Why Argentina Needs Bailout After Bailout After Bailout

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 AidArgentina Says US Treasury Will Continue to Support Peso Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Tracy Alloway?

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• 1:44Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 1:48Joe Weisenthal?

  And I'm Joe Weisenthal.

• 1:50Tracy Alloway?

  Joe, we are in Washington, DC. Do you know who else is in our nation's capital?

• 1:55Joe Weisenthal?

  Lots of people, lots of people are in our nation's capital.

• 1:58Tracy Alloway?

  Yes.

• 1:58Joe Weisenthal?

  Right now, I could go on and on. There are a lot of people live there permanently, but also a lot of people visiting this week like we are.

• 2:04Tracy Alloway?

  True. Okay. So one person in particular is visiting who is of note for this particular podcast, and that is Javier Millay. He is the president of Argentina and he's meeting with Trump today. They're supposed to finalize like the $20 billion swap that Argentina just got from the US Treasury. Basically, Argentina is getting their like umpteenth bailout.

• 2:26Joe Weisenthal?

  Yeah.

• 2:27Tracy Alloway?

  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.

• 2:51Joe Weisenthal?

  You know, I'm like traumatized by Argentina topics, right?

• 2:54Tracy Alloway?

  Wait, why?

• 2:54Joe Weisenthal?

  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 Setser.

• 3:03Tracy Alloway?

  Oh, that's right.

• 3:04Joe Weisenthal?

  And he was like, and in the middle of the interview, he's like, how would you characterize, this is 2006, maybe he's like, how would you characterize the struggles of Argentina? And I just totally blanked. I like 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 gonna work, right? This one's gonna be the last.

• 3:27Tracy Alloway?

  One, 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% and it got down to 33%, which by US standards, 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.

• 3:58Joe Weisenthal?

  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.

• 4:07Tracy Alloway?

  Yeah.

• 4:07Joe Weisenthal?

  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. It's not that poor of a country, etc. I don't really understand why this is this persistent thing distinct to this country.

• 4:22Tracy Alloway?

  All right. Our first question will be, why is Argentina like this?

• 4:25Joe Weisenthal?

  Yeah. Why is Argentina like this?

• 4:27Tracy Alloway?

  And then after we record this interview, you can write a little essay for Brad Setzer and send it to him for his review.

• 4:32Joe Weisenthal?

  And then I'll get the job. Yeah.

• 4:33Tracy Alloway?

  Yes. Okay.

• 4:33Joe Weisenthal?

  And he'll hire me.

• 4:34Tracy Alloway?

  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. 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 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.

• 5:05Speaker 05

  Thank you for having me.

• 5:06Tracy Alloway?

  So I guess I should start with that first question. What's up with Argentina?

• 5:12Speaker 05

  Well, for the history, they-

• 5:14Joe Weisenthal?

  Start from the very beginning. No, no. Start from wherever you want.

• 5:17Speaker 05

  They spend too much.

• 5:18Joe Weisenthal?

  Okay. But lots of countries spend too much.

• 5:21Speaker 05

  Well, they've, they're particularly politically divided.

• 5:26Joe Weisenthal?

  Okay.

• 5:26Speaker 05

  And do have a reform effort. Countries have a crisis, then they reform. Hopefully, they embed the reforms, and they graduate to a certain level of stability. But whereas the Mexicos and the 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.

• 6:00Joe Weisenthal?

  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?

• 6:23Speaker 05

  Machine politics, heroism.

• 6:27Tracy Alloway?

  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 Webber's musical Evita, which is fantastic and I highly recommend, but can you explain what Peronism is?

• 6:43Speaker 05

  Yeah. Peronism is kind of a shapeshifter, but it goes back historically to Juan Peron, 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 out from the outside world, nationalistic. It became a political machine that controlled the apparatus of government and the unions and everything. So 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

• 7:25Speaker 05

  in 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 Millet version of let's finally balance our budget.

• 7:55Joe Weisenthal?

