As Argentina’s debt saga drags on, some remarks on the macroeconomic (rather than legal) process hopefully won’t distract minds too much from agreeing a deal.

Indeed, the macroeconomics of the restructuring process has been undermined for five reasons.

First, the authorities continue to deny the necessity of BCRA recapitalization, meaning there can be no monetary control expected at the end of the process;

Second, the authority’s sustainability assessment leant heavily on BCRA monetization...

of primary deficits over the next three years—creating money and exchange rate risk beyond the official rate;

Third, while the authorities provided select components of the balance of payments (trade balance and reserve accumulation) to underpin their negotiation, ...

this is only an incomplete picture—if I were a creditor I would not find that a convincing basis for agreeing a restructuring.

Fourth, the IMF’s own contribution was in the form of “technical assistance” and not formal Board oversight, thus inexplicably dropping the Fund’s DSA

template—that agreed by the Executive Board as the approach to assessing sustainability, lacking transparency and oversight of the international community.

An Article IV would have provided the full suite of IMF macro-financial tables—balance of payments and monetary projections to underpin the fiscal accounts.

Finally, and perhaps most important, the authorities engaged in negotiations on a pre-COVID-19 basis, meaning most of the macroeconomic assumptions are hugely outdated.

Now, these flawed parameters for the negotiation are easy to see.

Which is why continued creditor insistence on a better deal to me looks set to fail. Even if the Argentine authorities capitulate, given where we are today and the flawed assumptions that underpin the analysis, ...

is it reasonable that any new instruments will trade close to par after the restructuring? Or, more likely, will they immediately sell off to reflect true fundamentals.

My guess is the latter, in which case the creditors will enjoy only a pyrrhic victory. They will find themselves no better off than if they moderated their claim in advance.

Getting the macro right is important. As is investment process.

END.