Buenos Aires will be able to come out of default by restructuring most of the $ 66 billion in debt issued under foreign legislation.
Argentina managed on Monday to restructure 66.13 billion dollars (60 billion francs) of debt issued under foreign law following negotiations of more than four months with its creditors, which allows it to exit the default of payment.
“99% of the debt under foreign legislation is restructured. There is a membership (to the exchange proposal) of 93.55%, which, due to the collective action clauses, brings the restructuring to 99%, ”said Minister of the Economy, Martin Guzman , with reference to the rules which extend the exchange to certain creditors who have preferred not to join the mechanism.
“There was a massive acceptance” on the part of the creditors, “fruit of a process of dialogue”, welcomed Martin Guzman during the announcement made in the presence of the center-left president Alberto Fernandez and the vice -President Cristina Kirchner.
The 66.13 billion dollars of debt under foreign legislation, object of the restructuring, represents about a fifth of the total of Argentina’s debt which amounts to 324 billion dollars, or 90% of the gross domestic product (GDP). The deadline to sign up for the securities exchange ended on Friday.
Regarding the 1% that remained outside the restructuring, economist Matias Rajnerman, of the Ecolatina cabinet, believes that “this debt will surely be paid. It’s very little money, 600 million dollars, for Argentina it’s practically nothing ”.
According to the Minister of the Economy, this restructuring will allow Argentina to reduce its debt of 37.7 billion dollars, with an interest rate going from 7% per year to 3.07%. “This will give us a sufficient economic horizon to generate policies that are sustainable and allow development,” he added.
“We have come out of the labyrinth,” said President Alberto Fernandez for his part after the announcement of his minister, considering that it was a sustainable agreement for the country.
Discussions, which began in April, concerned bonds dating from 2005 and 2010, the product of a previous restructuring, as well as new securities issued from 2016.
A first government proposal presented on April 16 was rejected by the majority of creditors. Buenos Aires then revised its offer twice, notably agreeing to go from $ 39 in recovery for every $ 100 of the face value of the bonds to $ 54.8.
Negotiations with the IMF
Despite the country’s entry into default on May 22, when the interest payment of $ 500 million was due, negotiations never stopped. On August 4 the government finally announced an agreement with the creditors. The restructuring definitively finalized on Monday allows the South American country to emerge from the default.
In addition, the success of this restructuring should facilitate negotiations for a new financing agreement with the International Monetary Fund (IMF), from which Argentina subscribed in 2018 a loan of 57 billion dollars, of which 44 billion were actually disbursed.
Discussions with the financial institution began last week, when the first loan maturities are due in September 2021.
“Argentina did not turn to the IMF in the midst of a pandemic like its neighbors. What can be interpreted as a desire of the government to restructure the debt ”, analyzes for AFP the economist Marina Dal Poggetto of the consulting firm EcoGo.
In 2006, after having paid all of its debt to the IMF, Argentina froze its relations with the institution for ten years, until the loan contracted by the former center-right president Mauricio Macri , the largest ever awarded by the Fund.
“Now, we need an economic program, that the deadlines of the debt with the IMF are loosened (…) and that there is a signal in favor of budgetary consolidation”, estimates Marina Dal Poggetto.
President Fernandez is due to present some sixty measures soon, in particular to stimulate consumption, energy production and exports, in order to try to revive an economy in recession since 2018 and hard hit by restrictions linked to the Covid-19 pandemic.
The country is also due to restructure some $ 41.7 billion of debt under local legislation, with a first deadline this week.
Posted: 08/31/2020, 11:57 PM