  I want to get to Millet, obviously, but just go into this a little bit more. Machine politics, again, not something that's alien to other countries in the world. It's fairly common. Talk about the sort of application or every country has some kind of machine politics. What makes that Kirchnerism, et cetera, so powerful and difficult to dislodge? How is it operationalized?

• 8:19Speaker 05

  The way the cash moves.

• 8:22Joe Weisenthal?

  Okay.

• 8:22Speaker 05

  In that if you get a bailout check during COVID, you get it from the federal government in the mail.

• 8:29Joe Weisenthal?

  Okay.

• 8:30Speaker 05

  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. You 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 checks say, I guess I gotta go.

• 9:15Tracy Alloway?

  Wow, I had no idea that happened. Okay, so Millet 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, and Argentina is getting its $20 billion 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?

• 9:56Speaker 05

  We should back up a bit and get a bit historical.

• 9:59Joe Weisenthal?

  Please.

• 10:00Speaker 05

  Because the people voted in 2023 for Millet 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. Now, the context of this, just from 2001, is the country, the program of the 90 of Menem falling apart and facing a devaluation default, $100 billion debt default, as I talk about in my book.

• 10:47Speaker 05

  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, the top of Casa Rosada. And they had a reform program. They ran a very tight budget, tighter even than Milley is running between oh, three and oh, five. But then they didn't sustain the reform. And after 2010, they've been in the boom, then the bust and default from 2010 to 23. So again, they voted for Milley because they were saying they all must go.

• 11:30Speaker 05

  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 a chainsaw.

• 11:53Tracy Alloway?

  Right.

• 11:54Speaker 05

  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.

• 12:02Joe Weisenthal?

  That's really powerful.

• 12:03Tracy Alloway?

  And he lent that chainsaw to Elon Musk as well.

• 12:06Joe Weisenthal?

  Oh, he did?

• 12:07Tracy Alloway?

  Yeah, that was, that was Milley's chainsaw.

• 12:09Joe Weisenthal?

  Wait, what happened to that other guy? Was there some guy that around 2016 or 2017 that all the international community loved that thought he was going to be the great neoliberal reformer there?

• 12:19Speaker 05

  That was Macri.

• 12:20Joe Weisenthal?

  Oh, yeah. Macri, right. What happened to that guy?

• 12:22Speaker 05

  Well, the people were tired of the chaos of Cristina Fernandez de Kirchner, who was president for two terms after her husband Nestor was president for one term.

• 12:35Joe Weisenthal?

  Okay.

• 12:35Speaker 05

  He died after her first term. He was going to run again. So she had to, and things were bad, including on the bond default and all the litigation. And Macri is like, I'm going to bring in 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 Nestor Kirchner, with Cristina Fernandez de Kirchner as the vice president. And COVID hit, they did default again and they handed over the reins to Malay with

• 13:16Speaker 05

  like 150% annualized inflation. So there was an urge to reform under Macri, but 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.

• 13:55Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 14:21Speaker 01

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• 14:51Tracy Alloway?

  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.

• 15:05Speaker 05

  I have the number on how many defaults.

• 15:07Tracy Alloway?

  Okay.

• 15:07Speaker 05

  The bailouts, we'd have to check the number. But first of all, I would term the Treasury's 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. They 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.

• 15:52Speaker 05

  The way it unfolded and the speed leaves a bad impression, but as an observer for a long time, this was no surprise. In 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? There's a very stark difference between what the Kisaloff leadership of the party will lead the country to and what a continued leadership by Milley and a center-right coalition will.

• 16:35Joe Weisenthal?

  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?

• 16:52Speaker 05

  The single number to focus on is the primary surplus.

• 16:56Joe Weisenthal?

  Okay.

• 16:57Speaker 05

  It's kind of like the free cash flow for a company.

• 17:00Joe Weisenthal?

  Yeah.

• 17:00Speaker 05

  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 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 that 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,

• 17:42Speaker 05

  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. There 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.

• 18:12Joe Weisenthal?

