RIO DE JANEIRO, BRAZIL – The negotiations between Argentina and its creditors seem endless. When the first deadline to reach an agreement expired on May 8th, a deferment to May 22nd was decided. This was then extended, with the country already in default, until June 2nd.
And there will most probably be a new extension, which Buenos Aires will announce today to the New York Stock Exchange authorities. But both parties’ positions are now closer than ever. An agreement on the US$68 billion in contention is starting to emerge.
In truth, it is not about US$68 billion, but much more. The value of securities issued by Argentina is not determined by their face value, but rather by their interest rate. These are long-term issues (one of them with a 100-year maturity) in which profitability is the determining factor.
Two of the three organized groups of creditors, among them the powerful BlackRock, proposed in their last offer an average interest rate of 4.2 percent (with a discount of 32 percent), but the Buenos Aires government refuses to exceed three percent. All in all, the difference between the creditors’ offer and that of the Casa Rosada is less than US$6 billion. It is difficult to understand how, with such close positions, there cannot be a restructuring agreement.
Negotiations continued over the weekend. Sources involved in the process said there was no time for a deal before Tuesday, June 2nd. “Each creditor has different terms and benefits, depending on the bond issue involved, and the sheer drafting of an agreement implies many hours,” negotiators said; this would imply a third deferment of the deadline.
The same sources were confident that the Argentine government would ask the New York Securities Commission for a new deadline deferral on Monday, as these securities are issued under New York law), this time with realistic prospects of closing the deal.
Finance Minister Martín Guzmán, Argentina’s prime negotiator, proposed last week an offer that would reduce the grace period – in which the country would pay neither principal nor interest – from three to two years. It also slightly reduced the payment suspension of the bond principal (initially about US$4 billion or R$21.6 billion), while raising the profitability over its initial proposal of 2.3 percent.
Two of the three creditor groups were in broad agreement, provided that an extraordinary long-term debt issue would be undertaken to offset the two-year default.
Neither party (considering the complex mosaic of creditors as a single party) is interested in failure.
For Argentina, remaining in technical default, incurred when it failed to honor a US$503 million (R$2.7 billion) maturity on May 22nd, means not having access to international credit markets at a time of great need due to the pandemic crisis.
For creditors, relying on a New York judge’s ruling, or a better offer from the Argentine government. could ultimately mean a worsening of the conditions already on the table.
Argentine President Alberto Fernández and Minister Guzmán have another incentive for the agreement. The risk of another door being closed to foreign loans (the country has been in default nine times since its inception) tends to depreciate the value of the peso, because it spurs the purchase of dollars as a refuge currency.
The Central Bank this week hardened exchange controls, hindering exporting and importing companies. The institution’s president, Miguel Ángel Pesce, said controls could be relaxed when an agreement is reached with creditors to restructure the foreign debt.
Once the pact on the debt is sealed – if it occurs – Argentina will have to negotiate with domestic creditors (debt in pesos) and the International Monetary Fund (IMF), which in 2018 granted the country the largest loan in its history, of US$57 billion, of which US$44 billion were paid out. Both negotiations seem simpler than the current one.
Source: El País
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