Monday, July 6, 2020
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ECONOMY | 20-06-2020 08:53

Government puts on brave face as it extends debt deadline by five weeks

After a troubling week for debt talks, President Fernández now says there’s no rush to seal a deal, saying that “negotiations are progressing in fits and starts.”

Government officials extended the deadline for its high-risk debt restructuring talks with creditors by five weeks on Friday, putting on a brave face after a week laced with tension.

Argentina's never-ending tug-of-war negotiations with bondholders over its move to restructure more than US$66-billion in foreign debt is “progressing,” President Alberto Fernández said Friday, as the government broke with its usual convention to push the deadline back not by two weeks but by five.

The new deadline has now been set for July 24 "to continue discussions and allow the investors to contribute to a successful restructure," the government said in a statement.

The news sparked an eight percent surge in the Buenos Aires Stock Exchange.

The extension closes off after a difficult week for the government, which has seen a flood of news reports emerge suggesting both sides are still some way off from closing a deal. Last Friday, Economy Ministry officials pushed the deadline back by just seven days, sparking speculation a deal was in the offing.

However, midweek one of the largest groups of bondholders expressed concern over talks, describing them as “a failure” and hinting at possible legal action. 

Argentina and its creditors submitted revised debt proposals on Wednesday that have “significantly narrowed the gap between the two sides,” Bloomberg reported close to press time. 

The government and its advisers plan to use the extension to continue talks and allow investors to contribute to a successful restructuring, a statement from the Economy Ministry said.

Alberto: No rush

President Fernández played down the need to reach a deal quickly on Friday, despite the fact that the government has on multiple times set deadlines, only to push them back when an accord wasn’t agreed.

"The negotiations are progressing in fits and starts. In 2005, when we renegotiated the debt, a year went by. Now two or three months have gone by and we're being asked for results. What's needed is less worry and to keep on working," Fernández told Radio Nacional yesterday.

Argentina has proposed an exchange offer to bondholders under foreign law, but has yet to find common ground over interest rates and a grace period.

Talks now seem to have broken down with The Ad Hoc Bondholder Group, which represents 13 international funds. The group revealed in a statement on Tuesday night that it would not accept Argentina's latest offer and was considering taking the to court in New York.

"Given the failure of the bondholder negotiations, our group is now considering all available rights and remedies in our capacity as fiduciaries to the millions of savers we serve around the world,” said a statement published Thursday morning.

"Although we made additional improvements to the proposal, the authorities have chosen to remain in default, increasing the risks of economic deterioration in an economy that has an urgent need for new investments and access to international capital markets," said the group.

Fernández, however, remains optimistic. "We're confident we will reach an agreement. But Covid-19 totally complicated everything. Many of the creditors are banking on the pandemic passing to negotiate in better conditions," he said Friday.

Already reeling from two years of recession, Argentina's economy has been further punished by the coronavirus pandemic and is expected to shrink by anything from 6.5 to 10 percent this year.

Almost a month has passed since Argentina defaulted for the ninth time after failing to pay US$500 million of interest on its bond debt.

The Alberto Fernández administration has received backing from the International Monetary Fund in its bid to come to an agreement with creditors, but the Peronist leader insists any new deal must be “sustainable.”

Talks and offers

The country's original offer to creditors in April requested of bondholders a three-year grace period on debt repayment, a 62 percent reduction on interest amounting to US$37.9 billion, and 5.4 percent on capital – or US$3.6 billion.

That was rejected and the government has since upped its terms but insists it won't offer creditors more than 50 cents on the dollar – while Ad Hoc says it won't accept less than 55 cents.

The bonds Argentina is trying to exchange represent almost a fifth of the country's US$324 billion debt, which amounts to around 90 percent of its GDP. Around 35 percent of the population currently lives in poverty, according to official data.

Some analysts said this week that the differences between both sides are so small that the Fernández government should bend to creditors.

"We are in injury time [a football analogy], but the game is not over,” Carlos Winograd, a former secretary of commerce and professor at the Paris School of Economics, told the AFP news agency this week.

“A default in a negotiation that involves a ratio of public debt to GDP of around 15 to 20 percent would certainly be a very unfortunate result in terms of costs and benefits," he said.

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