  So where are they cutting?

• 18:14Speaker 05

  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 in 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 around 2000, after 2010, is they were subsidizing the power bills for everyone, which was costing 4% of GDP a year. That's why you have a primary deficit. And they said, we can't do that.

• 18:51Speaker 05

  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.

• 19:12Tracy Alloway?

  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, right? So it's never really punished that much or enough to make it seriously think about reducing its debt.

• 19:56Tracy Alloway?

  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?

• 20:05Speaker 05

  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. And so the people shocked me in 2023. On finishing my book, I was depressed.

• 20:49Speaker 05

  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 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 again. They may very well go from Milley 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. So no outside party can tell a sovereign nation what to do. No judge?

• 21:35Speaker 05

  The judge makes it worse. The IMF, it has to come internally.

• 21:41Joe Weisenthal?

  Is the problem democracy? I mean, we've talked about, no, 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 in making difficult decisions and these attempts to impose austerity or live within their means, etc. And they finally, like, it didn't work anymore. And yet, and in the early 80s, 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

• 22:24Joe Weisenthal?

  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 Mulaney, 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?

• 22:50Speaker 05

  Yeah. And somebody wrote a book that a BlackRock 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. He 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's 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

• 23:32Speaker 05

  through the disaster again. 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. And we don't know what an unbalanced 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 in their voting behavior, and they can sustain it year after year.

• 24:15Speaker 05

  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? 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 26th of October after they vote on the 27th. And it's an incredible historical moment that we're facing.

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• 25:57Tracy Alloway?

  Okay, so the new bailout that's getting finalized today in DC between Trump and

• 26:03Joe Weisenthal?

  We're recording this the 14th, by the way, October 14th.

• 26:05Tracy Alloway?

  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, you know, talking about the US doing a $20 billion bailout of Argentina. Do you think that involvement changes maybe creditor debtor dynamics in the future?

• 26:27Speaker 05

  I think in the short term, right now, it's a big bazooka to stop a run on the bank. There is a speculative attack on the Argentine peso at the worst possible time, and the Peronists are amping it up. Cristina Fernandez de Kirchner, I think it was October 1st, is on X saying, oh, he's going to devalue you 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.

• 27:08Speaker 05

  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 understands, 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. External creditors, that's a different question. This is perceptionally very important. Bonds started rallying because you have people like, was it Bob Citron said he immediately bought a lot of bonds and they went up. And he's saying, oh, Treasury is backing Argentina.

• 27:51Speaker 05

  You buy long-term bonds because of short-term bailout. That's a risky thing to do, but it's pro-Argentina. It helps stabilize the situation. But the market is so afraid.

• 28:04Speaker 05

  Of Kisselov in particular, so not just Peronism, which I explained it had reformer momentum in early Nestor Kirchner was quite reformist, but it has this Kisselov, Christina Fernandez de Kirchner version of Peronism, which involved notorious defaulting. And Kisselov was directly involved with the nationalization of YPF in 2012, which you know led to the $16 billion judgment in the court because the way minority shareholders were treated. The non-payment of some GDP warrants that were due, I think in 2013, which led to a

• 28:45Speaker 05

  1.5 billion judgment in the UK court and was deeply involved with Christina Fernandez de Kirchner in the re default under the peri passu threat in 2014. Kisselov 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 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 their past as coming back into power. So if they see any big chance of Kisselov coming back, they're going to

• 29:25Speaker 05

  run. So that's how the bondholders 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.

• 29:38Tracy Alloway?

  Can I ask one more question before we talk about that?

• 29:40Speaker 05

  Yeah.

• 29:41Tracy Alloway?

  Why do investors keep buying Argentina bonds?

• 29:45Speaker 05

  I should play you this tape. The Second Circuit, in one of their two hour and a half hearings, Judge Poole, or Rosemary Poole,

• 29:55Speaker 05

  Who was the nice judge in very kindly voice. At the end of a hearing, looked to Argentina's counsel Jonathan Blackman and said, can I ask you a question sort of off the record? He says, sure. She says, why would anybody who can read ever buy a bond from Argentina?

