October 15, 2025 • 39 mins
Argentina is getting bailed out again, with $40 billion of help from the Trump administration. Of course, this is a recurring phenomenon for Argentina, and this time it's happening under the free market-oriented Javier Milei, who has slashed spending to bring down inflation. So why is it in trouble again? And why is this such a recurring feature of the Argentine economy? In this episode, we speak with Greg Makoff, the author of Default: The Landmark Court Battle over Argentina's $100 Billion Debt Restructuring. In this conversation, Greg explains the domestic political context for why Argentina hasn't been able to establish a sustainable economic footing. We discuss the legacy of Peronism, Milei's efforts to sharply change course, and the challenge of seeing any economic reform project through to completion, given the pain required get into fiscal balance.
Read more:
Argentine Bonds Jump on News US Lining Up $40 Billion in Aid
Argentina Says US Treasury Will Continue to Support Peso
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Thoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:24):
Joe, we are in Washington, DC. Do you know who
else is in our nation's capital?
Speaker 3 (00:29):
Lots 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.
Speaker 2 (00:38):
Okay, So one person in particular is visiting who is
of note for this particular podcast, and that is Javier Milay.
He is the President of Argentina and he's meeting with
Trump today. They're supposed to finalize like the twenty billion
dollars swap that Argentina just got from the US Treasury. Basically,
Argentina is getting there like a teenth bailout. I tried
(01:01):
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
(01:22):
and either defaulting or on the verge of a default.
Speaker 3 (01:25):
You know, I'm like traumatized by Argentina topics. Right, Wait, what, Well,
I've probably said it once or twice before on the podcast,
but you know, well, the first time I applied for
a job in New York City was with Brad Setzer.
He was like, and in the middle of the interviews, like,
how would your character this is two thousand and six,
maybe it's like, how would you characterize the struggles of Argentina?
And I just totally blanked. I like literally didn't get
(01:47):
a word out and 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
gonna work, right, this one's.
Speaker 2 (02:00):
Going to be the last one more lane bro Yes. So,
And you know, the other interesting thing about this is
Malay was he was initially praised for reducing inflation. I
think it was something like over two hundred percent, and
it got down to thirty three percent, which by US
standards is still pretty high. But he did that by
slashing government spending and selling Argentina's FX reserves to prop
(02:23):
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.
Speaker 3 (02:32):
There's so much about Argentina that confusies me, including like
why is it like this? Because there are lots of
countries that have institutional struggles of various sources. Yeah, 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 travel like this.
It is not that poor of a country, et cetera.
I don't really understand why this is this persistent thing
(02:55):
distinct to this country.
Speaker 2 (02:56):
All right, our first question will be why is Argentina
like this?
Speaker 3 (03:00):
Argentina like this?
Speaker 2 (03:01):
And then after we record this interview, you can write
a little essay for Brad Setzer and send it to him.
Speaker 3 (03:05):
Forge job, Yes, okay, hire me.
Speaker 2 (03:08):
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 Makeoff. He is the author of Default,
the landmark court battle over Argentina's one hundred billion dollar
debt restructuring. I 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 it's a page turner
(03:31):
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.
Speaker 4 (03:39):
Thank you for having me.
Speaker 2 (03:40):
So uh, I guess I should start with that first question,
what's up with Argentina.
Speaker 4 (03:46):
Well, for the history, they start from the very they
spend too much, Okay, 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 than they reform. Hopefully they embed
(04:07):
the reforms and they graduate to a certain level of stability.
But whereas the Mexicos and the Brazils and the Perus
and the Columbias and the Panamas did succeed in the
nineties and their Brady programs and have not defaulted since,
Argentina and Venezuela have been distinct in not reforming and
(04:28):
massively over spending. That's the big difference. There's no magic
or no mystery here.
Speaker 3 (04:34):
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 nineties.
Speaker 4 (04:56):
Were able to machine politics coronism.
Speaker 2 (05:01):
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 andre Lloyd Webber's musical Ivida, which is
fantastic and I highly recommend. But can you explain what
paronism is?
Speaker 4 (05:17):
Yeah, Paronism is kind of a shape shifter, but it
goes back historically to one Parone who was the president
or dictator for a while in the fifties, and he,
in the post war world, was aligned with labor forces
and cut the country out from the outside world. Nationalistic.
(05:40):
It became a political machine that controlled apparatus of government
and the unions and everything, so it embedded itself. Carlos Mennem,
the president in the nineties who were formed, was a Proonist.
He had the political machine, but he was a reformer,
an imperfect reformer. Broke down in two thousand and one.
(06:03):
But then the Kirchners were also Prohists, and they have
a particularly virulent version of Pronism, which is really what
we're talking about here is Kirchnerism. So pironas come in
many different flavors, and when we're talking about the current situation,
it's really the Kirchner version of pronism versus the Milai
(06:26):
version of let's finally balance our budget.
Speaker 3 (06:30):
I want to get to Malay obviously, but just go
into this a little bit more machine 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
country is some kind of machine politics. What makes that
Kirchnerism et cetera so powerful and difficult to dislige?
Speaker 4 (06:52):
How is it operationalize the way the cash moves Okay,
in that if you get a bailout check during you
get it from the federal government in the mail. In
the two thousand and one crisis, some of the emergency
money that was allocated, even from international institutions, was given
(07:13):
to Argentina, who was given to party operatives to hand
out in the barrios. You literally get checks from party
operatives or in regions, from the party governor under a
picture of the governor in paron. So in many cases
the cash flow looks like a gift from the leader
(07:35):
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 gotta go. Wow.
Speaker 2 (07:49):
I had no idea that happened. Okay, So Millay campaign
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. And yet here we are
(08:09):
and Argentina is getting its twenty 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.
Speaker 4 (08:29):
We should back up a bit and get a bit historically,
because the people voted in twenty twenty three for Mila,
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
(08:53):
pain now, success later. Let's finally have reform and sustain
it to stop the two hundred years of boom bust
evaluation in default. Now, the context of this, just from
two thousand and one is the country, the program of
the ninety of men falling apart and facing a devaluation
(09:16):
in default, one hundred billion dollar debt default. As I
talk about in my book, the people were in the
street screaming they all must go, and they were banging
pots and pans clink, clink, and the president left in
a helicopter from the top of Casa Rizata. And they
(09:38):
had a reform program. They ran a very tight budget,
tighter even than mille is running between three and oh five.
