The suspense will have lasted several months and until the end the negotiations will have been bitter. The Argentine government finally announced Tuesday that it had reached an agreement in extremis for the restructuring of 66 billion dollars of debt. The deadline for negotiations was Tuesday 6:00 p.m. (11:00 p.m. in France). The country should thus avoid the consequences of a prolonged default.
The IMF welcomes "a very important step"
Argentine President Alberto Fernandez said he was "very happy for the country" and congratulated himself on having been able to restructure an "impossible debt" in the midst of "the worst economic crisis" and "in the midst of a pandemic". "We are pleased to have reached a preliminary agreement with Argentina on a proposal which will bring the country the necessary economic relief", welcomed in turn the three main groups of creditors, Exchange Bondholders, Ad Hoc and Argentina Creditor. Committee. The Managing Director of the IMF, Kristalina Georgieva, for her part welcomed "a very important step".
Congratulations to President @alferdez, Minister @Martin_M_Guzman and Argentina's main creditor groups on reaching an agreement in principle on the country's debt. A very significant step. Look forward to a successful conclusion in the interest of all. pic.twitter.com/XKaiaQEHZD
- Kristalina Georgieva (@KGeorgieva) August 4, 2020The two sides now have until August 24 to finalize the details of the deal. Securities under foreign legislation, which are the subject of negotiation, represent about a fifth of Argentina's total debt, which amounts to 324 billion dollars, or 90% of GDP. This is "a significant relief," said Argentina's Ministry of the Economy. “Argentina will adjust some payment dates” from the government's original offer, which involves payments in January and not March of each year as originally planned.
Discussions, which began on April 20, concerned bonds dating from 2005 and 2010, products of a previous restructuring, as well as new securities issued from 2016. Buenos Aires proposed in particular to pay $ 53.5 in recovery for each tranche. of $ 100 of the face value of the bonds. The creditors demanded $ 56.5. The new agreement provides for the recovery of more than $ 54 per 100 and improves payment times.
Inflation exceeds 50%
For the Capital Economics firm, the agreement will stimulate “investment, business and consumer confidence (…) in the short term”. But it is not certain that this "is enough to make Argentina's public debt sustainable in the medium and long terms".
The country is therefore not completely out of the woods. The government's room for maneuver remains narrow: the economy, the third largest in Latin America, has been in recession since 2018 and will suffer even more this year from the pandemic, with an announced contraction of 9.9% of GDP, according to the IMF. Above all, inflation reached over 50% in 2019 and poverty is exploding. Another thorny issue: the restructuring of the debt issued under national legislation of $ 41.7 billion, whose payments have been deferred to December 31, 2021.
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