Argentina towards new default, but negotiations continue

Buenos Aires ( / hooly News) – Argentina was on course for a new default on Friday by failing to meet a $ 500 million maturity, but negotiations to restructure its $ 66 billion debt continued .

Late Thursday evening, the government extended for the second time the deadline it had set for restructuring, designating June 2 as the new deadline.

The extension of the negotiation period by only ten days seems to show that the Argentine government and its creditors are close to an agreement, although the new deadline is not necessarily final, as the government said on Thursday.

The negotiations were supposed to be completed by May 8, but had been extended until Friday, when interest payments of $ 500 million were due. If it is not canceled, the country will be in default, the ninth in the history of the country.

It seems acquired that this payment will not be honored because the government included the three titles of the deadline, called 2021, 2026 and 2046, in the restructuring plan and it considers the date of Friday as “anecdotal”, according to the word of the Minister for the Economy, Martin Guzman.

Barely a few hours before the deadline for payment, the main group of creditors in Argentina demanded from the government “a direct and immediate discussion”.

“The group welcomes Argentina’s expressed intention to work with creditors, but actions speak louder than words. In the past month, Argentina has had virtually no substantive communication with its creditors, “said a press release from the group made up of several investment funds, including BlackRock and Fidelity.

Mr. Guzman offered bondholders an exchange for new securities with a three-year grace period without payment, a capital reduction of 5.4% and 62% interest. But his offer was rejected. The creditors have presented their own proposals which the government says it is studying.

“If the majority (of creditors) agrees to an exchange, the default will be very short,” noted hooly News economist Marina Dal Poggetto from the company EcoGo. “But if they block the negotiation, we will pay dearly for it,” she said.

In 2001, with a historic default of $ 100 billion, the country had experienced its worst social and economic crisis.

Almost twenty years later, Argentina is once again in bad shape: the economy has been in recession for two years, inflation has peaked (53% in 2019) and poverty has continued to climb ( 33% in 2019).

The new coronavirus pandemic has significantly slowed economic activity and forced the government to release funds to mitigate its effects on the most vulnerable residents and businesses.

The International Monetary Fund, which supports Argentina in its restructuring, said, however, confident in the face of “the will of the two parties to continue discussions to reach an agreement”, according to his spokesman Gerry Rice.

According to the debt calendar, other interest payments are scheduled for late June. With a 30-day grace period, the country could count on a respite until the end of July.

But if there is no agreement by that date, “bondholders will likely think it will be more convenient to go to court, given Argentina’s difficulty in reaching an agreement. in the short term, “said Ignacio Labaqui of Medley Global Advisors.

A situation of default allows creditors to demand before international justice an “acceleration” of the repayment of the debt, namely the request for its full payment.

Everything is a matter of time. For the consultancy firm Capital Economics, there is “a growing risk that negotiations will drag on until next year”.

Another threat is that hedge funds, known as “vulture funds”, acquire Argentine debt at low prices before turning to international justice. In 2014, they had already won a legal victory against Argentina.

hooly News / rp