Why Argentina Needs Bailout After Bailout After Bailout

0:00Your best restaurant location gets 5 star reviews. How do you make every location like your best location? Your best paper mill has been operating at peak productivity. How do you make every mill like your best mill? Your best data center has optimized every drop of water. How do you make every data center like your best data center? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

0:45In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. How can you free your team from time-consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future.

1:25Learn more about the technology, insights, and support available at amazonbusiness.com. Bloomberg Audio Studios, podcasts, radio, news.

1:49Hello and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, we are in Washington, D.C. Do you know who else is in our nation's capital? Lots of people. Lots of people are in our nation's capital. Yes. Right now. I could go on and on. There's a lot of people live there permanently, but also a lot of people visiting this week like we are. True. OK, so one person in particular is visiting who is of note for this particular podcast, and that is Javier Millet. He is the president of Argentina, and he's meeting with Trump today. They were supposed to finalize like the$20 billion swap that Argentina just got from the U.S.

2:26Treasury. Basically, Argentina is getting their like umpteenth bailout. I tried to count all of them, but then I stopped because I was like, I have a life. But normally a lot of those bailouts come from the IMF. This one's coming from the Treasury, so it's fairly unusual. It also comes with a lot fewer terms than some other deals. but this is a good time to talk about Argentina and why it seems to constantly be in financial trouble and either defaulting or on the verge of a default you know I'm like traumatized by Argentina topics right wait why well I've probably said it once or twice before on the podcast but you know one the first time I applied for a job in New York City was with uh Brad Setzer and he was like and in the middle of the interview he's like how would you character this is 2006 maybe.

3:13He's like, how would you characterize the struggles of Argentina? And I just totally blanked. I literally didn't get a word out. I didn't get the job, obviously. So I've sort of this is a huge blind spot for me. And it's almost like a blind spot I'm afraid to revisit. But we have to dive in. I have to learn more eventually. One more bailout. This one's going to work, right? This one's going to be the last. One more lane, bro. Yes. So and, you know, the other interesting thing about this is Millay was he was initially praised for reducing inflation. I think it was something like over 200 percent and it got down to 33 percent, which by U.S.

3:47standards is still pretty high. But he did that by slashing government spending and selling Argentina's FX reserves to prop up the peso. And now fast forward a little bit of time and that approach doesn't seem to be working anymore. So, again, there's lots to talk about. There's so much about Argentina that confuses me, including like, why is it like this? Because there are lots of countries that have institutional struggles of various sorts. There are a lot of countries that are poor. There are a lot of countries that whatever. I can't think of any other country that just is always, always at the trough like this.

4:20It's not that poor of a country, et cetera. I don't really understand why this is this persistent thing distinct to this country. All right. Our first question will be, why is Argentina like this? Yeah. Why is Argentina like this? And then after we record this interview, you can write a little essay for Brad Setzer and send it to him for his review. And then I'll get the job. Yes. Okay. And then I'll hire me. All right. Well, I'm very happy to say that we do, in fact, have the perfect guest. We are going to be speaking with Gregory Makoff. He is the author of Default, the landmark court battle over Argentina's$100 billion debt restructuring.

4:51I read this book when it first came out. It was absolutely fantastic. And even though it's about, you know, a very complex court proceeding, it's a page turner. And there are lots of really interesting anecdotes and lots of interesting personalities as well. So, Greg, thank you so much for coming on the podcast. Thank you for having me. So I guess I should start with that first question. What's up with Argentina? Well, for the history, they spend too much. OK, but lots of countries spend too much. Well, they've they're particularly politically divided and do have a reform effort. Countries have a crisis, then they reform.

5:36Hopefully they embed the reforms and they graduate to a certain level of stability. But whereas the Mexicos and Brazils and the Perus and the Colombias and the Panamas did succeed in the 90s in their Brady programs and have not defaulted since, Argentina and Venezuela have been distinct in not reforming and massively overspending. That's the big difference. There's no magic or no mystery here. Well, can you explain maybe just – I think this might be helpful for me. What is it about the political environment of Argentina, which is not the poorest country in the world by any stretch? What is it about the political environment of Argentina such that it's never been able to, as you put it, embed reforms in the ways that other countries that struggled in the 90s were able to?

