The clock of the Argentine debt renegotiation The dollar has already started the countdown. The deadline is March 31. And the situation, according to Martín Guzmán, is “critical.” The finance minister sent a bill to Congress on Tuesday that, in summary, authorizes the government to make all kinds of foreign exchange swaps and restructures. In announcing the initiative, Guzmán confirmed that he would not rescue the province of Buenos Aires, on the verge of “default” for a maturity of 250 million dollars. It was a way of telling creditors that if they did not accept the delay until May 1 proposed by the governor, Axel Kicillof, the result would be “ruinous for everyone.” After Guzmán’s words, both the stock and bond markets fell and the country risk increased by 4%.
The Argentine government considers that the renegotiation of the debt of the province of Buenos Aires, unable to pay 250 million dollars that expire on Wednesday, January 22, must be part of the global renegotiation. That is why the minister issued the warning to the creditors of the province: if they reject the postponement (75% compliance is enough to support it), things will become very difficult for all the parties involved.
The situation in Buenos Aires, the richest and most populous province in the country, is almost desperate: on May 1 it has another maturity of 100 million dollars and throughout the year it faces maturities that account for more than 70% of its income. But the national situation is also desperate, whose maturities this year total 37,000 million dollars, almost 10% of GDP. Although both Argentina and Buenos Aires declare themselves willing to continue paying interest as long as an agreement is not reached, they cannot repay the loans on the agreed dates.
Martín Guzmán said that Argentina needed the creditors (the largest of which is the International Monetary Fund, with almost 50,000 million dollars) accept at least two of three conditions: principal reduction, interest reduction and deferral. Sources from the banking sector indicated that the government had put forward their plans in a more concrete way: Guzmán hopes that interest will be reduced by half and that a grace period of two years be granted in which neither interest nor principal would be paid ; in return, from 2022 the debt would be fully repaid.
The situation, however, is not clear. The Nobel Prize in Economics Joseph Stiglitz, mentor of Martín Guzmán and personally involved in preliminary contacts with the IMF, said in Davos (Switzerland) that Argentine bondholders should prepare for a “significant take-off”, that is, a significant reduction in nominal value. Asked about those statements, Guzman avoided answering. The response of the investors was immediate: in a few hours, the bonds depreciated up to 3.8% and the Buenos Aires Stock Exchange index fell 3.3%.
The province of Buenos Aires has until next day 26 to reach a deferment agreement with the creditors. If he fails to convince three quarters of them, he will enter “default”. The Argentine government has more time, but not much: until March 1. Analysts and investors are surprised that the talks held so far have been informal and that a date has not yet been set to start talking seriously, either with the IMF or with private creditors. The Argentine Republic is represented by the New York law firm Cleary, Gottlieb, Steen & Hamilton, while three banks (JPMorgan, Barclays and Lazard) aspire to lead the negotiation of bondholders.
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