But then they didn't sustain the reform, and after twenty
ten they've been in the boom, then the bust in
default from twenty ten to twenty three. So again they
(10:00):
voted for Milay 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 Milay is he said,
we spent too much, we print too much money, we
(10:20):
have inflation. And that was true, and he symbolized it
with a 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.
Speaker 3 (10:36):
That's really powerful.
Speaker 2 (10:37):
And he lent that chainsaw to Elon Musk as well.
Speaker 1 (10:40):
Oh he did.
Speaker 2 (10:41):
Yeah, that was that was Malay's change.
Speaker 3 (10:44):
Wait, what happened to that other guy?
Speaker 2 (10:45):
Was?
Speaker 3 (10:45):
Is there some guy that around twenty sixteen or twenty
seventeen that all the international community loved that thought he
was going to be the great neoliberal reformer there?
Speaker 4 (10:53):
That was Macri?
Speaker 3 (10:54):
Oh yeah, Macri right, what happened to that guy?
Speaker 4 (10:56):
Well, the people were tired of the chaos of Christina
Fernandez de Kirchner, who was present for two terms after
her husband Nestor was present 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
(11:16):
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,
(11:36):
who had been the chief of cabinet for Nestor Kirchner,
with Christina Fernandez de Kirchners the vice president, and COVID hit.
They did default again and they handed over the reins
to Milley with like one hundred and fifty percent annualized inflation.
So there was an urge to reform under Macri, but
(11:58):
he had such a bad imbalance of too much monetary
emission in the local market, 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.
Speaker 2 (12:30):
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 up.
Speaker 4 (12:44):
I have the number and 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 that I am
a program in April. The IMF program, for what it
was doing in the negative reserve position they inherited from
(13:08):
the prior government, was always too thin. They were always
vulnerable to a speculative attack. They were always vulnerable around
the midterm elections and a speculative attack occurred, and as
Treasury hint 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 in the
(13:32):
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
(13:55):
to go back to the other way and go back
to overspending money, printing to value inflation and default. There's
a very stark difference between what the kissel Off leadership
of the party will lead the country to and what
a continued leadership by Mila and a center right coalition will.
Speaker 3 (14:14):
Can you actually explain a little bit further? Reform is
a nebulus term. Sounds good, but I do 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?
Speaker 4 (14:30):
This single number to focus on is the primary surplus. Okay,
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 and your debt does
not stabilize unless that's positive and positive enough to pay
(14:53):
off your existing debt at a reasonable pace. Countries like US,
the US, 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
the situation has to run a primary surplus of let's
say three percent. Under Minister of Economy Lavagna, who was
(15:18):
a great reformer from two thousand and two to two
thousand and five who Encouragedner fired him for being too tough.
They were running a five percent primary totally stabilized the economy.
Miller's program is carefully calibrated to stop monetary emission in
stabilize the economy. There's nothing arbitrary about it. It is
(15:38):
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
(15:59):
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 Kirchers they also defaulted
on all the utility contracts in two thousand and one,
they never normalized utility rates. So one of their fiscal
problems around after twenty ten is they were subsidizing the
(16:21):
power bills for everyone, which was costing four percent of
GDP a year. That'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
(16:45):
topic in terms of what the Kirchiners did to reindex
the whole society.
Speaker 2 (16:52):
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
(17:12):
Argentina debt. But one of the criticisms of this whole
process is that every time you successfully work out default
to debt or every time you reach a settlement, the
country can just return to market fairly quickly, right, So
it's never really punished that much or enough to make
it seriously think about reducing its debt. Is there some
(17:36):
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.
Speaker 4 (17:44):
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
(18:05):
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.
And so the people shocked me in twenty twenty three
(18:25):
on finishing my book. I was depressed. I saw no
way out of perpetual chaos. And then Milley came and
they voted for him because the people said, please, we
want to be in 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
(18:48):
to get to the finish line, or you're going to
say we're tired, we don't want to try so hard.
And again they may very well go from Millay and
Macri and say we do want to complete it where
we didn't like this blow up that happened. We don't
want to go there, or they're gonna do something else.
So no outside party can tell a sovereign nation what
(19:12):
to do. No judge. The judge makes it worse that
imf It has to come internally.
Speaker 3 (19:20):
Is the problem democracy? I mean, we've talked about for real,
like we've talked about this in the context of Fritz
Bartel 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 this sort
of difficulty that they had and making difficult decisions and
(19:43):
these attempts to impose austerity or and live within their means,
et cetera. And they finally like it didn't work anymore.
And yet and in the early eighties somehow the UK
found a way to, you know, 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.
(20:05):
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 Mulay need like
a nice like ten year or twenty 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,
(20:27):
and in the middle it's like what are we getting here?
Speaker 4 (20:29):
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 is that 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.
(20:50):
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, in
this country going up, in the UK is going up,
but you know what, Greece is going down, in Spain
is going down, and Italys is going down because the
crisis country. People don't want to go through the disaster again.
(21:12):
So when you have people like Argentina who dealt with hyperinflation,
they don't want to be lied to. They 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,
(21:33):
and we don't know what it. Imbalanced budget mean. 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 and their voting behavior and
they can sustain it year after year. That's called graduating.
(21:56):
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, or
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 twenty sixth of October after they vote
on the twenty seventh. And it's an incredible historical moment
(22:19):
that we're facing.
Speaker 2 (22:36):
Okay, so the new bailout that's getting finalized today in
DC between Trump and.
Speaker 3 (22:42):
We're recording this the fourteenth. Oh yeah, October fourteenth.
Speaker 2 (22:44):
I should have said October fourteenth. 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,
you know, talking about the US doing a twenty billion
dollar bailout of Argentina. Do you think that involvement changes
maybe creditor debtor dynamics in the future.
Speaker 4 (23:07):
I think in the short term right now, it's a
big bazukah to stop a run on the bank. There
is a speculative attack on the Argentine Peso at the
worst possible time, and the piranhas start amping it up.
