Argentina and the never-ending crisis
The new debt crisis has brought Argentina to the brink. In this scenario, the government led by Alberto Fernandez has proposed a new improved offer to restructure its debt issued under foreign legislation and has extended the negotiation period until 4 August next in order to face this crisis. "It is a huge effort that we are making. I hope that the talks, which are well underway, will end well. I always have expectations that this will be the case," said the centre-left leader after announcing the new measures.
The Argentine president said on Sunday that his government will present a new offer to creditors, with the aim of reaching an agreement on the restructuring of the debt issued under foreign legislation, the amount of which exceeds 66 billion dollars. The coronavirus pandemic has spread at an extremely fast pace during May and June in Latin America and the Caribbean, in a context of low economic growth and, above all, of marked inequality and vulnerability, causing an increase in poverty and a weakening of social cohesion. "I hope that the creditors will understand, and that Argentine society will also understand, that asking us to make more effort means starting to fail with the promise we have made," said Fernández, referring directly to the commitments that the Executive has with its citizens.
The new proposal of the Argentine Executive also proposes capital reductions, coupon increases and shorter deadlines on the new bonds offered. "In this way, Argentina will be complying with the commitment of equal treatment for public debt in foreign currency [...], a decision that we consider important to advance in the deepening of the capital market in order to have a greater availability of financing and savings instruments governed by our country's law," explained Argentina's Minister of Economy, Martín Guzmán, after presenting this new plan.
Under this plan, the Argentine government has offered a new bond denominated in US dollars with a maturity date extending to 2030 or a bond denominated in euros with the same characteristics that would be delivered as consideration for any interest accrued and unpaid since the last date on which the interest was paid, according to the information available to the EFE news agency.
The history of Argentina's current debt restructuring crisis dates back to last December, when in his inaugural speech, Alberto Fernández stated that his government would seek a "constructive and cooperative" dialogue on the debt with the International Monetary Fund and the bondholders. Just a week later, the Ministry of Economy issued a list outlining the principles for managing the sustainability of the Executive's debt. "To resolve the current situation of macroeconomic inconsistency, debt policies are required as part of a comprehensive program to restore public debt sustainability and recover a sustainable growth path," they said at the time, arguing that "public debt policies should set the conditions for the development of the domestic capital market".
After Christmas, Argentina started a round of negotiations with the bondholders to find out their different views on the debt restructuring process. In February, the IMF assessed the Latin American country's debt and called it "unsustainable" and urged the nation to "initiate a collaborative process of engagement with private creditors to maximize their participation in the debt operation". During April, the government led by Fernandez officially offered an exchange offer for its debt regulated by foreign legislation. Just a few days later, three groups of creditors issued a joint statement rejecting the government's proposal. The second round of negotiations took place in May and ended with a statement extending the expiry date of the offer to 12 June, instead of 21 April as had been set.
Under the circumstances, the Latin American country began a third round of negotiations with creditors in June. "The Republic is making a final approach to investors by significantly improving its debt restructuring terms to comply with their request for a return value on the 50th identifier with a 10% discount factor, which is the measure often invoked by creditors. Argentina also proposes an export-based Value Recovery Instrument (VRI)," according to the Ministry of Economy. The last extension of the offer until the one presented this Sunday took place on June 19, 2020 after a statement was published announcing the extension of the offer's expiration date from April 21 to July 24, 2020.
The initial objective of this debt restructuring process undertaken by the Fernandez government was "to restore sustainability by redefining the profile of future financial obligations so that they are compatible with the economy's payment possibilities". However, economic difficulties exacerbated at this time by the coronavirus pandemic have made this situation worse. After announcing the new bill to restructure the public debt into foreign debt, the Minister of Economy has assured that "the new debt profile emerging from the restructuring must be consistent with economic recovery and the strengthening of a growth path that will allow the current challenges imposed by the COVID-19 pandemic to be met while remaining sustainable in the medium and long term".
"We have done our part based on a full commitment to the principle of ending the debt crisis in a sustainable way. We hope that our creditors understand the restrictions we have and appreciate our willingness to reach an agreement that works for all parties," added Guzman. In the same vein, the president said that "here we are not even asking someone to lose, but to stop earning what they were earning in excess. The previous government gave unusual conditions to the titles, conditions that the world did not give. And it allowed those creditors to make profits that the rest of the world did not recognize. I am asking them to win as they win in the world, not to win as (former President Mauricio) Macri let them win". The economic recession that has been hitting Argentina for more than two years has deepened in the wake of the coronavirus pandemic, which has killed at least 1,582 people since the country's health crisis began.