After more than three months of bitter negotiations, the government announced on Tuesday to find an agreement for the restructuring of $ 66 billion of debt.
Argentina breathes. The argentine government announced on Tuesday that it had reached in extremis to an agreement with its creditors for the restructuring of $ 66 billion of debt. The argentine president of the center-left, Alberto Fernandez, said he is “very happy for the country,” and was pleased to have been able to restructure a debt “impossible” in the middle 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.
The securities under foreign law, the objects of the negotiation, account for about one-fifth of the whole of argentina’s debt, which amounted to 324 billion, or 90 % of the gross domestic Product (GDP). Argentina has finally reached an agreement with its creditors, including three groups – Exchange Bondholders, Ad Hoc and Argentina Creditor Committee – had refused at the end of July the final proposal of the argentine government.
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It is “a significant relief” for the country, underlined the argentine ministry of Economics in a press release, while the deadline for negotiations was set for Tuesday evening. “Argentina will adjust some payment dates” with respect to the original offer of the government, which involves payments in January and not in march of each year as originally planned, said the release.
The discussions, ongoing since 20 April, related to obligations dating from 2005 and 2010, products of a restructuring previous, as well as new titles issued from 2016. Buenos Aires proposed, in particular, to pay to 53.5 dollars of recovery for each $ 100 of the face value of the bonds. The creditors were demanding 56,5 dollars. The new agreement provides for the recovery by creditors to more than 54 dollars per 100, and improves the timeliness of payment, explained an official source in the AFP.
Three months of discussions particularly tense
This improvement allows to “move the payments without giving up on the economic benefit,” said analyst Sebastian Maril. If the agreement “removes fears of defeat in the courts, similar to that which had followed the non-payment of 2001, I doubt that it’s enough to make sustainable the public debt of Argentina in the medium and long term”, however nuanced Nikhil Sanghani, an analyst at the firm Capital Economics. In 2001, with a default history of $ 100 billion, the country had undergone a social and economic crisis without precedent.
The agreement announced Tuesday, is the result of three months of discussions particularly tense. The main creditors had threatened last week to exercise their right of veto, ensuring that represent more than half of the holders of the obligations. Despite the disagreements, the two parties had firmly established that they wished to avoid the consequences of a default of payment extended.
Argentina has been declared in default of payment on may 22, the date on which was due and payable on the interest payment of $ 500 million on three of the bonds that are the subject of discussions. Despite the failure, the negotiations have continued. Last week, the south american country has not honoured the payment of $ 600 million of additional interest on two other obligations during the restructuring.
An economy in recession since 2018
Argentina is in bad shape and the margin of manoeuvre of the government remains narrow : the economy, the third in Latin America, is in recession since 2018, and will suffer further this year because of the pandemic of Covid-19, with a contraction predicted 9.9% of GDP, according to the latest forecasts of the international monetary Fund. Inflation reached over 50 % in 2019, and poverty explodes.
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The country should also negotiate a new programme with the IMF with which it has entered into a loan of $ 57 billion, of which $ 44 billion had actually been disbursed. Another sensitive topic for the government : the restructuring of the debt issued under national legislation of $ 41.7 billion, of which payments have been for the time deferred to the December 31, 2021.
