The Corona pandemic is intensifying the crisis in Argentina. If the creditors do not accept the government’s offer, the country could go bankrupt again.
A large meeting to discuss the planned debt cut Photo: Esteban Collazo/dpa
"Argentina is virtually insolvent," President AlbertoFernandez put it. The government now wants to put its debt service on a sustainable footing with a payment pause and a billion-euro discount. On Thursday, it presented private creditors with an offer to restructure $70 billion in debt instruments. Repayment of $503 million in debt due on April 22 was suspended. Creditors now have 20 days to decide on the offer.
The offer provides for a $41.5 billion debt cut and a three-year repayment pause on dollar bonds under international law. The lion’s share is an interest rate reduction of 62 percent, or $37.9 billion. In addition, there is a discount on principal of 5.4 percent, or $3.6 billion. Debt service is to be resumed starting in 2023, with an average interest rate of 2.33 percent on the debt to be repaid then.
The negotiations so far have been unsuccessful, Argentina’s Finance Minister MartIn Guzman explained, "because of the private sector’s demand for a greater cut in the state budget." Because of the stalled negotiations, the government now made its offer public.
Already on Tuesday, the government had applied to the U.S. Securities and Exchange Commission (SEC) to issue $50.5 billion in new debt. If the deal is successful, the new securities will be exchanged for the old ones. Argentina’s largest private creditors are the investment fund Pimco, which belongs to Germany’s Allianz, and the U.S. funds Franklin, BlackRock and Fidelity. They hold about $25 billion of the debt.
$280 billion in foreign debt
Even before the Corona pandemic, Argentina could no longer support its debt load. At the end of 2019, Argentina’s external debt stood at about $280 billion. During the four-year term of neoliberal predecessor President Mauricio Macri, the debt mountain had increased by about $100 billion. These figures were recently announced by the state statistics agency Indec.
On April 6, the government unilaterally decided to suspend debt service on $10 billion in bonds issued under national law until next year. It also postponed by a year a $2.1 billion repayment due in early May to the 16 creditor nations grouped in the Paris Club, and sought a rescheduling of its total debt of $9.7 billion.
By far the largest creditors in the club are Germany and Japan. Sovereign creditors had already agreed to debt relief for poorer debtor nations because of the Corona pandemic. On Tuesday, the leading industrialized nations of the G7 held out the prospect of debt relief. The next day, the leading industrialized and emerging economies of the G20 agreed to defer interest and principal payments for 77 particularly poor countries. Thus, debt-tested Argentina could play a pioneering role in debt negotiations with private creditors in times of the Corona crisis.
The government received support from the International Monetary Fund (IMF), to which it owes $44 billion. "Argentina has focused strongly on addressing the Corona crisis with a series of appropriate health measures and supporting the most vulnerable people and the most vulnerable sectors of the economy," praised IMF chief Kristalina Georgieva on the sidelines of the IMF-World Bank Spring Meetings, which have just been held virtually. However, the Fund ruled out further financial injections.