6:28Machine politics, poronism. Hmm. So all I know about Argentina comes from basically your book. I covered the New York court case a little bit when I was at the FT, but also all my knowledge comes from Andrew Lloyd Weber's musical Evita, which is fantastic and I highly recommend. But can you explain what Peronism is? Yeah. Peronism is kind of a shapeshifter, but it goes back historically to Juan Perón, who was the president or dictator for a while in the 50s. And he, in the post-war world, was aligned with labor forces and cut the country off from the outside world, nationalistic. It became a political machine that controlled the apparatus of government and the unions and everything.

7:17So it embedded itself. Carlos Menem, the president in the 90s, who reformed, was a Peronist. He had the political machine, but he was a reformer, an imperfect reformer, and that broke down in 2001. But then the Kirchners were also Peronists, and they have a particularly virulent version of Peronism, which is really what we're talking about here is Kirchnerism. So Peronists come in many different flavors, and when we're talking about the current situation, it's really the Kirchner version of Peronism versus the Millais version of let's finally balance our budget. I want to get to Millais, obviously, but just go into this a little bit more.

8:05Machine politics, again, not something that's alien to other countries in the world. That's fairly common. Talk about the sort of application or every Every country has some kind of machine politics. What makes that Kirchnerism, et cetera, so powerful and difficult to dislodge? How is it operationalized? The way the cash moves. Okay. In that if you get a bailout check during COVID, you get it from the federal government in the mail. Okay. In the 2001 crisis, some of the emergency money that was allocated even from international institutions was given to Argentina, who was given to Peronist party operatives to hand out in the barrios.

8:50You literally get checks from party operatives or in regions from the party governor under a picture of the governor in Peron. So in many cases, the cash flow looks like a gift from the leader and the party. And then when the leader says, oh, there's a Peronist rally in Buenos Aires, we'd like you to get on a bus, the people who depend on them for the check say, I guess I got to go. Wow, I had no idea that happened. Okay, so Millay campaigned on a platform of massively reducing government spending in order to bring down inflation and all types of austerity. It wasn't necessarily IMF-style reform, but it was supposed to be a reduction in spending.

9:38And yet here we are and Argentina is getting its 20 billion dollar bailout. Do the politics of economic pain, I guess the idea of people no longer handing out checks in the barrios and stuff like that, does that make serious spending reductions just untenable in Argentina? We should back up a bit and get a bit historical because the people voted in 2023 for Millay because they were in such economic chaos. They voted for a complete outsider with a very particular message that had a lot of truth for them. And his promise was, pain now, success later, let's finally have reform and sustain it to stop this 200 years of boom-bust devaluation and default.

10:35Now, the context of this, just from 2001, is the country, the program of the 90 of men falling apart and facing a devaluation default,$100 billion debt default, as I talk about in my book. The people were in the street screaming, they all must go. They were banging pots and pans, clink, clink, clink, clink. and the president left in a helicopter from the top of Casa Rosada. And they had a reform program. They ran a very tight budget, tighter even than Millet is running between 2003 and 2005. But then they didn't sustain the reform. And after 2010, they've been in the boom, than the bust and default from 2010 to 23.

11:28So again, they voted for Milley because they were saying they all must go. The rest of the political class who couldn't deliver must go. We want stability. Now, the brilliance of Milley is he said, we spent too much, we print too much money, we have inflation and that was true and he symbolized it with the chainsaw right because it was the problem in the solution i've seen pictures of him at a rally he's not even talking he just holds it up that's really powerful and he lent that chainsaw to uh elon musk as well oh he did yeah that was that was malay's chainsaw wait what happened to that other guy was there Was there some guy around 2016 or 2017 that all the international community loved and thought he was going to be the great neoliberal reformer there?

12:24That was Macri. Oh, yeah, Macri. Right. What happened to that guy? Well, the people were tired of the chaos of Christina Fernandez de Kirchner, who was president for two terms after her husband, Nestor, was president for one term. He died after her first term. He was going to run again. So she had two, and things were bad. including on the bond default and all the litigation. And Macri is like, I'm going to bring a normal country. And he did some great things at first, but his program fell apart, which brought back an even worse Peronist administration with Alberto Fernandez, who had been the chief of cabinet for Nesta Kirchner, with Cristina Fernandez de Kirchner as the vice president, and COVID hit, they did default again, and they handed over the reins to Millay with like 150 % annualized inflation.

13:25So there was an urge to reform under Macri, but he had such a bad imbalance of too much monetary emission in the local market, But he couldn't get out from it fast enough. He tried to slow walk it and be gradualistic, and he couldn't make it through.

14:00Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

14:45In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments, and Public gets that. That's why they built an investing platform for those who take it seriously.

