Argentina again in default, but negotiations continue

Buenos Aires (hooly News) – Argentina again defaulted on Friday by failing to honor a $ 500 million maturity, but negotiations to restructure its $ 66 billion debt continue.

"We do not pay (interest), but negotiations continue," a source in the Argentine government told hooly News.

On the Buenos Aires Stock Exchange, the Merval index was down 1.03% on Friday at the close, to 40,962.76 points. During the week, the stock market rose 3.99% while discussions between the Argentine government and creditors continued.

The new default is the ninth in the history of Argentina. But the government of center-left president Alberto Fernandez seeks to conclude an agreement with the holders of Argentine bonds, 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.

This 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.

"There is still a long way to go but the most important thing is that all parties remain at the (negotiating) table to find a solution," said Argentine Economy Minister Martin Guzman on Friday.

The extension of the talks "offers flexibility in the event that (Argentina) decides in the coming days on the modifications (of its proposals) to reach a sustainable agreement with our creditors", underlined Mr. Guzman.

The negotiations were originally scheduled to be completed no later than May 8, but, in the absence of an agreement, they had been extended until Friday, when payment of $ 500 million in interest was due.

In total, Argentina's debt reaches $ 324 billion, or almost 90% of its GDP.

– "Anecdotal" –

Well before the deadline, 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 comments made Tuesday by Martin Guzman.

If the government indicates that negotiations are on track, the main group of creditors of Argentina demanded however Friday "a direct and immediate discussion".

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

Mr. Guzman offered bondholders an exchange for new securities with a three-year grace period without payment, a reduction of 5.4% on principal and 62% on interest. But his offer was rejected. The creditors presented their own proposals, which the government is examining.

"If the majority (of creditors) agrees to an exchange, the default will be very short," noted for hooly News economist Marina Dal Poggetto from the company EcoGo. "But if they block the negotiation, we will pay dearly for it," she said.

In 2001, with a historic default of $ 100 billion, 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 International Monetary Fund (IMF), which supports Argentina in its restructuring, said however confident in the face of "the will of the two parties to continue discussions to reach an agreement", according to his spokesman Gerry Rice.

According to the debt calendar, 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, "said 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.