Banker to the World Bill Rhodes Counting on Argentina Turnaround

  • Currency devaluation was step in right direction, Rhodes says
  • Settling with holdout creditors needs to be top Macri priority

William Rhodes, the former Citigroup Inc. executive who helped restructure hundreds of billions of dollars in debt over three decades, says Argentine President Mauricio Macri is making him optimistic about the country’s future.

Rhodes, 80, who described leading Argentina’s debt restructurings in the 1980s and 1990s in his book “Banker to the World,” said that despite the nation’s history of false starts, Macri will follow through on his plans to normalize the economy and lure investment. After devaluing the currency by the most in 14 years Thursday, Macri will have to move swiftly to settle with leftover creditors from its 2001 default and improve Argentina’s fiscal accounts, Rhodes said in an interview from New York.

“Macri will do what he says as rapidly as he can, given he’s got an opposition congress,” said Rhodes, who is a senior adviser at Citigroup and chief executive officer at William R. Rhodes Global Advisors LLC. “At the end of the day, if you can’t deliver growth in a reasonable amount of time, the population will turn against you. He’s battling the clock.”

Macri, the center-right former mayor of Buenos Aires, took office Dec. 10 after campaigning on a pledge to revive South America’s second-biggest economy and overcome rampant inflation, a growing deficit, and falling foreign reserves. The 14-year-old standoff with U.S. hedge funds holding defaulted Argentine bonds has made the nation a pariah in international credit markets, and a settlement with holdout creditors offers the only path for Argentina to borrow the money it needs to repair the economy.

Newly-appointed Finance Minister Alfonso Prat-Gay, who led global currency research at JPMorgan Chase & Co. until 2001, this week largely removed the currency controls put in place by former President Cristina Fernandez de Kirchner. The restrictions had hampered businesses by making it difficult to get dollars for imports and spurred the creation of multiple exchange rates that individuals and companies used to skirt the controls.

Prat-Gay’s team will need to settle with defaulted-bond holders led by hedge fund Elliott Management so that the nation can return to international bond markets, Rhodes said. While he says that “restructuring Argentina has never been an easy task” -- in his 2011 book he described pulling back-to-back all-nighters when finalizing the restructuring of the nation’s debt into so-called Brady bonds -- the incentives for both parties to come to an agreement will drive a deal.

Macri has already moved to end taxes on most agricultural exports and signaled he’ll reduce subsidies on utility bills, which have contributed to the the country’s widening fiscal deficit. To help stoke demand for pesos amid inflation estimated to be as fast as 30 percent, the central bank boosted interest rates on its short-dated notes to 38 percent earlier this week.

The turnaround won’t be easy. Macri must maintain the public’s support even after Thursday’s devaluation weakened the peso by 27 percent, threatening to exacerbate inflation. The outlook for the prices on the commodities that Argentina depends on to bring foreign currency into the country isn’t great as growth in China slows.

“One should not underestimate the obstacles he has internationally as well as those domestically,” Rhodes said. “It’ll take time, but he’s been preparing for this day for a long time, he’s assembled a good team, and he’s going to work at it. This is a country that can rebound very quickly.”

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