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In Argentina’s Debt Negotiations, a Kinder, Gentler Capitalism Faces a Test

LONDON — Laurence D. Fink presents himself as the vanguard of a progressive form of capitalism in which profits are not everything: The enlightened money is supposed to press for environmental and social protection.

As the chief executive of BlackRock, the world’s largest investment management company, Mr. Fink oversees more than $7 trillion. He has steered some of that fortune to the crisis-wracked nation of Argentina, purchasing government bonds.

But as Argentina — in default since May — seeks forgiveness on $66 billion worth of bonds, Mr. Fink’s oft-espoused faith in “stakeholder capitalism” is colliding with traditional bottom line imperatives. Though poverty is soaring in Argentina as the pandemic worsens a punishing economic downturn, BlackRock is opposing a settlement proposed by the government and rallying other creditors to reject it, while holding out for a marginally improved deal.

Mr. Fink has inserted himself into the negotiations, speaking twice with Argentina’s economy minister, according to three people familiar with the talks. The government and its creditors are only three pennies on the dollar apart on their proposed terms.

“The BlackRock guys have gotten on the phone with a number of significant creditors,” said Hans Humes, president of Greylock Capital Management, another creditor at the table. “They convinced a lot of people that if we all stepped up behind their deal, the Argentines would take it. It’s turned into a brutal standoff.”

BlackRock’s stance has put it at odds with the International Monetary Fund, which gave Argentina a rescue package worth more than $50 billion two years ago, and has supported Argentina’s proposal as an Aug. 4 deadline approaches.

Credit…Krista Schlueter for The New York Times

The fund’s managing director, Kristalina Georgieva, has praised Argentina’s approach and emphasized that bondholders must agree to substantial debt forgiveness so Argentina can manage future payments. Fund officials have assured the government that they will forge a new bailout if Argentina cannot complete a deal.

The alternative would be an unruly default that would prevent Argentina from tapping international markets, block its companies from gaining access to capital and deepen the recession.

BlackRock’s position has also put it crosswise with a group of prominent economists, including a pair of Nobel laureates, Joseph Stiglitz and Edmund Phelps. In May, they issued a public letter urging bondholders to come to terms with the government.

“Argentina has presented a responsible offer to creditors that reflects the country’s capacity to pay,” declared the letter, which was signed by 138 economists, among them Carmen Reinhart, now the chief economist at the World Bank.

In a statement, BlackRock said it has been working diligently to achieve a settlement, while recouping as much as possible for its clients. Roughly two-thirds of the investments it manages comprise the retirement savings of workers around the world.

“In this restructuring process, our fund managers are balancing a fiduciary obligation to make decisions in the best interest of these savers, while at the same time recognizing the difficult circumstances facing the Argentine government, including the challenges posed by Covid-19,” the statement said.


Credit…Juan Ignacio Roncoroni/EPA, via Shutterstock

The standoff in Argentina reflects the complexity of debt negotiations in an era in which regular people are effectively at the table. In decades past, bonds issued by developing countries were overwhelmingly controlled by major banks. When governments could not pay, bank chiefs hammered out a deal. Today, investors holding emerging market bonds run the gamut from specialized funds with high tolerance for risk to conservative pension funds.

That Mr. Fink’s company is playing a primary role in pressuring Argentina contrasts with his campaign to make business a force for social progress.

Two years ago, Mr. Fink — who has been mentioned in news reports as a potential Treasury secretary in a Biden administration — wrote an open letter to the chief executives of major corporations urging them to focus on social, labor and environmental concerns.

“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” he wrote.

Last year, Mr. Fink signed the Statement on the Purpose of a Corporation crafted by the Business Roundtable, an association of American chief executives. It pledged “a fundamental commitment to all of our stakeholders.”

In January, Mr. Fink wrote another letter to C.E.O.s warning that companies that fail to address climate change would be punished in the marketplace.

BlackRock has launched funds tailored to so-called impact investing, with money directed at advancing social and environmental goals.


Credit…Remo Casilli/Reuters

Argentina is now consumed with stemming an alarming increase in poverty. Once among the richest countries on earth, it has defaulted on its government debt nine times.

