Unsticking Argentina
Milei is one lawsuit settlement away from a historic success.
“When you're in a turnaround situation, you cannot incrementalize your way out of it.” – Steve Easterbrook
A most remarkable sovereign debt auction went off with surprising ease in June of 2017. Argentina—a perennial fiscal basket case with a long history of failing to pay off its international debts—sold $2.75 billion of 100-year US dollar-denominated bonds, paying a 7.9% yield for the privilege. Granted, this was the height of zero-interest-rate-policy absurdity, but it had been barely a year since Argentina settled a 2014 default. That settlement took two years to resolve, in part because the courts insisted the country clear up a 2001 default as part of the process.
Less than three years after issuance, Argentina defaulted on its 100-year bond as well.
Such is the mess that Javier Milei inherited when he assumed office as President of Argentina in December of 2023. By any objective measure, his program of shock therapy has been wildly successful. Government spending has been cut so dramatically that Argentina now runs a fiscal surplus, inflation—though still significant—was reduced to 1.5% month-over-month in May, and the World Bank now expects the country to post 5.5% growth in 2025.
Adding to the tailwinds Milei hopes to ride is Vaca Muerta, a giant shale formation that is among the most significant sources of future oil and gas production growth in the world. Long shunned by industry because of Argentina’s political quagmire, Milei has made development of the resource one of his top priorities:
“Welcome to the world’s latest shale boom. After a decade of false starts, the Vaca Muerta is finally lifting off, invigorated by President Javier Milei’s free-market experiment. The libertarian leader wants to transform Argentina into a major oil producer and reshape an economy built on farming. It’s an existential project for all involved: Should Milei succeed in generating new oil wealth, he might manage to heave Argentina from its economic quagmire and persuade voters to keep backing his vision…
To quicken the boom, Milei had only to tear away obstacles: He all but extinguished price caps on oil; relaxed capital controls that have especially been the bane of supermajors like Chevron Corp.; and granted energy investors legally-bulletproofed tax breaks for 30 years. Within a year of his taking office, daily crude production in the Vaca Muerta jumped 28% and in April notched 442,000 barrels [a day]. Over the next five years, it’s forecast to surpass 1 million barrels a day—as much as some OPEC members—with most earmarked for export.”
Unfortunately for Milei, he has inherited an especially consequential unpaid debt, decades in the making and rooted in Argentina’s profligate past, that threatens his oil and gas ambitions. Unlike in prior restructurings, he now faces hard dollar obligations adjudicated under strict US law, pursued by one of the world's most powerful financial-investment litigation firms. Can Milei execute yet another miracle and clean it up?