Christina Fernandez da Kirchner. I think it was October first,
(23:29):
is on x saying oh, he's going to devalue right
after the election, and okay, poor more speculative attacks on
that's kind of a behavior towards your own country, and
so Treasury is responding by putting a huge bazuka. It's
very expensive to be short, and so this should put
all those shorts out of business. They have an orderly election.
(23:52):
And you don't even know the extent that these sort
of external things nobody understand really affects behavior. They're living
their life, are worrying about their bills. There know their
local stories about what's happened, what Millie has done and
hasn't done, and what people are saying. This is just
another piece of noise in a complicated picture. External creditors,
(24:16):
that's a different question. This is perceptionally very important. Bonds
started rallying because you have people likewis at Bob Citron
and said he immediately bought a lot of bonds and
they went up, and he's saying, oh, Treasury is backing Argentina.
You buy long term bonds because of short term bawl out.
That's a risky thing to do, but it's pro Argentina.
It helps stabilize the situation. But the market is so
(24:41):
afraid of kiss a Off in particular, so not just Parrohnism,
which I explained it had reformer menim in early Nester
Kirchner was quite reformist, but it has this kissal off
Christina Fernandez to Kirchner version of Poni which involved notorious
(25:03):
defaulting and Kissilov was directly involved with the nationalization of
YPF in twenty twelve, which you know led to the
sixteen billion dollar judgment in the court because the way
minority shareholders were treated, the non payment of some GDP
warrants that were due i think in twenty thirteen which
(25:24):
led to a one point five billion judgment in the
UK court, and was deeply involved with Christina Frendanez da
Kirchner in the redefault under the Perry passu threat. In
twenty fourteen, Kissilov went to New York and failed to
negotiate in a deal which was basically on the table
slightly better than what Macri took two years a year
(25:45):
and a half later, but wouldn't take it or couldn't
figure out how to take it. And so foreigners see
this ghost of default passed as coming back into power.
So if they see any big chance of kiss A
Loov coming back, they're going to run. So that's how
(26:06):
the bond holders buying dollar bonds in New York think
they're very happy when Treasury comes. But we should talk
for a minute about the election and what success means.
Speaker 2 (26:17):
Can I ask one more question before we talk about that?
Why do investors keep buying Argentina bonds?
Speaker 4 (26:24):
I should play you this tape the Second Circuit in
one of their two hour and a half hearings. Judge Pooler,
Rosemary Pooler, who was the nice judge, in very kindly voice,
at the end of a hearing, look to Argentina's council
Jonathan Blackman. It said, can I ask you a question
(26:45):
sort of off the record? He says sure, She says,
why would anybody who can read ever buy a bond
from Argentina.
Speaker 3 (26:54):
That's right.
Speaker 4 (26:55):
Jonathan Blackman had the best answer. He's like, they didn't
default arbitrary. They were suffering a crisis worse than the
Great Depression. It was like Weimar Germany with middle class
people selling their furniture on the street. Like he was
brilliant in that spontaneous answer to the question. But I
keep thinking of that question, and we're back there. But
(27:20):
Milley and the Pro Party with macriamiformist, they don't need
a lot at this election in this sense, with thirty
three percent of the lower House, they continue to lead
o legislation they don't like and rule by decreean things.
So the chance that the Pronas completely take over the
(27:41):
legislative branch is really low. We're just facing a more
bigger picture, perceptional question, which direction is the mind of
the voter going and leading to the next presidential election.
Are they really tired of Mille and they're going to
go back to Kisseloff as their leader, or are they
going to stick in the reformist direction with some complaints
(28:03):
and demands for readjustment of direction.
Speaker 3 (28:06):
So what should we watch? So, okay, tell us a
little bit about what date is the election again.
Speaker 4 (28:11):
Twober twenty six?
Speaker 3 (28:12):
Okay, so what should we be watching for on that
day so that we can be smart and I can
you know, post a tweet that's inside Force something that.
Speaker 4 (28:19):
So it's first the percentage that Mille's party gets, okay,
plus the percentage that Macre's party gets, plus then the
percentage that other center reformists center right parties get. And
you want to know they have blocking minority, a veto
(28:42):
proof minority in each house. That's the minimum, but you
would hope that they get a majority as a coalition.
And let's say the lower chamber. So there's between the
best case and the lower case. What the markets, the
bondholders in New York would fear is a sort of
blowout for the paronist and a strong message from every
(29:06):
corner of the country.
Speaker 3 (29:07):
The name of.
Speaker 4 (29:10):
It keeps changing its name, so right now they often
set up a newly a vehicle for every single election,
so the name changes so much, so I kind of
avoid the names.
Speaker 3 (29:21):
Okay, but it's party.
Speaker 1 (29:22):
Yeah.
Speaker 4 (29:23):
Now what they're calling themselves is Force, a Patrea like
Homeland party.
Speaker 3 (29:28):
Got it? I see? So were the reason these anxieties
kicked off? Is because there were some small regional elections
in which they did well, which got people in the
minds of thinking, oh, they might have a really good midterms.
Speaker 4 (29:41):
Oh no, it's far more fun than okay good, and
there's a lot of history.
Speaker 3 (29:44):
Okay good.
Speaker 4 (29:45):
It was not as small regional election. It was the
biggest region of Buenos Aires, who had an off cycle
early election for provincial offices, and it was a deliberate
political ploy to bring down Milay. Here's the history. Twenty nineteen.
In the presidential election, they had the primary and let's
(30:08):
say July August, the presidential elections in October. The weirdest
system ever called the passo, is the primary where you
don't vote by party for your candidate within the party,
everybody votes for all the candidates, and those who run
for a party are those who ran better. But it's
(30:28):
kind of like an early vote on who's going to win.
And Alberto Fernandez, with the former president Kirchner running as
his vice president, did so well that the markets tanked.
It was a self fulfilling prophecy that macris people can
barely make it to the finish line because the currency
(30:51):
and local interest rates and bonds were exploding, and so
that lesson meant. Millay in February said, we do not
want to have a paso. We don't want to have
a primary. We just want to have the election in October.