Argentina’s history has been dominated by populist governments that have won political favor by dispensing subsidies and cash to the masses in brazen disregard for budget arithmetic, yielding chronic inflation and frequent crises.

The last government, headed by President Mauricio Macri, assumed power in 2015 with a mandate to restore discipline toward regaining the confidence of international markets, while also showing compassion to the poor through social spending.

Among those impressed was Mr. Fink. Six months after Mr. Macri took office, the BlackRock chief said his administration “has really shown what a government can do if it is focusing on trying to change the future of its country.”

In the end, Mr. Macri acquired a reputation for muddling through, failing to produce growth while borrowing anew.

When a new president, Alberto Fernández, took office last year, many assumed that populism was back. But Mr. Fernández quickly reassured the I.M.F. and key creditors that he was a pragmatist intent on securing a workable debt settlement.

The I.M.F. had long been accused of wielding a single blunt instrument in the face of crisis — austerity. Its rescue package in Argentina two decades ago imposed crippling cuts to government programs, sowing enduring bitterness. Ms. Georgieva, the fund’s managing director, has sharpened a focus on protecting countries from impossible debt burdens.


Credit…Juan Ignacio Roncoroni/EPA, via Shutterstock

BlackRock is part of a consortium called the Ad Hoc Argentine Bondholder Group, which controls about one-fourth of the bonds.

The Ad Hoc group has struck a unified front in rejecting the government’s latest offer, which would pay out 53 cents on the dollar value of the bonds. Last week, it presented its own proposal seeking improved terms — more than 56 cents on the dollar.

In a letter sent Monday to Argentina’s economy minister, Martín Guzmán, the group said it had gained the support of a majority of all bondholders, giving it the power to block the deal. Under the bond covenants, an agreement to write down their value must win the support of the holders of two-thirds of their value.

In a statement, the Ad Hoc group said it was operating in the interest of the Argentine public by seeking a deal that would “allow re-access to capital markets and encourage further investment.”

But some creditors have publicly supported the government’s proposal.

“Argentina has made a reasonable offer, which I believe the creditors should accept, especially in light of the health and poverty situation in the country,” said Mohamed A. El-Erian, chief economic adviser at Allianz SE, the parent company of Pacific Investment Management Company, one of the world’s largest bond managers. He has been advising a creditor at the table, Gramercy Funds Management LLC, an emerging markets specialist and serves as its chairman.

Gramercy has concluded that differences between the government’s offer and the Ad Hoc group’s proposal are trivial compared with the risk of a comprehensive default that would diminish the value of Argentine bonds, subject creditors to years of potential litigation and intensify the nation’s crisis.


Credit…Esteban Collazo, via Agence France-Presse — Getty Images

Additional debt forgiveness also enhances the likelihood that Argentina can manage its future payments, lifting the value of outstanding bonds, and lowering borrowing costs for Argentine companies.

“For three points you’re willing to lose 20 or 30,” said Mr. Humes, the Greylock president. “It’s just insanity. It’s unfortunate when egos and inexperience get in the way of a pragmatic solution.”

Some say the government overplayed its hand, antagonizing creditors with an unreasonably low opening offer — less than 40 cents on the dollar.

“Guzman started off with a very lowball offer,” said Siobhan Morden, a Latin America bond analyst at Amherst Pierpont Securities, an independent broker. “This has been an unnecessary distraction for months that could have been avoided if the opening offer had been more reasonable.”

Negotiations were conducted via Zoom, involving dozens of different creditors. BlackRock’s representatives clashed with Argentina’s economy minister, Mr. Guzmán, a 37-year-old economist who studied with Mr. Stiglitz at Columbia University.


Credit…Juan Mabromata/Agence France-Presse — Getty Images

In May, Mr. Fink called Mr. Guzmán to try to break the impasse, suggesting that a deal could be had if the government lifted its offer to the range of 50 to 55 cents on the dollar, the people familiar with the talks said.

In private consultations with BlackRock, the government offered 50 cents. But BlackRock and its Ad Hoc group held out for more.

