Faced with “a kind of virtual (payment) default”, according to its president Alberto Fernandez, Argentina unveiled the proposal it must make on Friday to private creditors, which immediately led to a fall of 6.21% of the Buenos Aires Stock Exchange.
The restructuring of the public debt relates, according to the government of Alberto Fernandez, to a discount of 62% on the interest on the debt, that is 37.9 billion dollars (36.74 billion francs), and 5.4 % on capital, ie 3.6 billion (3.49 in francs). Buenos Aires is also requesting a three-year moratorium, which would mean no payments until 2023.
“Tomorrow (Friday) is going to be a decisive day. The markets will know what Argentina is able to pay and accomplish, “said the president after the announcement of the debt restructuring.
The stock market plummets
Thursday in any case, the Buenos Aires Stock Exchange tumbled, even if it happened after three days of sharp rise between Monday and Wednesday (3.08%, then 6.58%, and 4.19%).
“We have tried to understand the preferences of creditors, (hence) the proposal which involves a reduction of interests more important than of capital”, had previously declared the Minister for the Economy, Martin Guzman.
Private creditors will have twenty days to respond. The next due date for these bonds, scheduled for April 22, is $ 500 million.
“Complicated but not impossible”
“This is going to be a complicated but not impossible negotiation,” said Claudio Loser, a former senior IMF official, referring to the current context linked to the coronavirus pandemic which is plaguing the world economy. But “it is a negotiation. If the Argentines present this (this proposition) as the only option, they will find themselves in a very difficult situation. They have to sit down to negotiate ”.
With this transaction, the Argentine government seeks to renegotiate nearly $ 70 billion in foreign currency securities issued under international jurisdiction and therefore subject to possible arbitration procedures. But the history of the country, which experienced the largest default in history in 2001 ($ 100 billion), does not play in its favor.
Regarding the International Monetary Fund (IMF), to which Argentina owes $ 44 billion, Martin Guzman said that the government was working on a new payment schedule. “We are continuing to work constructively with the IMF on a new timetable which implies that Argentina will not have to make any capital repayments to the Fund over the next three years,” he said.
90% of GDP
IMF Managing Director Kristalina Georgieva said on March 20 that the country needed “major” debt restructuring. A $ 57 billion IMF rescue loan, very unpopular, had been negotiated by President Mauricio Macri in 2018, center-right predecessor of Alberto Fernandez. The latter had finally accepted the disbursement of only $ 44 billion of the total loan.
President Alberto Fernandez (center-left), who was seated next to his Minister of Economy, said that Argentina was ready to pay its debt, but insisted that it had to be done “without delay the needs that the country had in December (at the time of its seizure of power) and which increased because of the debacle linked to the pandemic “of Covid-19.
“We are in a kind of virtual default,” said Mauricio Fernandez, who arrived on December 10 at the head of the third economy in Latin America, where the poverty rate reaches nearly 40% and inflation in 2019 a exceeded 50%.
90% of GDP debt
A week ago, the government had already postponed the payment of $ 9.8 billion in debt to 2021, thereby freeing itself from its obligation to repay before December 31, 2020, dollar-denominated bonds issued under local jurisdiction.
Argentina’s total debt is $ 311 billion and represents more than 90% of the gross domestic product. The country, in recession for two years, has been confined since March 20 and at least until April 26, and, like all the countries affected by the virus, has suffered a heavy impact on its economy. The latest IMF forecasts were for a 5.7% contraction in GDP this year, compared to a 2.2% drop in 2019 and 2.6% in 2018. (dpa / nxp)
Created: 04.17.2020, 00:58
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