So they got the Senate to agree to take the
paso off the table. But then kissel off, where the
(31:12):
strength of Parnasm is in the Buenos Aires province, where
a lot of poor people are, he said, oh, let's
have our provincial election six weeks or whatever before, because
we know we'll do well. And they anticipated Milley would
pound his chest, I'm going to get the majority, and
he might fail, and he did fail. And even though
(31:33):
we got let's say thirty five percent, which nationally would
be his veto proof minority that he minimally needs to
continue to rule, it was less than he said he'd get.
So he did not manage the perceptions well and his
political team got stung by that, and he admitted it
wasn't handled well. So there was a lot of history
(31:55):
in this early vote being engineered. And as far as
the Parona Star concern, it was a perfectly executed attack
on the stability of his program. So the speculative attack
is not a failure of the program. It was really
a deliberate political process ahead of an important vote.
Speaker 3 (32:17):
I have a question actually about mile You know, he
has this whole vibe, sort of a colorful character. I
think he quotes like Austrian economists and stuff like that,
call himself a libertarian, sort iconoclastic and all that. But
setting all that side, look, would you characterize his economic
program as like fairly normy IMF style regular economics.
Speaker 4 (32:42):
Yes, And you have to separate the political character from
the policy. And you have behind him. Remember he got elected.
He did well in the Passo the primary in twenty
twenty three, I don't know if it was thirty five percent,
(33:03):
and he beat out Macre's candidate. So Mackrie said, I'm
going to support you. So he got to fifty five percent,
trouncing the Pronus opposition with Macre's support. But part of
the deal was that Millay then took the superstars, the
financial superstars of Macrey's administration, Caputo and Basili, to be
(33:26):
his Minister of Economy and his head of his central bank. Already,
Milay had chosen Federico Sturzenegger, Harvard professor had worked in
the Macre government too to be. His head of reform
has been churning out pages and pages of reforms to
make the country more efficient. He has the tightest, best
(33:47):
technical team behind him, great economists negotiating with the IMF,
making sure the execution of the plan is perfect, which
is not something Argentina has ever seen. Having looked at
thirty years of history, this is an amazing type team.
They work together as a team. Mille completely supports them,
(34:08):
but on top of them, he says, all kinds of
wild things. He's kind of a trumpy character like that.
So you have to separate the sort of wild things
he says, from the policy.
Speaker 2 (34:21):
So if I could ask you to put your betting
cap on, if you have one, how do you think
this plays out? Does Mille retain the majority and Argentina
is now on a path to non default after many,
many many years, or are things going to go sideways again?
Speaker 4 (34:41):
I think they'll be fine. I think the events of
the last few weeks will be noted in the history book.
But the people want normalcy. Argentina can always surprise you,
but having looked at what they've lived through, they understand
what's happening. And I'm hopeful that this shocking instability has
(35:04):
reminded them of what's gonna happen if they don't stick
with the plan.
Speaker 3 (35:09):
You mentioned that the Malay character is sort of Trumpian
Trump himself is he Milayian?
Speaker 1 (35:18):
Whatever?
Speaker 4 (35:19):
Is it?
Speaker 2 (35:19):
Like?
Speaker 3 (35:20):
We're like, well, if you saw it, like, okay, was Trump?
Speaker 4 (35:23):
Who does he remind you of an Argentina Perona? Okay,
It's totally ironic. They're total opposites. I've written pieces about this.
You have two characters who bind that an emotional political
character level, one of whom is massively overspending in the
United States, another one is running the most disciplined reform ever,
(35:46):
and they're best friends. And then we have this bailout.
You can't make this up so nonfiction? Who needs fiction
when you have Argentine?
Speaker 2 (35:55):
No?
Speaker 3 (35:55):
Indeed?
Speaker 2 (35:55):
All right, Greg, thank you so much for coming on
odd Lots. The book is Default, the landmark court battle
over Argentina's one hundred billion dollar debt restructuring, And if
you're interested in this topic, definitely go pick it up.
That was fantastic, Thank you so much.
Speaker 3 (36:09):
Thanks Greg. That was great.
Speaker 4 (36:10):
Thank you, Joe.
Speaker 2 (36:24):
That was very interesting, very timely. Do you feel like
you could write a little answer essay for Brad Setzer.
Speaker 3 (36:30):
Now, I mean, look for a job interview, and I'm
twenty five for twenty six, I could probably maybe come
up with I literally had it was so embarrassing. I
like it just like you open your mouth and no
words come out. That's what happens.
Speaker 2 (36:44):
Yeah, painful.
Speaker 3 (36:45):
What I'm really interested in the still is why the
political environment is as messed up as it is or
messed up as it seems to be, and what is
it about Argentina specifically that somehow other countries like the Mexicos, etcetera,
didn't fall into that trap. But also like you know,
if it gets going, say, I don't know, I worry,
(37:08):
I worry about worry about all kinds of things, but corruption, debt,
et cetera, it seems like you can fall into some
very bad, very bad cycles that are hard to escape from.
Speaker 2 (37:18):
Well, it also feels like there's a tension between what
Greg was saying about. You know, the Argentinian people need
to decide if they've had enough of you know, being
serial to falters and high inflation and if they're willing
to trade that for austerity. But on the other hand,
you know, having someone come out to the barrio and
hand you a check for a bunch of cash. Sounds
(37:39):
really good. So yeah, it does seem to be a
decision for sure.
Speaker 3 (37:44):
Yeah, it seems really difficult. And there's just the you know,
there's just the reality that Okay, you can get by
without help from abroad, but then you might have to
deal with sort of a massively reduced standard of living
devalue peso, etcetera. No, no easy options.
Speaker 2 (38:00):
Yeah, I'm also still kind of wondering who is buying
Argentina bonds all the time?
Speaker 3 (38:08):
I mean, havenything done? Well? Don't they always, like you know,
they end up with a bond in a yacht or
something like that. Don't they end up they get a ship?
Speaker 2 (38:15):
It was bigger than a yacht.
Speaker 4 (38:17):
Ok.
Speaker 2 (38:17):
Yeah, all right, shall we leave it there.
Speaker 3 (38:18):
Let's leave it there.
Speaker 2 (38:19):
This has been another episode of the aud Lots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3 (38:24):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Gregory Maycoff, He's at g may Coff.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and Cale Brooks at Kilbrooks. From our
odd Lots content, go to Bloomberg dot com slash odd
Lots with the daily newsletter and all of our episodes,
and you can shed about all of these topics twenty
four to seven in our discord Discord dot gg slash
(38:47):
od Loots.
