RIO DE JANEIRO, BRAZIL – The extremely long negotiation between Argentina and its private creditors has reached a critical moment. On Monday, the three major bondholders jointly rejected the last and purportedly final offer from Alberto Fernández’s government. And they presented an alternative proposal that, according to them, “represents important economic and legal concessions”.
For the first time since the start of the process in February, the main holders of the dollar debt have formed a bloc. Economy Minister Martín Guzmán replied that the creditors failed to understand “the restrictions Argentina is facing”.
At stake in these negotiations is the restructuring of US$65 billion (R$346 billion), within a global debt that borders on US$320 billion and represents 90 percent of Argentina’s GDP. The outcome is crucial because an agreement would allow Argentina to have access to the international credit markets; if the country remains in default (suspension of payments) where it has been since May 22nd, it would not have many options to continue financing itself other than by printing banknotes.
The two Argentine paper money factories currently work around the clock, but their production is insufficient to meet demand. The government has offered contracts to mints in other countries to help them manufacture pesos.
Hours before the three major creditor groups (Ad Hoc, Committee and Exchange) announced that they considered the government’s latest offer unacceptable, the Financial Times published an interview with Alberto Fernández in which the Argentinian president stated that he could no longer make concessions. “We would put at risk our ability to fulfil the commitment, and I don’t want to extort anyone,” he said.
In similar terms, Minister Martín Guzmán expressed himself after the creditors’ proposal was published. He said that the offer presented at the start of the month represented the “maximum effort” possible by the country and that new concessions would not be feasible. “Accepting what some creditors are asking for would mean subjecting Argentine society to more anguish, it would mean adjusting pensions, for instance, and we will not do that. We’re still waiting for good faith from creditors.”
The Ad Hoc, Committee and Exchange groups together hold just over one-third of the debt under negotiation. A “no” on their part would prevent any kind of agreement with other individual creditors, since the consent of 75 or 66 percent of the bondholders (depending on the type of issue) is required for the restructuring to be valid.
The three committees accept the terms and conditions proposed by the government, but demand that the extraordinary bonus that would partially offset their loss of income dividends stand at an average of 3.4 percent per year, more than Alberto Fernández and his Minister Guzmán are willing to accept. In return, the committees yield on the contractual terms for these replacement bonds, accepting the rules that apply to Argentinian debt incurred since 2016, rather than the more stringent conditions of 2015 (applied to the 2001 default bonds and already restructured at least once).
The Argentinian government, and in particular its Minister of Economy, are in a sensitive position. Guzmán believed he had reached a partial agreement with one of the groups, the Committee, but now finds himself facing a united front. For Fernández and Guzmán, to give in for the umpteenth time, after having ensured that there was no longer any margin, would entail a high political cost. When it presented its “final” proposal, the government set August 4th as the deadline for the end of negotiations.
Source: El Pais