• 30:15Tracy Alloway?

  That's right.

• 30:17Speaker 05

  Jonathan Blackman had the best answer. He's like, they didn't default arbitrarily. 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 Milley and the pro party with Macri and Reformists, they don't need a lot at this election. In this sense, with 33% of the lower house, they continue to veto legislation they don't like and rule by decree and things.

• 30:58Speaker 05

  So the chance that the Peronists completely take over the legislative branch is really low. We're just facing a more bigger picture perceptual question. Which direction is the mind of the voter going in leading to the next presidential election? Are they really tired of Milley and they're going to go back to Kisloff as their leader? Or are they going to stick in the reformist direction with some complaints and demands for readjustment of direction?

• 31:27Joe Weisenthal?

  So what should we watch? So, okay, tell us a little bit about what date is the election again?

• 31:31Speaker 05

  October 26.

• 31:33Joe Weisenthal?

  Okay, so what should we be watching for on that day so that we can be smarter and I can, you know, post a tweet that's insightful or something like that?

• 31:41Speaker 05

  So it's first the percentage that Milley's party gets.

• 31:45Joe Weisenthal?

  Okay.

• 31:46Speaker 05

  Plus the percentage that Macri's party gets.

• 31:51Speaker 05

  Plus then, the percentage that other center reformist, center-right parties get. And you want to know, they have blocking minority, a veto-proof minority in each house. That's the minimum, but you would hope that they get a majority as a coalition in, let's say, the lower chamber. So there's between the best case and lowercase. What the markets, the bondholders in New York would fear is a sort of blowout for the Peronist and the strong message from every corner of the country.

• 32:28Joe Weisenthal?

  What's the name of the Peronist party?

• 32:31Speaker 05

  It keeps changing its name. So, right now, they often set up a new vehicle for every single election, so the name changes so much, so I kind of avoid the names.

• 32:42Joe Weisenthal?

  Okay, but it's the Peronist party.

• 32:43Speaker 05

  Yeah. Now, what they're calling themselves is Force a Patria, like Homeland Party.

• 32:49Joe Weisenthal?

  Got it. I see. So 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?

• 33:02Speaker 05

  Oh, no, it's far more fun than that.

• 33:03Joe Weisenthal?

  Okay, good.

• 33:04Speaker 05

  And there's a lot of history in it.

• 33:05Joe Weisenthal?

  Okay, good, tell us.

• 33:06Speaker 05

  It was not a small regional election. It was the biggest region of Buenos Aires.

• 33:12Joe Weisenthal?

  Oh.

• 33:12Speaker 05

  Who had an off-cycle, early election for provincial offices. And it was a deliberate political ploy to bring down melee. Here's the history. 2019, in the presidential election, they had the primary in, let's say, July, August. The presidential election's in October. The weirdest system ever, called the paso, 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 kind of like an early vote on who's gonna win.

• 33:52Speaker 05

  And Alberto Fernandez, with the former president Kirchner, running as his vice president, did so well that the markets taint. It was a self-fulfilling prophecy that Macris people can barely make it to the finish line because the currency and local interest rates and bonds were exploding. And so... That lesson meant Millet 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 Kisilov, where the strength of Peronism is in the Buenos Aires province,

• 34:36Speaker 05

  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 Millet would pound his chest. I'm going to get the majority and he might fail. And he did fail. And even though we got, let's say, 35%, 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 in this early vote being engineered.

• 35:20Speaker 05

  And as far as the Peronists are concerned, it was a perfectly executed attack on the stability of his program. So this speculative attack is not a failure of the program. It was really a deliberate political process ahead of an important vote.

• 35:38Joe Weisenthal?

  I have a question actually about Millet. You know, he has this whole vibe. He's sort of a colorful character. I think he quotes like Austrian economists and stuff like that, calls himself a libertarian and sort of iconoclastic and all that. But setting all that aside, like, would you characterize his economic program as like fairly normie IMF style, regular economics?