Speaker 2 (38:48):
And if you enjoy odd Lots, if you like it
when we talk about Argentina's latest bailout, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
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to do is find the Bloomberg channel on Apple Podcast
and follow the instructions there. Thanks for listening.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Thoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:24):
Joe, we are in Washington, DC. Do you know who
else is in our nation's capital?
Speaker 3 (00:29):
Lots 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.
Speaker 2 (00:38):
Okay, So one person in particular is visiting who is
of note for this particular podcast, and that is Javier Milay.
He is the President of Argentina and he's meeting with
Trump today. They're supposed to finalize like the twenty billion
dollars swap that Argentina just got from the US Treasury. Basically,
Argentina is getting there like a teenth bailout. I tried
(01:01):
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
(01:22):
and either defaulting or on the verge of a default.
Speaker 3 (01:25):
You know, I'm like traumatized by Argentina topics. Right, Wait, what, Well,
I've probably said it once or twice before on the podcast,
but you know, well, the first time I applied for
a job in New York City was with Brad Setzer.
He was like, and in the middle of the interviews, like,
how would your character this is two thousand and six,
maybe it's like, how would you characterize the struggles of Argentina?
And I just totally blanked. I like literally didn't get
(01:47):
a word out and 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
gonna work, right, this one's.
Speaker 2 (02:00):
Going to be the last one more lane bro Yes. So,
And you know, the other interesting thing about this is
Malay was he was initially praised for reducing inflation. I
think it was something like over two hundred percent, and
it got down to thirty three percent, which by US
standards is still pretty high. But he did that by
slashing government spending and selling Argentina's FX reserves to prop
(02:23):
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.
Speaker 3 (02:32):
There's so much about Argentina that confusies me, including like
why is it like this? Because there are lots of
countries that have institutional struggles of various sources. Yeah, 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 travel like this.
It is not that poor of a country, et cetera.
I don't really understand why this is this persistent thing
(02:55):
distinct to this country.
Speaker 2 (02:56):
All right, our first question will be why is Argentina
like this?
Speaker 3 (03:00):
Argentina like this?
Speaker 2 (03:01):
And then after we record this interview, you can write
a little essay for Brad Setzer and send it to him.
Speaker 3 (03:05):
Forge job, Yes, okay, hire me.
Speaker 2 (03:08):
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 Makeoff. He is the author of Default,
the landmark court battle over Argentina's one hundred billion dollar
debt restructuring. I 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 it's a page turner
(03:31):
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.
Speaker 4 (03:39):
Thank you for having me.
Speaker 2 (03:40):
So uh, I guess I should start with that first question,
what's up with Argentina.
Speaker 4 (03:46):
Well, for the history, they start from the very they
spend too much, Okay, 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 than they reform. Hopefully they embed
(04:07):
the reforms and they graduate to a certain level of stability.
But whereas the Mexicos and the Brazils and the Perus
and the Columbias and the Panamas did succeed in the
nineties and their Brady programs and have not defaulted since,
Argentina and Venezuela have been distinct in not reforming and
(04:28):
massively over spending. That's the big difference. There's no magic
or no mystery here.
Speaker 3 (04:34):
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 nineties.
Speaker 4 (04:56):
Were able to machine politics coronism.
Speaker 2 (05:01):
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 andre Lloyd Webber's musical Ivida, which is
fantastic and I highly recommend. But can you explain what
paronism is?
Speaker 4 (05:17):
Yeah, Paronism is kind of a shape shifter, but it
goes back historically to one Parone who was the president
or dictator for a while in the fifties, and he,
in the post war world, was aligned with labor forces
and cut the country out from the outside world. Nationalistic.
(05:40):
It became a political machine that controlled apparatus of government
and the unions and everything, so it embedded itself. Carlos Mennem,
the president in the nineties who were formed, was a Proonist.
He had the political machine, but he was a reformer,
an imperfect reformer. Broke down in two thousand and one.
(06:03):
But then the Kirchners were also Prohists, and they have
a particularly virulent version of Pronism, which is really what
we're talking about here is Kirchnerism. So pironas come in
many different flavors, and when we're talking about the current situation,
it's really the Kirchner version of pronism versus the Milai
(06:26):
version of let's finally balance our budget.
Speaker 3 (06:30):
I want to get to Malay obviously, but just go
into this a little bit more machine 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
country is some kind of machine politics. What makes that
Kirchnerism et cetera so powerful and difficult to dislige?
Speaker 4 (06:52):
How is it operationalize the way the cash moves Okay,
in that if you get a bailout check during you
get it from the federal government in the mail. In
the two thousand and one crisis, some of the emergency
money that was allocated, even from international institutions, was given
(07:13):
to Argentina, who was given to party operatives to hand
out in the barrios. You literally get checks from party
operatives or in regions, from the party governor under a
picture of the governor in paron. So in many cases
the cash flow looks like a gift from the leader
(07:35):
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 gotta go. Wow.
Speaker 2 (07:49):
I had no idea that happened. Okay, So Millay campaign
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. And yet here we are
(08:09):
and Argentina is getting its twenty 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.
Speaker 4 (08:29):
We should back up a bit and get a bit historically,
because the people voted in twenty twenty three for Mila,
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
(08:53):
pain now, success later. Let's finally have reform and sustain
it to stop the two hundred years of boom bust
evaluation in default. Now, the context of this, just from
two thousand and one is the country, the program of
the ninety of men falling apart and facing a devaluation
(09:16):
in default, one hundred billion dollar debt default. As I
talk about in my book, the people were in the
street screaming they all must go, and they were banging
pots and pans clink, clink, and the president left in
a helicopter from the top of Casa Rizata. And they
(09:38):
had a reform program. They ran a very tight budget,
tighter even than mille is running between three and oh five.
But then they didn't sustain the reform, and after twenty
ten they've been in the boom, then the bust in
default from twenty ten to twenty three. So again they
(10:00):
voted for Milay 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 Milay is he said,
we spent too much, we print too much money, we
(10:20):
have inflation. And that was true, and he symbolized it
with a 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.
