“Between pandemic and debt, now maybe default, it looks like double jeopardy,” says a presidential adviser
advisers to Argentina’s president, Alberto Fernández, quoted the old saw that crisis brings opportunity. Inaugurated in December, he is dealing with two calamities that no one can blame him for: a deep recession inherited from his predecessor, Mauricio Macri, and the covid-19 pandemic. Argentines give Mr Fernández high marks for his response. On becoming president he raised taxes and froze pensions and salaries to stabilise public finances.
On April 16th the economy minister, Martín Guzmán, demanded that creditors accept new securities to replace $65bn-worth of bonds, almost 40% of foreign-currency debt. This does not come out of the blue. Mr Macri had sought to stretch out debt payments. In appointing Mr Guzmán, a specialist in debt negotiation, Mr Fernández made it clear that he would give greater priority to restoring growth than to paying creditors.
The government wants to wring the maximum relief it can from bondholders without triggering that disaster. Mr Guzmán is seeking a modest “haircut” of 5.4% on the principal and a dramatic 62% cut in interest payments. These payments would start low, at just 0.5%, and late, beginning in 2023, when an election is due. They would peak in 2029 at less than 5%. Under this plan, the government would save $37.9bn on its interest bill.
Veterans of past renegotiations hold out hope of an agreement. Argentina’s offer preserves much of the face value of the debt. There may be wriggle-room in the schedule for repayment. The price of Argentina’s existing bonds rose after it made its proposal, a sign that the offer is more appealing than investors were expecting. Government negotiators are “pushing it to the cliff-edge, as they must, to remind all that default is a disaster for all”, says a former finance minister.
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