Tuesday, June 2, 2020

Argentina again in default

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Argentina defaulted again on Friday, May 22, by defaulting on a $ 500 million maturity, but negotiations to restructure its $ 66 billion debt continue. "We don't pay (interest), but negotiations continue", a source in the Argentine government told France-Presse agency.

The new default is the ninth in the history of Argentina. But the government of center-left president Alberto Fernandez seeks to conclude an agreement with the holders of Argentine bonds, without triggering "Defect artillery". Late Thursday evening, the government had already announced to extend for the second time the deadline it had set for restructuring, by designating June 2 as the new deadline.

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

The negotiations were originally scheduled to be completed by May 8, but if no agreement was reached, they were extended until Friday, when interest payments of $ 500 million were due.

Negotiations on track

Well before the deadline had passed, however, it seemed certain that this payment would not be honored, the government having included the three titles of the deadline, called 2021, 2026 and 2046, in the restructuring plan. Friday's date was considered "Anecdotal", according to the Minister of the Economy, Martin Guzman.

If the government indicates that negotiations are on track, the main group of creditors of Argentina demanded however on Friday "A direct and immediate discussion". "The group welcomes Argentina's expressed intention to work with creditors, but the actions speak louder than the words. In the past month, Argentina has had virtually no substantial communication with its creditors ", a group of several investment funds, including BlackRock and Fidelity, said in a statement.

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Guzman offered bondholders an exchange for new securities with a three-year grace period without payment, a 5.4% capital reduction and 62% interest. But his offer was rejected. The creditors presented their own proposals, which the government is examining. "If the majority (of the creditors) agree to an exchange, the default will be very short"says economist Marina Dal Poggetto of EcoGo. "But if they block the negotiation, we will pay dearly for it", she underlines.

A new crisis, twenty years later

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 also slowed economic activity significantly, and has forced the government to release funds to mitigate its effects on the most vulnerable residents and businesses. The International Monetary Fund (IMF), which is supporting Argentina in its restructuring, was however confident in the face of "The willingness of both parties to continue discussions to reach an agreement", according to spokesperson Gerry Rice.

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According to the debt schedule, more 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 on that date, "Bondholders will likely think it will be more convenient to go to court, given Argentina's difficulty in reaching a short-term agreement", Ignacio Labaqui of Medley Global Advisors believes.

A situation of default allows creditors to demand before international justice a "Acceleration" repayment of the debt, namely the request for its full payment.

The World with AFP

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