Argentina: Private Creditors Reject Initial Debt Restructuring Proposal

RIO DE JANEIRO, BRAZIL – The Committee of Private Creditors of Argentina’s Public Debt (ACC) has rejected the proposal made last Thursday by the government of President Alberto Fernández to restructure the country’s debt.

The ACC criticized the proposal as “far below expectations” and said the Argentine government had not approached creditors before submitting the proposal.

However, the ACC is “hopeful” that an agreement will nevertheless be reached in future negotiations. The creditors, most of whom are based on Wall Street in New York, had initially expected an even worse offer. A complete failure to pay had also been feared.

Despite the strong criticism, the group of creditors is thus still prepared to hold talks on debt restructuring. However, they expect the Argentine government to implement political measures based on transparently communicated economic data.

In contrast, the International Monetary Fund (IMF), Argentina’s largest creditor, is in favor of comprehensive debt relief by private creditors.

Last week, the Argentine government led by President Fernández and Minister of Economy Martín Guzmán submitted an initial debt rescheduling proposal for foreign creditors.

The aim was to prevent default by agreeing to a debt restructured in line with Argentina’s current economic situation and the uncertain future of the international financial system.

The proposal to private creditors included a 62 percent or US$37.9 billion reduction in interest payments. In addition, the debt principal would be reduced by 5.4 percent or US$3.6 billion. Furthermore, the government stated that loans amounting to US$68 billion would be restructured so that redemption and interest payments could be deferred for three years.

As of 2023, the government planned to restart interest payments and to increase them annually in installments. In addition, the repayment of US$2.1 billion planned for the coming weeks would be deferred to May next year.

“Today Argentina cannot pay anything, not even in the coming years,” said Guzmán. The current proposal is the limit of what we can offer creditors to help the struggling economy return to growth.

Augusto Salvatto, a researcher at the Centre for International Sciences of the Catholic University of Buenos Aires (UCA), said that “Argentina is currently in a delicate situation because if it does not pay its debts, the budget deficit will only be covered by spending money. This in turn creates a risk of hyperinflation”.

This is because fiscal adjustment is not an option in this context, even less so for a center-left government.

On the other hand, the fiscal burden is already too high to raise taxes and thus generate additional revenue to pay the debt. In the current economic context, the only option is therefore debt restructuring, Salvatto continued.

In late February, on the sidelines of the G-20 summit in Saudi Arabia, IMF Director Kristalina Georgieva and Guzmán had agreed to renegotiate the South American country’s foreign debt. The IMF had earlier assessed the debt level as “unsustainable”.

Argentina is in a severe economic crisis. The country suffers from a bloated state machinery, low industrial productivity and a large informal economy that deprives the state of considerable tax revenues.

As a result of the coronavirus pandemic, the government recently imposed extensive output restrictions and virtually halted the economy for weeks. The IMF is expecting a 5.7 percent decline in the country’s economic growth for the current year.