Nothing new for Argentina

Argentina’s overdue loans from the Paris Club nations, principally Japan and Germany, have represented a serious obstacle to its medium-term growth potential. While the country was in arrears, the export-promotion agencies of many foreign governments were banned from providing subsidised credit for sales or investments in Argentina. Now, it will be eligible for such loans, substantially lowering financing and insurance costs for infrastructure projects and imports of capital goods. In particular, the move should expedite the construction of a high-speed rail line linking the country’s three largest cities, a costly project of questionable necessity strongly backed by Ms Fernández. “We haven’t been getting big investments of hundreds of millions of dollars because they need international financing,” says Beatriz Nofal, the president of the government’s investment-promotion agency. “Now they’ll start coming.”

But the mechanism Ms Fernández has chosen for repaying the debts is reinforcing widely held concerns about Argentina’s economic management. Just as her husband did when repaying the government’s debt with the IMF in 2005, Ms Fernández has rustled up the cash by helping herself to 15% of the central bank’s foreign-currency reserves. In addition to highlighting the bank’s tenuous independence, this decision implies a steep opportunity cost: Argentina could easily have paid the debt in instalments rather than in one lump sum. Doing so might have spared the country the need to borrow ever-greater sums from the Venezuelan government, which now charges a daunting 15% interest rate.

But according to the Paris Club’s rules, securing any such restructuring with the group would require the blessing of the IMF, which has long been the Kirchners’ favourite political scapegoat. And in turn, to obtain the Fund’s approval, Argentina would probably have had to reveal how it calculates its official inflation figure, which is manipulated so that it hovers at around a third of the true rate. Ms Fernández remains unwilling to reveal precisely how her officials doctor Argentina’s economic statistics.

If Ms Fernández hoped that her decision would calm investors’ nerves, she appears to have been mistaken: the spread between the interest rates on Argentina’s bonds and US Treasury notes actually increased on the day she made the announcement. The markets remain jittery because Argentina’s unpaid obligations to the Paris Club were in fact among the least of its worries. The government still refuses to negotiate with the private holders of $20 billion of its bonds who held out against the country’s harsh debt restructuring in 2005, a decision that prevents it from borrowing on the international capital markets. It continues to impose strict price controls and hand out lavish energy and transport subsidies. And it suffers from a yawning credibility gap, due to lies about the inflation rate

-Satisfying the creditors