team. Mille completely supports them,
Speaker 4: but on top of them, he says, all kinds of
Speaker 4: wild things. He's kind of a trumpy character like that.
Speaker 4: So you have to separate the sort of wild things
Speaker 4: he says, from the policy.
Speaker 2: So if I could ask you to put your betting
Speaker 2: cap on, if you have one, how do you think
Speaker 2: this plays out? Does Mille retain the majority and Argentina
Speaker 2: is now on a path to non default after many,
Speaker 2: many many years, or are things going to go sideways again?
Speaker 4: I think they'll be fine. I think the events of
Speaker 4: the last few weeks will be noted in the history book.
Speaker 4: But the people want normalcy. Argentina can always surprise you,
Speaker 4: but having looked at what they've lived through, they understand
Speaker 4: what's happening. And I'm hopeful that this shocking instability has
Speaker 4: reminded them of what's gonna happen if they don't stick
Speaker 4: with the plan.
Speaker 3: You mentioned that the Malay character is sort of Trumpian
Speaker 3: Trump himself is he Milayian?
Speaker 1: Whatever?
Speaker 4: Is it?
Speaker 2: Like?
Speaker 3: We're like, well, if you saw it, like, okay, was Trump?
Speaker 4: Who does he remind you of an Argentina Perona? Okay,
Speaker 4: It's totally ironic. They're total opposites. I've written pieces about this.
Speaker 4: You have two characters who bind that an emotional political
Speaker 4: character level, one of whom is massively overspending in the
Speaker 4: United States, another one is running the most disciplined reform ever,
Speaker 4: and they're best friends. And then we have this bailout.
Speaker 4: You can't make this up so nonfiction? Who needs fiction
Speaker 4: when you have Argentine?
Speaker 2: No?
Speaker 3: Indeed?
Speaker 2: All right, Greg, thank you so much for coming on
Speaker 2: odd Lots. The book is Default, the landmark court battle
Speaker 2: over Argentina's one hundred billion dollar debt restructuring, And if
Speaker 2: you're interested in this topic, definitely go pick it up.
Speaker 2: That was fantastic, Thank you so much.
Speaker 3: Thanks Greg. That was great.
Speaker 4: Thank you, Joe.
Speaker 2: That was very interesting, very timely. Do you feel like
Speaker 2: you could write a little answer essay for Brad Setzer.
Speaker 3: Now, I mean, look for a job interview, and I'm
Speaker 3: twenty five for twenty six, I could probably maybe come
Speaker 3: up with I literally had it was so embarrassing. I
Speaker 3: like it just like you open your mouth and no
Speaker 3: words come out. That's what happens.
Speaker 2: Yeah, painful.
Speaker 3: What I'm really interested in the still is why the
Speaker 3: political environment is as messed up as it is or
Speaker 3: messed up as it seems to be, and what is
Speaker 3: it about Argentina specifically that somehow other countries like the Mexicos, etcetera,
Speaker 3: didn't fall into that trap. But also like you know,
Speaker 3: if it gets going, say, I don't know, I worry,
Speaker 3: I worry about worry about all kinds of things, but corruption, debt,
Speaker 3: et cetera, it seems like you can fall into some
Speaker 3: very bad, very bad cycles that are hard to escape from.
Speaker 2: Well, it also feels like there's a tension between what
Speaker 2: Greg was saying about. You know, the Argentinian people need
Speaker 2: to decide if they've had enough of you know, being
Speaker 2: serial to falters and high inflation and if they're willing
Speaker 2: to trade that for austerity. But on the other hand,
Speaker 2: you know, having someone come out to the barrio and
Speaker 2: hand you a check for a bunch of cash. Sounds
Speaker 2: really good. So yeah, it does seem to be a
Speaker 2: decision for sure.
Speaker 3: Yeah, it seems really difficult. And there's just the you know,
Speaker 3: there's just the reality that Okay, you can get by
Speaker 3: without help from abroad, but then you might have to
Speaker 3: deal with sort of a massively reduced standard of living
Speaker 3: devalue peso, etcetera. No, no easy options.
Speaker 2: Yeah, I'm also still kind of wondering who is buying
Speaker 2: Argentina bonds all the time?
Speaker 3: I mean, havenything done? Well? Don't they always, like you know,
Speaker 3: they end up with a bond in a yacht or
Speaker 3: something like that. Don't they end up they get a ship?
Speaker 2: It was bigger than a yacht.
Speaker 4: Ok.
Speaker 2: Yeah, all right, shall we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the aud Lots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Jill Wisenthal. You can follow me at the Stalwart.
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