Business Latin America - Argentina again in default

Latin America – Argentina again in default

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For the ninth time in its history, Argentina is in default. But negotiations with its creditors are continuing.

The Argentine economy has been in recession for two years, inflation has peaked (53% in 2019) and poverty has continued to climb (33% in 2019).

KEYSTONE

Argentina again defaulted on Friday by not honoring a $ 500 million (486 million francs) due date, but negotiating for the restructuring of $ 66 billion (64 billion francs) in its debt continues. “We do not pay (interest), but negotiations continue,” a source in the Argentine government told AFP.

It is the ninth default in the history of the country. But the government of center-left president Alberto Fernandez is seeking to strike a deal with Argentinian bondholders, without setting off “the artillery of default.”

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.

“Anecdotal”

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.

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 Minister of Economy Martin Guzmán.

The government said Argentina’s negotiations were well under way, but Argentina’s main group of creditors demanded Friday “direct and immediate discussion”.

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

Bad posture

Martin Guzmán 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 have presented their own proposals which the government is considering.

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

In 2001, with a historic default of 100 billion dollars (97 billion francs), 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 significantly slowed economic activity and forced the government to release funds to mitigate its effects on the most vulnerable residents and businesses.

The IMF confident

The International Monetary Fund, which is supporting Argentina in its restructuring, said it was confident, however, that “the two sides are willing to continue talks to reach an agreement,” said spokesman Gerry Rice.

According to the debt schedule, 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, ”says 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. Another threat is that hedge funds, known as “vulture funds”, acquire Argentine debt at low prices before turning to international justice. In 2014, they won a court victory over Argentina.

((AFP / NXP)

Published today at 12:40 am

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