15:25On Public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus an industry-leading 3.8 % APY high-yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com. Paid for by public investing. All investing involves the risk of loss, including loss of principal. Rokers services for U.S.-listed registered securities, options and bonds, in a self-directed account are offered by Public Investing, Inc. Member FINRA and SIPC.

16:01Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com slash disclosure. So Malay took a chainsaw to government spending in Argentina, it seems. Inflation did come down. Why do they need a bailout now, their umpteenth bailout? Actually, I should ask you, you might actually know how many times Argentina has been bailed out. I have the number on how many defaults. Okay. The bailouts, we'd have to check the number. But first of all, I would term the Treasury support is not a surprise and was always in the cards from the IMF program in April. The IMF program for what it was doing in the negative reserve position they inherited from the prior government was always too thin.

16:46They were always vulnerable to a speculative attack. They were always vulnerable around the midterm elections. and a speculative attack occurred. And as Treasury hinted they would, they stood behind the IMF. This is nothing new. This is not a failure of the program. This is completely predictable. The way it unfolded and the speed leaves a bad impression. But as an observer for a long time, this was no surprise. And Besson's word, we really need to have an orderly election here. This is true. The people have to choose. Are we going to sustain reform and stop defaulting? Or are we going to go back to the other way and go back to overspending, money printing, devaluation, inflation and default?

17:38There's a very stark difference between what the Kisseloff leadership of the party will lead the country to and what a continued leadership by Millet and his center-right coalition will. Can you actually explain a little bit further? Reform is a nebulous term. Sounds good, but I don't know what it means. What substantively have we seen from the current administration in terms of either spending cuts or so-called reforms? What's been done so far? The single number to focus on is the primary surplus. It's kind of like the free cash flow for a company, but it's your net cash flow before your debt payments, your revenue in minus your expenses.

18:23And your debt does not stabilize unless that's positive and positive enough to pay off your existing debt at a reasonable pace. Countries like us, the U.S., we're running negative primary surplus, which means we're incurring more debt and we're refinancing maturing debt with more and more, which has debt going up. Argentina, to stabilize its situation, has to run a primary surplus of, let's say, 3%. Under Minister of Economy Lavagna, who was a great reformer from 2002 to 2005, when Kirchner fired him for being too tough, they were running a 5 % primary, totally stabilize the economy. Milley's program is carefully calibrated to stop monetary emission and stabilize the economy.

19:12There is nothing arbitrary about it. It is the kind of macroeconomic stabilization that you have to do. It makes sense. And moreover, it is done sensitively. they protected the basket of money available to the poorest households. So where are they cutting? They adjust a lot of different things. Most importantly, they did things like, you don't get free buses anymore. You don't get free trains. So they moved the costs of those things up to a market rate and utilities. Because the Kirchners, they also defaulted on all the utility contracts in 2001. They never normalized utility rates. So one of their fiscal problems after 2010 is they were subsidizing the power bills for everyone, which was costing 4 % of GDP a year.

20:02That's why you have a primary deficit. And they said, we can't do that. So they corrected those popular household subsidies and they did some adjustments, including to the indexation of pension. And that's a next level topic in terms of what the Kirchners did to re-index the whole society. So we've been very focused on what Argentina itself is doing and why it seems to be in a perpetual financial predicament. But maybe we could talk about the role of external actors a little bit more. So in your book, again, fabulous story of the big court case over Argentina debt. But one of the criticisms of this whole process is that every time you successfully work out defaulted debt or every time you reach a settlement, the country can just return to market fairly quickly.

21:03Right. So it's never really punished that much or enough to make it seriously think about reducing its debt. Is there some truth to that? Are there things that external actors like the court system or the IMF should be doing to stop this from repeatedly happening? I really think the question you ask is the most important one, but it's really about the soul of the Argentine people. Have they had enough pain to insist their government follows robust financial policies? They either elect people who will be straight with them about what they can afford and set up policies they will follow, like Gordon Brown's golden rule and things like that, or they will elect politicians who say, oh, I'll make it easier on you.

21:56And so the people shocked me in 2023. I'm finishing my book. I was depressed. I saw no way out of perpetual chaos. And then Millet came and they voted for him because the people said, please, we want to be an orderly country. Now we're at the midterm. Put aside the last six weeks of chaos. You're asking the people, will you stick to the plan to get to the finish line? Or are you going to say, we're tired. We don't want to try so hard. And again, they may very well go from LA and Macri and say, we do want to complete it. We didn't like this blow up that happened. We don't want to go there. Or they're going to do something else.