Speaker 3 (10:36):
That's really powerful.
Speaker 2 (10:37):
And he lent that chainsaw to Elon Musk as well.
Speaker 1 (10:40):
Oh he did.
Speaker 2 (10:41):
Yeah, that was that was Malay's change.
Speaker 3 (10:44):
Wait, what happened to that other guy?
Speaker 2 (10:45):
Was?
Speaker 3 (10:45):
Is there some guy that around twenty sixteen or twenty
seventeen that all the international community loved that thought he
was going to be the great neoliberal reformer there?
Speaker 4 (10:53):
That was Macri?
Speaker 3 (10:54):
Oh yeah, Macri right, what happened to that guy?
Speaker 4 (10:56):
Well, the people were tired of the chaos of Christina
Fernandez de Kirchner, who was present for two terms after
her husband Nestor was present 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
(11:16):
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,
(11:36):
who had been the chief of cabinet for Nestor Kirchner,
with Christina Fernandez de Kirchners the vice president, and COVID hit.
They did default again and they handed over the reins
to Milley with like one hundred and fifty percent annualized inflation.
So there was an urge to reform under Macri, but
(11:58):
he had such a bad imbalance of too much monetary
emission in the local market, 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.
Speaker 2 (12:30):
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 up.
Speaker 4 (12:44):
I have the number and 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 that I am
a program in April. The IMF program, for what it
was doing in the negative reserve position they inherited from
(13:08):
the prior government, was always too thin. They were always
vulnerable to a speculative attack. They were always vulnerable around
the midterm elections and a speculative attack occurred, and as
Treasury hint 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 in the
(13:32):
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
(13:55):
to go back to the other way and go back
to overspending money, printing to value inflation and default. There's
a very stark difference between what the kissel Off leadership
of the party will lead the country to and what
a continued leadership by Mila and a center right coalition will.
Speaker 3 (14:14):
Can you actually explain a little bit further? Reform is
a nebulus term. Sounds good, but I do 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?
Speaker 4 (14:30):
This single number to focus on is the primary surplus. Okay,
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 and your debt does
not stabilize unless that's positive and positive enough to pay
(14:53):
off your existing debt at a reasonable pace. Countries like US,
the US, 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
the situation has to run a primary surplus of let's
say three percent. Under Minister of Economy Lavagna, who was
(15:18):
a great reformer from two thousand and two to two
thousand and five who Encouragedner fired him for being too tough.
They were running a five percent primary totally stabilized the economy.
Miller's program is carefully calibrated to stop monetary emission in
stabilize the economy. There's nothing arbitrary about it. It is
(15:38):
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
(15:59):
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 Kirchers they also defaulted
on all the utility contracts in two thousand and one,
they never normalized utility rates. So one of their fiscal
problems around after twenty ten is they were subsidizing the
(16:21):
power bills for everyone, which was costing four percent of
GDP a year. That'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
(16:45):
topic in terms of what the Kirchiners did to reindex
the whole society.
Speaker 2 (16:52):
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
(17:12):
Argentina debt. But one of the criticisms of this whole
process is that every time you successfully work out default
to debt or every time you reach a settlement, the
country can just return to market fairly quickly, right, So
it's never really punished that much or enough to make
it seriously think about reducing its debt. Is there some
(17:36):
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.
Speaker 4 (17:44):
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
(18:05):
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.
And so the people shocked me in twenty twenty three
(18:25):
on finishing my book. I was depressed. I saw no
way out of perpetual chaos. And then Milley came and
they voted for him because the people said, please, we
want to be in 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
(18:48):
to get to the finish line, or you're going to
say we're tired, we don't want to try so hard.
And again they may very well go from Millay and
Macri and say we do want to complete it where
we didn't like this blow up that happened. We don't
want to go there, or they're gonna do something else.
So no outside party can tell a sovereign nation what
(19:12):
to do. No judge. The judge makes it worse that
imf It has to come internally.
Speaker 3 (19:20):
Is the problem democracy? I mean, we've talked about for real,
like we've talked about this in the context of Fritz
Bartel 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 this sort
of difficulty that they had and making difficult decisions and
(19:43):
these attempts to impose austerity or and live within their means,
et cetera. And they finally like it didn't work anymore.
And yet and in the early eighties somehow the UK
found a way to, you know, 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.
(20:05):
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 Mulay need like
a nice like ten year or twenty 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,
(20:27):
and in the middle it's like what are we getting here?
Speaker 4 (20:29):
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 is that 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.
(20:50):
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, in
this country going up, in the UK is going up,
but you know what, Greece is going down, in Spain
is going down, and Italys is going down because the
crisis country. People don't want to go through the disaster again.
(21:12):
So when you have people like Argentina who dealt with hyperinflation,
they don't want to be lied to. They 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,
(21:33):
and we don't know what it. Imbalanced budget mean. 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 and their voting behavior and
they can sustain it year after year. That's called graduating.
(21:56):
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, or
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 twenty sixth of October after they vote
on the twenty seventh. And it's an incredible historical moment
(22:19):
that we're facing.
Speaker 2 (22:36):
Okay, so the new bailout that's getting finalized today in
DC between Trump and.
Speaker 3 (22:42):
We're recording this the fourteenth. Oh yeah, October fourteenth.
Speaker 2 (22:44):
I should have said October fourteenth. 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,
you know, talking about the US doing a twenty billion
dollar bailout of Argentina. Do you think that involvement changes
maybe creditor debtor dynamics in the future.
Speaker 4 (23:07):
I think in the short term right now, it's a
big bazukah to stop a run on the bank. There
is a speculative attack on the Argentine Peso at the
worst possible time, and the piranhas start amping it up.
Christina Fernandez da Kirchner. I think it was October first,
(23:29):
is on x saying oh, he's going to devalue right
after the election, and okay, poor more speculative attacks on
that's kind of a behavior towards your own country, and
so Treasury is responding by putting a huge bazuka. It's
very expensive to be short, and so this should put
all those shorts out of business. They have an orderly election.