• 36:03Speaker 05

  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 paso, the primary in 2023.

• 36:22Speaker 05

  I don't know if it was 35% and he beat out Macri's candidate. So Macri said, I'm going to support you. So he got to 55% trouncing the Peronist opposition with Macri's support. But part of the deal was that Millet then took the superstars, the financial superstars of Macri's administration, Caputo and Basili, to be his Minister of Economy and his head of his central bank. Already Millet had chosen Federico Sturzner, Harvard professor, had worked in the Macri government too, to be his head of reform, has been churning out pages and pages of reforms to make the country more efficient.

• 37:05Speaker 05

  He has the tightest, best 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 30 years of history, this is an amazing tight team. They work together as a team. Millet completely supports them, 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.

• 37:42Tracy Alloway?

  So if I could ask you to put your betting cap on, if you have one, how do you think this plays out? Does Millet 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?

• 38:02Speaker 05

  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 reminded them of what's going to happen if they don't stick with the plan.

• 38:30Joe Weisenthal?

  You mentioned that the Millet character is sort of Trumpian.

• 38:36Joe Weisenthal?

  Trump himself, is he Malayan? Whatever. Is it like, where, like, if you thought like, okay, was Trump, who does he remind you of in Argentina?

• 38:46Speaker 05

  Peron.

• 38:47Joe Weisenthal?

  Okay.

• 38:47Speaker 05

  It's totally ironic. They're total opposites. I've written pieces about this. You have two characters who bind at an emotional, political, character level, one of whom is massively overspending in the United States, another one is running the most disciplined reform ever, 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 Argentina?

• 39:16Tracy Alloway?

  No, indeed. All right. Greg, thank you so much for coming on Odd Lots. The book is Default: The Landmark Court Battle Over Argentina's $100 Billion Debt Restructuring. And if you're interested in this topic, definitely go pick it up. That was fantastic. Thank you so much.

• 39:30Joe Weisenthal?

  Thanks, Greg. That was great.

• 39:31Speaker 05

  Thank you.

• 39:45Tracy Alloway?

  Joe, that was very interesting, very timely. Do you feel like you could write a little answer essay for Brad Setser now?

• 39:53Joe Weisenthal?

  I mean, like, for a job interview, when I'm 25 or 26, I could probably, maybe, come up with, I literally had no, it was so embarrassing. I like, it's like, you open your mouth and no words come out. That's what happens.

• 40:05Tracy Alloway?

  Yeah, that's painful.

• 40:06Joe Weisenthal?

  What I'm really interested in 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 Mexicans, etc., didn't fall into that trap? But also, like, you know, if it gets going, say, I don't know, I worry, I worry about, I worry about all kinds of things, but corruption, debt, etc., it seems like you could fall into some very bad, very bad cycles that are hard to escape from.

• 40:39Tracy Alloway?

  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 defaulters 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 really good. So it does seem to be a decision for sure.

• 41:05Joe Weisenthal?

  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, devalued peso, et cetera. No, no easy options.

• 41:21Tracy Alloway?

  Yeah. I'm also still kind of wondering who is buying Argentina bonds all the time.

• 41:27Joe Weisenthal?

  Well, let's find an investor. I mean, haven't they, haven't they done well? Don't they always like, you know, they end up with a bond and a yacht or something like that? Don't they end up, they get a ship?

• 41:37Tracy Alloway?

  It was bigger than a yacht. Yeah. All right. Shall we leave it there?

• 41:39Joe Weisenthal?

  Let's leave it there.

• 41:40Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 41:45Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at TheStalwart. Follow our guest Gregory Makoff. He's at G Makoff. Follow our producers, Carmen Rodriguez at Carmen Arman, Dashal Bennett at Dashbot, and Cale Brooks at CaleBrooks. For more Odd Lots content, go to Bloomberg.com/oddlots with the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 42:09Tracy Alloway?

  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 all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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