Argentina, global creditors try to restructure $65 billion debt

Argentina will keep pushing for talks with global creditors even as a deadline for its $65 billion debt restructuring proposal passed on Friday with little sign it had the support needed from international bondholders to unlock a comprehensive deal.

Argentine economists on Friday predicted a worsening recession and raised their inflation estimate to 44.4% from 40%, according to the median forecast in a monthly central bank poll.

The country is also suffering from high inflation, which was over 50% last year, and is teetering on the edge of default as it looks to revamp $65 billion in foreign debt before a May 22 deadline to make an outstanding interest payment.

The 39 analysts surveyed from April 27 to 30 saw an economic contraction of 7.0% this year, according the median forecast, versus a 4.3% estimated contraction in the poll released a month earlier.

While they revised downwards their Gross Domestic Product (GDP) projections, the analysts said they expected a gradual recovery of the economy from the third quarter, characterizing the new coronavirus pandemic which has worsened Argentina’s already precarious financial position as “transitory.”

Economy Minister Martin Guzman told Reuters on Friday that Argentina “remains open to dialogue” and that it would reassess its position after the deadline, which expired in Buenos Aires.

Argentina faces a race to restructure what it says is an “unsustainable” debt pile and avoid slipping into a ninth sovereign default that would revive memories of an acrimonious decade-long standoff with creditors after a default in 2001-02.

“We will assess the situation after the offer expires today and we will continue working to achieve the goal of restoring debt sustainability to put the county back on its feet,” Guzman said in messages sent to Reuters.

If creditors have ideas that suit them better while respecting the constraints that Argentina faces, then “we are ready to listen”, Guzman added.

“Any combination of interest or principal reduction, grace period, and extension of maturities that is aligned with the debt sustainability analyses of Argentina’s government and the IMF will be considered.”

Major bondholder groups have balked at Argentina’s proposal to impose big cuts in coupon payments, allow a three-year payment hiatus, and push back maturities into the next decade. The offer was unveiled in the middle of last month.

“There clearly needs to be some upfront cash flow relief but this doesn’t necessarily rationalize three years of no payments,” Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, said in a note.

Guzman indicated to local media that the country would announce the next steps in the process on Saturday.

The bond revamp is part of a broad restructuring with creditors, including major backer the International Monetary Fund and the Paris Club of country-to-country lenders.

The government says its ability to pay creditors is extremely limited as Argentina was already in recession before going into lockdown due to the coronavirus pandemic on March 20. Since then the economy has shriveled.

“The market is pessimistic about the chances of a deal being reached today,” said Gabriel Zelpo, director of Buenos Aires economic consultancy Seido.

On both sides of the talks, officials and creditors indicated there was unlikely to be a quick resolution, but there was hope a deal could eventually be struck.

“There’s still time for these negotiations that are ongoing,” IMF Managing Director Kristalina Georgieva said on Friday, adding it appeared Argentina recognized “it is important to find a pathway to resolve their debt crisis.”

Oxford Economics said that the current offer was likely to be rejected, raising the risk of non-payment. “Yet, we expect negotiations to continue and a disorderly default to be avoided as the government remains open to counterproposals,” it said.

Argentine country risk as measured by JP Morgan’s Emerging Markets Bond Index Plus was virtually unchanged when the market opened on Friday, at 3,318 basis points over safe-haven US Treasury bonds.

The country’s bonds have edged up in recent days, but are still at distressed levels between 20-35 cents on the dollar.

Meanwhile, Argentina’s peso is in increasingly treacherous waters, with twin economic and debt crises at home driving a huge gap between the official rate kept almost static by capital controls and the tumbling black market and other unofficial rates.

Reuters