The Government of Argentina announced this Thursday that it will ask its external private creditors for a strong interest and capital reduction on the debt to be restructured in order to get out of the “virtual default” in which the country is, without the ability to make any payment to the less until 2023.
The offer to restructure bonds issued under foreign legislation for some 66,000 million dollars will be formally presented this Friday to creditors, who will have a period of twenty days to accept or reject it.
“Tomorrow is going to be a defining day for Argentina, it is going to be the day that the markets are going to know what Argentina is in a position to pay and comply with,” said Argentine President Alberto Fernández, in a meeting with the vice president. Cristina Fernández and pro-government and opposition governors in which the Minister of Economy, Martín Guzmán, advanced some details of the exchange proposal.
Argentina initially planned to launch the offer in the second week of March with a view to closing the accession period later that month, but the process was delayed by the global financial shock unleashed by the coronavirus pandemic.
“We decided to be serious and not even take advantage of the situation of the coronavirus, which has turned the world economy around, to delay the solution of this problem,” said Fernández.
He asserted that it is a decision of the Government that the payment of the debt “does not suppose any further delay” for Argentina, whose economy has been in recession for two years, with increasing rates of poverty and unemployment.
ADVANCE OF THE OFFER
Guzmán announced that the offer to be formalized this Friday implies a three-year grace period, with which Argentina would only start paying in 2023, with an initial rate of 0.5%, which will gradually increase to an average interest rate of 2 , 33%.
He indicated that the proposal also involves reducing the capital by $ 3.6 billion, which is equivalent to a deduction of 5.4% on the stock owed, and interest by $ 37.9 billion, which is equivalent to a reduction of interest of 62 %.
According to data released by the Ministry of the Economy, the debt stock to be restructured totals 66,238 million dollars, spread over 21 bonds denominated in US dollars, euros and francs.
The Government did not give details of the characteristics of the new securities to be issued (currency, legislation, yield, interest payment terms and principal maturity).
CONVERSATIONS WITH THE IMF
On the other hand, Guzmán said that Argentina cannot currently face its debt of 44,000 million dollars with the International Monetary Fund (IMF).
“We will continue to work constructively with the IMF, as has been happening, to have a new program that implies that Argentina does not have to make any disbursement of capital payments due to the Fund in the next three years,” he said.
He stressed that the IMF has evaluated what Argentina’s payment capacity is and that the conclusion of the organization bears “strong similarities” with the evaluation made by the South American country.
“There is consensus in the fact that Argentina today cannot pay anything, it is not in a situation where today that can be sustained. Not only today it cannot pay anything, but for certain years it cannot pay anything. there has to be a strong reduction in the debt burden, “said Guzmán.
EXIT THE “VIRTUAL DEFAULT”
Alberto Fernández said that he now intends to “do the same” as he did fifteen years ago, when, as head of Cabinet of the then Government of Néstor Kirchner (2003-2007), the country had to restructure bonds for 102,000 million dollars that fell in ” default “in the crisis of late 2001.
“We inherited a situation at that time of explicit default. This now is a kind of virtual default,” said the president, who asked the governors to unite to solve the debt problem.
In the 2005 restructuring, Argentina achieved a 76.15% adhesion for a swap offer that involved a 65.4% drawdown, between principal and interest.
The exchange was reopened in 2010, during the Government of Cristina Fernández de Kirchner (2077-2015), and Argentina thus managed to raise the level of adherence to 92.4%.
Speculative investment funds that did not accept in exchange litigated Argentina for years in international courts, until recently in 2016, under the government of the conservative Mauricio Macri (2015-2019), the country reached an agreement with the complainants.