Mr. Fink complained that it was unfair that private creditors were swallowing all the losses, arguing that the I.M.F. should forgive some of its loans — a non-starter.

In early July, Mr. Guzmán sweetened the terms, offering 53 cents on the dollar. That won the support of several creditors, including Gramercy and Greylock.

By then, the pandemic was deepening Argentina’s recession just as the government required extra funds for the public health emergency. But BlackRock began a behind-the-scenes campaign to block the deal.

The government has insisted that its offer is final. With child poverty exceeding 50 percent, officials say, paying more to creditors would amount to transferring wealth from people who have almost nothing to international investors.

On a recent morning, about 100 families showed up at a soup kitchen 25 miles west of Buenos Aires — more than twice as many as in March. Among them was Ángel Ariel Coronel, a plumber who lives nearby with his wife and their 2-year-old son. A strict lockdown imposed by the government has halted the construction projects where he has worked.

“My wife was a bit embarrassed about having to come here,” said Mr. Coronel as he waited for a portion of steaming lentils. “But I don’t care. We need the help. I haven’t worked a day since this whole thing started.”


Credit…Natacha Pisarenko/Associated Press

Peter S. Goodman reported from London and Daniel Politi from Buenos Aires.

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I.M.F. Predicts Worst Downturn Since the Great Depression

WASHINGTON — The International Monetary Fund issued a stark warning on Tuesday about the coronavirus’s economic toll, saying that the world is facing its worst downturn since the Great Depression as shuttered factories, quarantines and national lockdowns cause economic output to collapse.

The grim forecast underscored the magnitude of the shock that the pandemic has inflicted on both advanced and developing economies and the daunting task that policymakers face in containing the fallout. With countries already hoarding medical supplies and international travel curtailed, the I.M.F warned that the crisis threatened to reverse decades of gains from globalization.

In its World Economic Outlook, the I.M.F. projected that the global economy would contract by 3 percent in 2020, an extraordinary reversal from early this year, when the fund forecast that the world economy would outpace 2019 and grow by 3.3 percent. This year’s fall in output would be far more severe than the last recession, when the world economy contracted by less than 1 percent between 2008 and 2009.

“As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown,” said Gita Gopinath, the I.M.F.’s chief economist. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.”

The figures were released as the Group of 7 finance ministers and central bankers, who were supposed to meet in Philadelphia this week, held a virtual discussion on Tuesday to assess the global economic crisis.

In a joint statement after the meeting, they pledged to coordinate their efforts to restore growth, protect jobs and reinforce the global financial system. They noted that the I.M.F. was prepared to deploy its $1 trillion lending capacity to help vulnerable economies cope with recessions and they endorsed a proposal to let poor countries suspend debt service payments. The broader Group of 20, which is also expected to convene virtually this week, must still sign off on the debt relief plan.

“The scale of this health crisis is generating unprecedented challenges for the global economy,” the G7 officials said.

The United States is expected to take a severe hit, with the I.M.F. projecting that the American economy will contract by about 6 percent in 2020.

The global group was skeptical about the prospect for a “V” shaped recovery in the United States, suggesting that a sharp rise in unemployment and disruptions to supply chains will keep the economy below its pre-virus trend next year.

The impact is already evident in trade data, where slowing economic activity has caused global commerce to plummet. Tracking by S&P Global Panjiva published Tuesday showed global shipments of goods into the United States fell by 10.1 percent in March, the fewest number of monthly shipments since 2016. Consumer goods have been hit particularly hard, with shipments of furniture, apparel, steel and electronics falling by more than 15 percent last month compared with one year ago.

Ms. Gopinath said that the loss of global output would be “far worse” than the 2008 financial crisis and that policymakers were facing an unusual predicament in that traditional stimulus measures are little match for a pandemic that is being fought with shutdowns and quarantines.

“It is very likely that this year the global economy will experience its worst recession since the Great Depression,” she said.

According to the I.M.F., the global economic contraction from 1929 to 1932 was approximately 10 percent. Advanced economies shrank by 16 percent during that period.