22:44So no outside party can tell a sovereign nation what to do. No judge. The judge makes it worse. The IMF, it has to come internally. Is the problem democracy? I mean we've talked about – no, for real. Like we've talked about this in the context of – Fritz Barthel wrote a book, The Triumph of Broken Promises. Similar story with the post-Soviet states and how they ultimately broke apart from the Soviet Union because of the sort of difficulty that they had in making difficult decisions and these attempts to impose austerity or live within their means, et cetera. And they finally like it didn't work anymore.

23:27And in the early 80s, somehow the UK found a way to sort of do an internal adjustment. But these things are like really hard in a democracy. They're really hard in a system in which every two years there's a referendum on how it's going. And if it is painful, I understand why people don't want to continue with it, even though maybe long term it's beneficial. like i'm not really proposing this but like in your view does someone like a milani like a nice like 10-year or 20-year runway where he doesn't have to face the voters you know what i'm saying like is this the issue is that these difficult things keep coming up for a vote over time and in the middle it's like what are we getting here yeah and somebody wrote a book a black rock manager gave me he says greg this is the best book it's called a free country deep in debt about the histories of countries getting in debt.

24:17He said, you don't need to know any more than that. But there's this challenge between democracy and running a balanced budget. But populations learn. And I heard, I think it was a Moody's analyst or a Fitch analyst last year talking about the debt trajectories in Europe. He said, France is going up and this country is going up and the UK is going up. But you know what? Greece is going down and Spain is going down and Italy is going down because the crisis country people don't want to go through the disaster again. So when you have people like Argentina who dealt with hyperinflation, they don't want to be lied to.

24:55They know the cost of no pain now and suffering later. Now, Americans, we don't know. We're willing to have the government massively overspend because we want low taxes now and more benefits now. And we don't know what an unbalanced budget means. you can go forever. But when you've been in Argentina and you've suffered it, you want a government who says, I'm not going to overspend because you've lived the cost. Countries, the people embed that knowledge in their voting behavior and they can sustain it year after year. That's called graduating. That's the point of this election, this midterm. Did the Argentine people get the message and they are now going to sustain the path because they understand the costs?

25:42or are they going to just say, I'm tired of it, let's go back? We don't know the answer. We will know on the 26th of October after they vote on the 27th. And it's an incredible historical moment that we're facing.

26:12For enterprise organizations, managing all your food needs is a tall order. But with EasyCater, you get a single workplace food vendor with the tools and resources to make it easy. Giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform. All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side.

26:54The point is, you're engaged with your investments, and Public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi-asset portfolio for the long haul. stocks bonds options crypto it's all there plus an industry-leading 3.8 apy high-yield cash account switch to the platform built for those who take investing seriously go to public.com and earn an uncapped 1 bonus when you transfer your portfolio that's public.com paid for by public investing all investing involves the risk of loss including loss of principle brokerage services for u.s listed registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc.

27:38Member FINRA and SIPC. Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com slash disclosure. Introducing the all new Adobe Acrobat Studio, now with AI-powered PDF spaces. Do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into five insights with a click? Do that with Acrobat. Need templates for a sales proposal that'll close that deal? Do that with Acrobat. Need an AI specialist to tailor the tone of your market report to sound real smart in real time? Do that with the all new Adobe Acrobat Studio. Learn more at adobe.com slash do that with Acrobat.

28:16Okay, so the new bailout that's getting finalized today in DC between Trump and... We're recording this the 14th, by the way, October 14th. I should have said October 14th. So the new bailout does have direct US involvement. I know you said it was part of the earlier IMF agreement, but still people are talking about the U.S. doing a$20 billion bailout of Argentina. Do you think that involvement changes maybe creditor-debtor dynamics in the future? I think in the short term right now, it's a big bazooka to stop a run on the bank. There was a speculative attack on the Argentine peso at the worst possible time, and the Peronists are amping it up.

29:06Cristina Fernandez de Kirchner, I think it was October 1st, is on X saying, oh, he's going to devalue right after the election. And, okay, pour more speculative attacks on. That's kind of odd behavior towards your own country. And so Treasury is responding by putting a huge bazooka. It's very expensive to be short. And so this should put all those shorts out of business. They have an orderly election. And you don't even know the extent that these sort of external things nobody understand really affects behavior. They're living their life. They're worrying about their bills. They know their local stories about what's happened, what Milley has done and hasn't done and what people are saying, this is just another piece of noise in a complicated picture.