Debt: Argentina announces an agreement with its creditors

The Argentine government announced Tuesday that it had reached an agreement with its creditors at the last minute to restructure 66 billion dollars in debt, which should spare Argentina the consequences of a prolonged default.

Argentine center-left president Alberto Fernandez said he was “very happy for the country” and congratulated himself on having been able to restructure an “impossible debt” in the midst of “the worst economic crisis” and “in the midst of a pandemic. “.

“Now we have a clear horizon to where we want to go,” he added.

“We are happy to have reached a preliminary agreement with Argentina on a proposal that will bring the country the necessary economic relief” in this period of pandemic, the three main groups of creditors rejoiced in turn in a statement, Exchange Bondholders, Ad Hoc and Argentina Creditor Committee.

The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, hailed on Twitter “a very important step”. “We hope for a happy conclusion, for the benefit of all parties,” she added.

The two sides now have twenty days, until August 24, to finalize the details of the deal.

Securities under foreign legislation, the subject of negotiation, represent about a fifth of Argentina’s total debt, which amounts to 324 billion dollars, or 90% of gross domestic product (GDP).

This is “a significant relief” for Argentina, said Argentina’s Ministry of Economy in a statement, while the deadline for negotiations was set for Tuesday 21:00 GMT.

“Argentina will adjust certain payment dates” compared to the government’s original offer, which implies payments in January and not in March of each year as initially planned, the statement said.

Discussions, which began on April 20, concerned bonds dating from 2005 and 2010, products of a previous restructuring, as well as new securities issued from 2016.

Buenos Aires notably proposed to pay $ 53.5 in recovery for every $ 100 of the face value of the bonds. The creditors demanded $ 56.5.

The new agreement provides for the recovery by creditors of more than $ 54 per 100 and improves payment times, an official source told AFP.

– Bad posture –

For the Capital Economics firm, the agreement will stimulate “investment, business and consumer confidence (…) in the short term”. But it is not certain that this “is enough to make Argentina’s public debt sustainable in the medium and long terms”.

The agreement announced on Tuesday is the fruit of several months of particularly tense discussions.

The three main groups of creditors last week turned down the Argentinian government’s latest offer and threatened to exercise their veto power.

Despite the disagreements, both parties had made it clear that they wanted to avoid the consequences of a prolonged default.

Argentina was declared in default on May 22, which was due to pay interest of $ 500 million on three of the bonds under discussion. Despite the default, negotiations continued.

Last week, the South American country also failed to honor the payment of an additional $ 600 million in interest on two other bonds under restructuring.

Argentina is in bad shape and the government’s room for maneuver remains narrow: the economy, the third largest in Latin America, has been in recession since 2018 and will suffer even more this year due to the Covid-19 pandemic, with an announced contraction of 9.9% of GDP, according to the latest IMF forecasts.

Inflation reached over 50% in 2019 and poverty is exploding.

The agreement should, however, facilitate negotiations for a new loan agreement with the IMF, with which Argentina has already subscribed in 2018 a loan of 57 billion dollars, of which 44 billion has actually been disbursed.

Another thorny issue for the government, the restructuring of the debt issued under national legislation of $ 41.7 billion, whose payments have been deferred to December 31, 2021.

LNT avec Afp


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