Argentina Concedes “Soft Default”, Defers Negotiations with Creditors to June 2nd

RIO DE JANEIRO, BRAZIL – The Argentine Government announced on Thursday evening that it would defer its offer to exchange debt bonds until June 2nd, which in practice means that it will no longer pay a portion of a US$503 million (R$2.79 billion) debt, thereby placing the South American country’s entire foreign debt in default. This means that it will be a soft default, as creditors do not seem willing to go to Court while there is a prospect of a settlement.

So far, Economy Minister Martín Guzmán’s proposal – based on a three-year grace period without any payment, a US$3.6 billion reduction in principal (out of a total of US$66.24 billion) and a sharp reduction in interest (from seven to 2.3 percent on average) – has not won over the holders of Argentina’s bonds.

The first deadline for accepting the proposal ended on May 8th with an estimated support of less than 20 percent. President Alberto Fernández then deferred negotiations until May 22nd, when the tolerance month of three bonds that Argentina failed to pay in April expired. Sources from the Ministry of Economy confirmed that no payment would be made on Friday because the bonds due are part of the swap offered to creditors.

There was no payment, but neither any immediate consequences since negotiations are ongoing. Government and creditors have been aligning their positions since May 8th. The debt bondholders submitted three countervailing proposals that are now being analyzed by the Government.

Minister Guzmán had already announced that May 22nd would only be a symbolic date because they were “working hard” with creditors. The parties must find an intermediate point between the 40 cents to the dollar proposed by the Casa Rosada and the 60 that the toughest creditors demand.

In an extensive announcement, the Argentine Government said it “continues to receive opinions and suggestions from investors regarding different ways to improve the recovery value.” “The [Argentine] Republic is analyzing these suggestions to maximize investor support while preserving its debt sustainability goals (…)”.

“Argentina and its advisors intend to use this extension to continue discussions and allow investors to contribute to a successful debt restructuring,” states the text from the Ministry of Economy.

The negotiation was once again endorsed by the International Monetary Fund, Argentina’s main creditor. In late March, the IMF published a technical report in which it estimated a relief of US$55 to US$85 billion to ensure that Argentina’s debt would be sustainable over the long term. Hours before this new extension, the organization’s spokesperson, Gerry Rice, reiterated that the Fund supports the negotiations in Buenos Aires with the respective creditors.

“I would not like to speculate on the outcome of these negotiations, but what I do want to say is that we are encouraged by the will of both parties to continue negotiating,” he said. Argentina now has ten days to reach an agreement.

Source: El País