(23:52):
And you don't even know the extent that these sort
of external things nobody understand really affects behavior. They're living
their life, are worrying about their bills. There know their
local stories about what's happened, what Millie has done and
hasn't done, and what people are saying. This is just
another piece of noise in a complicated picture. External creditors,
(24:16):
that's a different question. This is perceptionally very important. Bonds
started rallying because you have people likewis at Bob Citron
and said he immediately bought a lot of bonds and
they went up, and he's saying, oh, Treasury is backing Argentina.
You buy long term bonds because of short term bawl out.
That's a risky thing to do, but it's pro Argentina.
It helps stabilize the situation. But the market is so
(24:41):
afraid of kiss a Off in particular, so not just Parrohnism,
which I explained it had reformer menim in early Nester
Kirchner was quite reformist, but it has this kissal off
Christina Fernandez to Kirchner version of Poni which involved notorious
(25:03):
defaulting and Kissilov was directly involved with the nationalization of
YPF in twenty twelve, which you know led to the
sixteen billion dollar judgment in the court because the way
minority shareholders were treated, the non payment of some GDP
warrants that were due i think in twenty thirteen which
(25:24):
led to a one point five billion judgment in the
UK court, and was deeply involved with Christina Frendanez da
Kirchner in the redefault under the Perry passu threat. In
twenty fourteen, Kissilov went to New York and failed to
negotiate in a deal which was basically on the table
slightly better than what Macri took two years a year
(25:45):
and a half later, but wouldn't take it or couldn't
figure out how to take it. And so foreigners see
this ghost of default passed as coming back into power.
So if they see any big chance of kiss A
Loov coming back, they're going to run. So that's how
(26:06):
the bond holders buying dollar bonds in New York think
they're very happy when Treasury comes. But we should talk
for a minute about the election and what success means.
Speaker 2 (26:17):
Can I ask one more question before we talk about that?
Why do investors keep buying Argentina bonds?
Speaker 4 (26:24):
I should play you this tape the Second Circuit in
one of their two hour and a half hearings. Judge Pooler,
Rosemary Pooler, who was the nice judge, in very kindly voice,
at the end of a hearing, look to Argentina's council
Jonathan Blackman. It said, can I ask you a question
(26:45):
sort of off the record? He says sure, She says,
why would anybody who can read ever buy a bond
from Argentina.
Speaker 3 (26:54):
That's right.
Speaker 4 (26:55):
Jonathan Blackman had the best answer. He's like, they didn't
default arbitrary. They were suffering a crisis worse than the
Great Depression. It was like Weimar Germany with middle class
people selling their furniture on the street. Like he was
brilliant in that spontaneous answer to the question. But I
keep thinking of that question, and we're back there. But
(27:20):
Milley and the Pro Party with macriamiformist, they don't need
a lot at this election in this sense, with thirty
three percent of the lower House, they continue to lead
o legislation they don't like and rule by decreean things.
So the chance that the Pronas completely take over the
(27:41):
legislative branch is really low. We're just facing a more
bigger picture, perceptional question, which direction is the mind of
the voter going and leading to the next presidential election.
Are they really tired of Mille and they're going to
go back to Kisseloff as their leader, or are they
going to stick in the reformist direction with some complaints
(28:03):
and demands for readjustment of direction.
Speaker 3 (28:06):
So what should we watch? So, okay, tell us a
little bit about what date is the election again.
Speaker 4 (28:11):
Twober twenty six?
Speaker 3 (28:12):
Okay, so what should we be watching for on that
day so that we can be smart and I can
you know, post a tweet that's inside Force something that.
Speaker 4 (28:19):
So it's first the percentage that Mille's party gets, okay,
plus the percentage that Macre's party gets, plus then the
percentage that other center reformists center right parties get. And
you want to know they have blocking minority, a veto
(28:42):
proof minority in each house. That's the minimum, but you
would hope that they get a majority as a coalition.
And let's say the lower chamber. So there's between the
best case and the lower case. What the markets, the
bondholders in New York would fear is a sort of
blowout for the paronist and a strong message from every
(29:06):
corner of the country.
Speaker 3 (29:07):
The name of.
Speaker 4 (29:10):
It keeps changing its name, so right now they often
set up a newly a vehicle for every single election,
so the name changes so much, so I kind of
avoid the names.
Speaker 3 (29:21):
Okay, but it's party.
Speaker 1 (29:22):
Yeah.
Speaker 4 (29:23):
Now what they're calling themselves is Force, a Patrea like
Homeland party.
Speaker 3 (29:28):
Got it? I see? So were the reason these anxieties
kicked off? Is because there were some small regional elections
in which they did well, which got people in the
minds of thinking, oh, they might have a really good midterms.
Speaker 4 (29:41):
Oh no, it's far more fun than okay good, and
there's a lot of history.
Speaker 3 (29:44):
Okay good.
Speaker 4 (29:45):
It was not as small regional election. It was the
biggest region of Buenos Aires, who had an off cycle
early election for provincial offices, and it was a deliberate
political ploy to bring down Milay. Here's the history. Twenty nineteen.
In the presidential election, they had the primary and let's
(30:08):
say July August, the presidential elections in October. The weirdest
system ever called the passo, is the primary where you
don't vote by party for your candidate within the party,
everybody votes for all the candidates, and those who run
for a party are those who ran better. But it's
(30:28):
kind of like an early vote on who's going to win.
And Alberto Fernandez, with the former president Kirchner running as
his vice president, did so well that the markets tanked.
It was a self fulfilling prophecy that macris people can
barely make it to the finish line because the currency
(30:51):
and local interest rates and bonds were exploding, and so
that lesson meant. Millay in February said, we do not
want to have a paso. We don't want to have
a primary. We just want to have the election in October.
So they got the Senate to agree to take the
paso off the table. But then kissel off, where the
(31:12):
strength of Parnasm is in the Buenos Aires province, where
a lot of poor people are, he said, oh, let's
have our provincial election six weeks or whatever before, because
we know we'll do well. And they anticipated Milley would
pound his chest, I'm going to get the majority, and
he might fail, and he did fail. And even though
(31:33):
we got let's say thirty five percent, which nationally would
be his veto proof minority that he minimally needs to
continue to rule, it was less than he said he'd get.
