President Mauricio Macri took a substantial hit after becoming embroiled in controversy yesterday when news surfaced that a state prosecutor had accused the current administration of forgiving almost all of the debt the Correo Argentino (Argentine post office) company has with the State.
It’s not the decision to forgive the debt that has people up in arms, but the fact that the company that is being let off the hook is Grupo Macri (Macri Group), which is led by — you guessed it — the President’s father, Franco.
Prosecutor Gabriela Boquín argues that because of this agreement, the State would end up forgiving or canceling a debt of roughly AR $70 billion. That’s right, 70 billion pesos. An absurd amount of money that one assumes would justify the public outrage.
However, it’s not as simple as it sounds. As it turns out, Correo Argentino doesn’t necessarily owe that amount. The 70 billion firgure is a number that Boquín estimates the company would have owed the Government by 2033 had the debt not been forgiven. The prosecutor got to that number by taking into account how much money the company initially owed and its equivalent in real monetary terms, plus interests, once the group ended up honoring the debt after years of inflation and currency devaluation.
The actual debt being forgiven, should the courts side with Boquín’s interpretation, is AR $4.2 billion.
Boquín also said that the agreement between the company and the Government to forgive the debt was signed by a “government official who didn’t have the authority to do so,” since Juan Mocoroa, the acting Communications Ministry’s Director of Judicial Affairs, should have had “explicit authorization from the Government” to act on its behalf.
At the heart of the controversy is the rather obvious conflict of interest that arises from the decision, considering that according to the prosecutor, it explicitly benefits the President’s family. That’s why a day after news surfaced, the prosecutor’s office of administrative investigations opened an investigation to determine whether this was actually the case. Some are already sure it was: different groups of Victory Front (FpV) lawmakers, as well as a lawyer and other political leaders pressed criminal charges against President Macri for defrauding the state.
So far the Government has denied this was the case. In an interview with Radio Nacional, Mocoroa said that “we didn’t forgive a single peso [that] Macri [owes]. Nothing. Not even overdue interest charges” and assured that the Government “got them to pay the entire debt, which amounts to AR $296 million, during negotiations.”
While what Mocoroa said is technically true, this whole case is trickier than it looks. To understand why government officials are reporting such different figures, we have to go back in time to the 90s.
IT ALL STARTED 20 YEARS AGO
In 1997, during the second Carlos Menem administration, the Macri Group was granted a license to take over the Correo Argentino, becoming one of the first countries in the world to privatize the postal service. This was part of a general process implemented by the Menem administration, which, in an attempt to reduce the country’s sizable fiscal deficit while pumping some pesos to the state coffers at the same time, decided to hand over most public services to private companies.
The post office arrangement was administered through one of its companies, Sideco Argentina. The Macri family has most of the company’s stock, but the current President gave his’ away to his kids in 2009 when he became the Mayor of the City of Buenos Aires.
However, the concession didn’t go very well. Going back to September 2001, the company was US/AR $900 million in debt — at the time, an Argentine peso was worth as much as a US dollar due to the so called Convertibility Program. This is key to the prosecutor’s argument — and entered a process called Convocatoria de Acreedores (which we will term the creditors’ call): a process where a company unable to pay its debt gathers its creditors and offers them a settlement plan in accordance to its economic capabilities, in an attempt to not go bankrupt.
The Argentine Government held 32.65 percent of that debt, which amounted to AR/US $296 million. Back then, the Macri group proposed paying its debt over 25 years with a one percent interest rate. The creditors rejected that offer and in December 2003, a judge officially declared Correo Argentino bankrupt and prevented Franco Macri, as well as the company’s board of directors, to leave the country, Página 12 reports.
The State’s main argument to refuse the deal was that the payments wouldn’t be updated over time, something that would basically mean leaving Argentina’s high inflation economy to pardon the debt with time. The judge in the case sided with the State and never approved the settlement plan. But the Macri group appealed and the case went to an appeals court, where it stayed for 13 years.
The situation changed when the Macri administration took office. In June of last year, the eponymous group made a new offer: pay the debt over 19 years with a six percent yearly interest rate.
The State, through Juan Mocoroa, didn’t accept that offer, and presented a counter offer with terms that weren’t that far away from the original proposal. The Macri group presented the offer and it was accepted immediately: a 15 year payment plan to begin in 2018 with a seven percent yearly-interest rate, where half the nominal debt, meaning half of the AR/US $296 million, would be paid in the last two years of the plan — 2032 and 2033. Taking the interests into account, the Macri group would end up paying AR $600 million overall in 2033.
Cue The Different Interpretations
Prosecutor Boquín argues that having the Macri Group cancel a AR/US $296 million debt – plus interests – in 2033 is nowhere near comparable with doing so in 2001. And here is where one of the main differences in interpretations comes to play.
Boquín believes the debt should be multiplied by today’s exchange rate of AR $15.90. The Macri administration believes, in contrast, that the debt should be viewed and issued in Argentine pesos.
As a result of this, Bouquín interprets that today, the debt would equal to AR $4,706 million. Substracting the debt the group offered to pay, plus interests, the final amount of debt the Macri administration would be condoning amounts to AR $4.6 billion. Using the same methodology, Baquín projected the sum to 2033, when the group would make its last payment. And according to her calculations, the debt at the time would amount to AR $70,163 million.
“Accepting this proposal would effectively reduce the State’s credit to an unacceptable sum, as it resembles a debt forgiveness,” pointed out Boquín in her appeal. She went on to claim that a “clear irregularity — which has to be investigated — surfaces as it implicates the acceptance of an agreement that is clearly disastrous for the State’s coffers.”
The prosecutor’s arguments were supported by members of different opposition parties. Former Kirchnerite Labor Minister, Carlos Tomada, said that “taking advantage of the State is in the Macri family’s DNA.” Renewal Front deputy Graciela Camaño backed up that claim by saying that “it seems like the Macris came to the Government to solve the Macris’ problems.”
But the Government disagrees. Mocoroa argued that “the debt the State is entitled to is AR $296 million. After that 15 years went by during which the parties didn’t reach a settlement due to a political conflict” between the Kirchner administration and the Macri group and that “the State couldn’t get a single peso of that debt.” “We only got the company to pay AR $600 million in 2016.”
Mocoroa said that he assumes Baquín’s calculations “to be an error” and went on to argue that the debt the company had in 2001 can’t be turned into dollars.
“The debt is in Argentine pesos. It the possibility of turning it into dollars had existed, the situation would have been different, but it’s not,” he said.
As for the interest charges that some argue could have been added to the existing debt that has been mounting since 2001, he said that article 19 of the Concursos law establishes “that the debt only starts generating interests once an agreement is reached [something that only happened last year], but not before.” At the end of the day, it will be up to the appeals court to decide who is right.