Barry Eichengreen, the University of California, Berkeley, economist who is a scholar of the Great Depression, said there were several parallels between now and then. He pointed to the jobless rate in the United States, which he expects could top the 25 percent that was reached in 1933, and the global nature of the downturn, which could prolong the crisis as poor countries struggle to combat the virus.

While the Great Depression started in the financial sector and played out over several years, Mr. Eichengreen notes that the drop in economic activity this year has been sudden and the bottom remains unclear. But some of the spillover effects could be similar, he said, with skittish households increasing their savings and businesses growing wary of large capital investments. And as deficits soar, some countries could push for austerity measures.

“This is a different sort of Great Depression,” he said. “This is a different kind of shock and it’s playing out in different ways at a very different speed.”

Governments around the world are grappling with how and when to reopen parts of their economies in hopes of reviving business activity. President Trump is expected to make an announcement this week that could provide guidance for scaling back stay-at-home orders.

But the economic recovery is expected to be slow until people are confident it’s safe.

“Even if spending starts to bottom in April, we see little chance of a meaningful pickup in activity in the immediate future,” economists at J.P. Morgan wrote in an April 9 research note, noting that reopening could lead to relapse. “We don’t think that the bottom of the current downturn will occur until May at the earliest.”

Bank of America economists said in a research note that “the coronavirus will cause the deepest postwar recession in U.S. history,” predicting a 6 percent hit to growth for the full year.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said a quick rebound was unlikely, particularly if people continued to worry about getting sick.

“We know after the Great Depression people carried the scars of that experience with them for many, many years,” Mr. Kashkari said in an interview on the “Today” show on NBC. “I think the longer that this goes on, the more people who are affected by it, the longer that recovery is going to be.”

That view is not monolithic. Another Fed official suggested on Tuesday that the shutdown was costing $25 billion a day in lost output, and that blanket testing should be made available to get people back to work.

“You really don’t want to go to the quarantine policy unless you have to,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a public event broadcast on Zoom. “The quarantine was maybe the right response initially, but we’re not initially anymore — so it’s not going to be the right response to come back with a global quarantine in the future,” and society shouldn’t “think in terms of rolling quarantines.”

He compared making widespread tests available to providing common goods, like eggs or cups of coffee.

“People say it can’t be done or we don’t have enough resources,” he said. “You really want to ramp that up at all costs and even if somebody gets rich off it or something, you still want to do it.”

Considerable uncertainty remains as the health of the economy will be dictated by the trajectory of the virus. If the pandemic persists into the second half of the year, the global contraction could be twice as severe and the anticipated rebound in 2021 could fail to materialize if additional waves of the virus spread later in the year, according to the I.M.F. Over the next two years, the pandemic could shave $9 trillion from global gross domestic product, or G.D.P.

In 2020, the I.M.F. projects the euro-area economy will shrink by 7.5 percent, led by steep declines in Italy and Spain.

Emerging markets and developing economies will not be spared, but in some cases they fare better. In China, where the virus originated and where draconian measures were imposed to combat it, the economy will expand at a sluggish 1.2 percent this year, down from 6.1 percent last year. India’s economy is expected to grow 1.9 percent, down from 4.2 percent in 2019.

Tentatively, the fund projects global growth to rebound to 5.8 percent next year. Barring the fast discovery of a vaccine or treatment, most countries are not expected to return to their pre-virus growth trends in 2021.

The fund calls for governments to invest in supporting their health care systems and ensuring that workers maintain ties to their jobs during lockdowns so that economic activity can resume when the virus recedes. In a press briefing that was broadcast online, Ms. Gopinath urged countries not to turn to protectionism and retreat behind their borders, warning that following such instincts could slow the recovery.

“It is very important that this does not become a feature where we reverse all the gains we have got from globalization,” she said.

Ana Swanson contributed reporting.