So he did not manage the perceptions well and his
political team got stung by that, and he admitted it
wasn't handled well. So there was a lot of history
(31:55):
in this early vote being engineered. And as far as
the Parona Star concern, it was a perfectly executed attack
on the stability of his program. So the speculative attack
is not a failure of the program. It was really
a deliberate political process ahead of an important vote.
Speaker 3 (32:17):
I have a question actually about mile You know, he
has this whole vibe, sort of a colorful character. I
think he quotes like Austrian economists and stuff like that,
call himself a libertarian, sort iconoclastic and all that. But
setting all that side, look, would you characterize his economic
program as like fairly normy IMF style regular economics.
Speaker 4 (32:42):
Yes, And you have to separate the political character from
the policy. And you have behind him. Remember he got elected.
He did well in the Passo the primary in twenty
twenty three, I don't know if it was thirty five percent,
(33:03):
and he beat out Macre's candidate. So Mackrie said, I'm
going to support you. So he got to fifty five percent,
trouncing the Pronus opposition with Macre's support. But part of
the deal was that Millay then took the superstars, the
financial superstars of Macrey's administration, Caputo and Basili, to be
(33:26):
his Minister of Economy and his head of his central bank. Already,
Milay had chosen Federico Sturzenegger, Harvard professor had worked in
the Macre government too to be. His head of reform
has been churning out pages and pages of reforms to
make the country more efficient. He has the tightest, best
(33:47):
technical team behind him, great economists negotiating with the IMF,
making sure the execution of the plan is perfect, which
is not something Argentina has ever seen. Having looked at
thirty years of history, this is an amazing type team.
They work together as a team. Mille completely supports them,
(34:08):
but on top of them, he says, all kinds of
wild things. He's kind of a trumpy character like that.
So you have to separate the sort of wild things
he says, from the policy.
Speaker 2 (34:21):
So if I could ask you to put your betting
cap on, if you have one, how do you think
this plays out? Does Mille retain the majority and Argentina
is now on a path to non default after many,
many many years, or are things going to go sideways again?
Speaker 4 (34:41):
I think they'll be fine. I think the events of
the last few weeks will be noted in the history book.
But the people want normalcy. Argentina can always surprise you,
but having looked at what they've lived through, they understand
what's happening. And I'm hopeful that this shocking instability has
(35:04):
reminded them of what's gonna happen if they don't stick
with the plan.
Speaker 3 (35:09):
You mentioned that the Malay character is sort of Trumpian
Trump himself is he Milayian?
Speaker 1 (35:18):
Whatever?
Speaker 4 (35:19):
Is it?
Speaker 2 (35:19):
Like?
Speaker 3 (35:20):
We're like, well, if you saw it, like, okay, was Trump?
Speaker 4 (35:23):
Who does he remind you of an Argentina Perona? Okay,
It's totally ironic. They're total opposites. I've written pieces about this.
You have two characters who bind that an emotional political
character level, one of whom is massively overspending in the
United States, another one is running the most disciplined reform ever,
(35:46):
and they're best friends. And then we have this bailout.
You can't make this up so nonfiction? Who needs fiction
when you have Argentine?
Speaker 2 (35:55):
No?
Speaker 3 (35:55):
Indeed?
Speaker 2 (35:55):
All right, Greg, thank you so much for coming on
odd Lots. The book is Default, the landmark court battle
over Argentina's one hundred billion dollar debt restructuring, And if
you're interested in this topic, definitely go pick it up.
That was fantastic, Thank you so much.
Speaker 3 (36:09):
Thanks Greg. That was great.
Speaker 4 (36:10):
Thank you, Joe.
Speaker 2 (36:24):
That was very interesting, very timely. Do you feel like
you could write a little answer essay for Brad Setzer.
Speaker 3 (36:30):
Now, I mean, look for a job interview, and I'm
twenty five for twenty six, I could probably maybe come
up with I literally had it was so embarrassing. I
like it just like you open your mouth and no
words come out. That's what happens.
Speaker 2 (36:44):
Yeah, painful.
Speaker 3 (36:45):
What I'm really interested in the still is why the
political environment is as messed up as it is or
messed up as it seems to be, and what is
it about Argentina specifically that somehow other countries like the Mexicos, etcetera,
didn't fall into that trap. But also like you know,
if it gets going, say, I don't know, I worry,
(37:08):
I worry about worry about all kinds of things, but corruption, debt,
et cetera, it seems like you can fall into some
very bad, very bad cycles that are hard to escape from.
Speaker 2 (37:18):
Well, it also feels like there's a tension between what
Greg was saying about. You know, the Argentinian people need
to decide if they've had enough of you know, being
serial to falters and high inflation and if they're willing
to trade that for austerity. But on the other hand,
you know, having someone come out to the barrio and
hand you a check for a bunch of cash. Sounds
(37:39):
really good. So yeah, it does seem to be a
decision for sure.
Speaker 3 (37:44):
Yeah, it seems really difficult. And there's just the you know,
there's just the reality that Okay, you can get by
without help from abroad, but then you might have to
deal with sort of a massively reduced standard of living
devalue peso, etcetera. No, no easy options.
Speaker 2 (38:00):
Yeah, I'm also still kind of wondering who is buying
Argentina bonds all the time?
Speaker 3 (38:08):
I mean, havenything done? Well? Don't they always, like you know,
they end up with a bond in a yacht or
something like that. Don't they end up they get a ship?
Speaker 2 (38:15):
It was bigger than a yacht.
Speaker 4 (38:17):
Ok.
Speaker 2 (38:17):
Yeah, all right, shall we leave it there.
Speaker 3 (38:18):
Let's leave it there.
Speaker 2 (38:19):
This has been another episode of the aud Lots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3 (38:24):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Gregory Maycoff, He's at g may Coff.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and Cale Brooks at Kilbrooks. From our
odd Lots content, go to Bloomberg dot com slash odd
Lots with the daily newsletter and all of our episodes,
and you can shed about all of these topics twenty
four to seven in our discord Discord dot gg slash
(38:47):
od Loots.
Speaker 2 (38:48):
And if you enjoy odd Lots, if you like it
when we talk about Argentina's latest bailout, then please leave
us a positive review on your favorite podcast platform. And remember,
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Hosts And Creators
Joe Weisenthal
Tracy Alloway
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