Argentine debt success does not eliminate doubts

Subject

Economic policy-making.

Significance

The government in April successfully ended the long-running debt default through an agreement with the most intransigent holdout creditors and a bond issue worth 16.5 billion dollars, the largest in Argentina's history. Despite this step, doubts remain concerning the government's ability to reduce the huge fiscal deficit and even its willingness to do so, as renewed access to lending will allow it to ease fiscal adjustment, reducing the high political cost involved.

Impacts

• There is a risk that, with the return of global lending, the government will choose to postpone fiscal adjustment.
• In the absence of a clear stabilisation plan, efforts to slow inflation will take time.
• If the economy does not rebound in coming months, the government's performance in October 2017 mid-term elections will be undermined.