Argentina’s best chance of making a comeback from the brink and taming spiraling inflation is the economy minister who’s overseen it all, says longtime investor Hans Humes.
Sergio Massa, who’s running for president in an October election, is one of the most pro-market politicians within the ruling leftist coalition, according to Humes, the chief executive of Greylock Capital Management.
While the so-called “super minister” saw inflation surge to 116%, he has the political capital to slash government spending without sparking social unrest, Humes said in an interview.
“Everyone knows a painful fiscal adjustment in Argentina is needed,” said Greylock’s founding partner, who has participated in many of the nation’s debt workouts since 1991, including the $65 billion restructuring three years ago.
“But whether you slow walk it or jam it through, it’s about how you pass that message to the people.”
Massa has spent the past year as President Alberto Fernandez’s empowered economy minister, a role that includes duties previously carried out by agriculture and production peers. His patchwork policy measures have attempted to contain Argentina’s crisis as consumer price gains soared into the triple digits, foreign reserves sunk to their lowest in 17 years and the economy barreled toward its sixth recession in a decade.
Read More: Follow All of Bloomberg’s Coverage of Argentina Elections
The chaotic state of the economy has made Massa’s bid an uphill battle. While the announcement of his candidacy sparked some optimism among investors, who saw lower chances of a more radical administration ahead, markets mostly favor opponents — Buenos Aires Mayor Horacio Rodriguez Larreta or former security minister Patricia Bullrich — ahead of Sunday’s primary vote.
Both right-wing candidates are running on platforms to cut fiscal spending and unwind capital controls to bring investment back into the country. The mandatory primary vote is sizing up to be an important event for Argentines as well as investors, who are girding for a currency devaluation that threatens to rev up inflation even further.
Investors demand an extra 20 percentage points of yield, on average, to hold the nation’s dollar bonds over similar US Treasuries, according to JPMorgan Chase & Co. data. That’s well above the threshold for debt to be considered distressed.
To Humes, Massa has both the learned experience and crucial support from the nation’s left, who will be most squeezed as the incoming government seeks to slash spending on social programs, roll back widespread utility subsidies and unwind a morass of currency and price controls.
Once in the presidential palace, Humes argues, Massa should manage to retain the support of influential leftist lawmakers without being directly beholden to Cristina Fernandez and her anti-market brand of politics.
The 51-year-old politician is known as a dealmaker after successfully negotiating with the International Monetary Fund to front load as much as $10.8 billion in loans for the rest of the year.
“Massa is a moderate,” Humes said. “While one would expect markets to rally if Larreta or Bullrich pull ahead, the markets have begun to recognize that right-wing economists have gotten it wrong in Argentina over and over again.”
What’s most important, Humes said, is that Argentina can start to rebuild international reserves before major overseas debt payments come due in 2024 and 2025. The nation has defaulted on its debts nine times in the 200 years since it won independence and has a narrow path to dodge its 10th, he said.
“As conditions across emerging markets normalize and there are reasonable policies coming out of the next administration, it’s not out of the question that Argentina taps global markets again,” Humes said. “Things can change a lot in two years. But, we have seen Argentina throw it away many times in the past.”
(Updates with detail and adds risk premium in ninth paragraph.)
