The front-runner in Argentina's presidential election, Alberto Fernández, said the country is "virtually in default" and would struggle to repay its loan to the International Monetary Fund.
Argentina "is not going to be able to repay the liabilities it took on," the Peronist candidate, who led incumbent President Mauricio Macri by 15.5 points in an Aug. 11 primary election, said in an interview with Clarín. "That is why Argentine bonds are worth what they are worth — because the world knows that they cannot be paid," he was quoted as saying.
Financial assets in Argentina plummeted last week after the primary election result dramatically increased the chances that Fernández will win the presidency later in the year. Yields on short-term bonds have surpassed 60%, suggesting that the bonds are moving to "recovery value" prices, analysts say.
The spread on Argentina 5-year credit default swaps, a measure of credit risk, spiked 319 basis points on Aug. 19 after Fernández's latest remarks, according to a Reuters report.
"We have to act prudently, and prudence is that Argentina must honor its obligations ... we know better than anyone how harmful it is to default, but don't talk to me about fantasies, either," the presidential candidate was quoted as saying, questioning how realistic the fiscal targets promised by the Macri administration are.
The government had committed with the IMF to achieve a fiscal balance this year, with special permission to incur a primary deficit of 0.2% of GDP, solely for social purposes.
But recent measures taken by Macri have raised concerns over the likelihood of the fiscal performance, potentially jeopardizing the IMF credit line, which could accelerate a default event.
The IMF has refrained from making a public statement on Argentina since the primary results. Under the agreement, Argentina is set to receive a $5.4 billion disbursement from the organization in mid-September, subject to a fiscal assessment.
Fernández said that, should he be elected, he will foster growth and exports in particular to cash in U.S. dollars to repay its foreign-denominated debt. "I will do everything necessary for Argentina to export because that is how Argentina generates dollars. There is no other way. In the meantime, I will speak to creditors to see what we can do," he said.
As of Aug. 16, US$1 was equivalent to 56.20 Argentine pesos.