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In World’s Most Vulnerable Countries, Coronavirus Pandemic Rivals the 2008 Crisis

In New Delhi, a fruit vendor whose sales have dropped by half now dilutes the milk she serves to her five children. In central Turkey, a company that runs hot air balloon rides for tourists has banished its 49 employees to indefinite leave while cutting their wages by half.In Manila, …

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In World’s Most Vulnerable Countries, the Pandemic Rivals the 2008 Crisis

In New Delhi, a fruit vendor whose sales have dropped by half now dilutes the milk she serves to her five children. In central Turkey, a company that runs hot air balloon rides for tourists has banished its 49 employees to indefinite leave while cutting their wages by half.In Manila, …

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Stronger Growth, With Caveats, Is Predicted for Global Economy

DAVOS, Switzerland — Top economic policymakers and business leaders from around the world made fairly upbeat predictions for global economic growth this year at the World Economic Forum on Friday, but cautioned that already low interest rates meant there was limited room to respond if new problems arose.

Kristalina Georgieva, the managing director of the International Monetary Fund, said the global economy’s prospects had improved noticeably even in the three months since the fund’s annual meeting with the World Bank.

That improvement was partly due to a recent easing of trade tensions, including the agreement this month between the United States and China, she said. She also cited interest rate cuts by 49 central banks and signs that industrial production around the world was starting to bottom out.

Ms. Georgieva predicted that the global economy would grow 3.3 percent this year and 3.4 percent next year, but cautioned that “3.3 percent is not a fantastic growth — it is sluggish.”

She warned that with interest rates already very low or even negative in many places, it would not be easy to respond if new difficulties emerged. In what appeared to be a veiled reference to possible economic consequences from a new virus in China and bush fires in Australia, Ms. Georgieva said that January had already produced events that posed new risks, and that policymakers would need to be able to respond more quickly than in the past when things went wrong.

Treasury Secretary Steven Mnuchin alluded indirectly to the new coronavirus that has led Beijing to quarantine more than a dozen cities in China this week, saying that health challenges need to be watched closely. Problems at Boeing — which has temporarily halted production of its 737 Max jets after two crashes — could trim American economic growth by as much as one-half to three-quarters of a percentage point in the short term, he said, while adding that the United States still has a “very robust economic outlook through 2020.”

Europe and Japan have been at the center of concerns that negative interest rates leave little room for policymakers to ease monetary policy and stimulate growth if needed. The top central bankers from both places acknowledged on Friday the dangers of negative interest rates even as they said they saw no immediate opportunity to tighten monetary policy.

Christine Lagarde, the president of the European Central Bank, said she welcomed figures showing lower unemployment in Europe and wages rising at a rate of 2.5 percent a year. But she warned that inflation had not yet risen to the point that the central bank could tighten monetary policy — which would push up short-term interest rates and leave room to cut them later.

“We are seeing inflation moving a teeny tiny bit,” she said.

Haruhiko Kuroda, the governor of the Bank of Japan, said the Japanese economy was likely to keep growing at its recent pace of 1 to 1.5 percent a year. While that has been enough to keep unemployment very low, inflation is also so low — well below 1 percent — that the central bank “will continue accommodative monetary policy for some time,” he said.

Vice Chancellor Olaf Scholz of Germany, who is also the finance minister, defended his country’s fiscal policies against recent international criticism that it was too tight. He said Germany has cut taxes and increased infrastructure spending, and planned large investments in its electricity grid and wind energy as it started to shift away from coal-fired electricity as a way to address climate change.

In a clear reference to this month’s Phase 1 trade agreement between the United States and China, Ms. Lagarde said the European Central Bank would be watching for whether recent pacts diverted trade from previous patterns. The Phase 1 agreement requires China to increase very sharply its purchases of American manufactured products, farm goods, energy and services, raising worries particularly in Europe that China will shift its orders away from them and toward American suppliers.

The European Central Bank is looking at “who will lose out from that rediversion in various agreements,” Ms. Lagarde said.

The only person from China on the stage was the moderator, Zhu Min, who is a former deputy governor of the People’s Bank of China and a former deputy managing director of the International Monetary Fund. He did not offer predictions about the Chinese economy.

In interviews on the sidelines of the World Economic Forum, corporate executives tended to share the general optimism of policymakers while echoing their worries about the difficulty of cutting interest rates to stimulate growth if something goes wrong.

“The dangers of something has increased,” said Thomas Buberl, the chief executive of Paris-based AXA, which is one of the world’s largest insurers. “The instruments that we have to react to that are much more limited.”