On 20 February the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, warned that the timeline for renegotiating Argentina’s external debt is tight.
Analysis:
Georgieva’s comments follow the release of a statement by the IMF technical mission upon the conclusion of its week-long visit to Argentina in which it urged bondholders to accept a substantial haircut in forthcoming debt-restructuring talks with the government led by President Alberto Fernández.
- Speaking during a press conference in Rabat, Morocco, Georgieva accepted the Argentine government’s line that the country’s debt is “unsustainable”. But she went on to argue that securing a debt write-off from bondholders would depend upon the Fernández administration’s attitude.
- This is a key point. Having the IMF onside is a boon for the Fernández administration, but if it feels encouraged to play hardball as a result, it could alienate rather than persuade investment funds holding bonds to accept a debt write-down, let alone a debt write-off. The failed recent brinkmanship of the provincial government of Buenos Aires in an endeavour to force its creditors just to defer payment on a US$250m bond shows that bondholders will be no pushover.
- Fernández said that the IMF’s decision to grant its imprimatur to a proposed debt restructuring with external creditors demonstrated that his government was not bluffing and that it really cannot pay its debts within the established timeframe.
- The economy minister, Martín Guzmán, will meet Georgieva in Riyadh, Saudi Arabia, on the sidelines of the G-20 summit of finance ministers on 22 February when they might delve into more details of the approach the government intends to pursue with bondholders. At present there is still a lack of clarity on this issue, as well as the government’s plans to boost economic growth rather than weigh the economy down with austerity measures.
Looking Ahead: It is far from clear that even an IMF-backed Argentine government will be able to convince bondholders to make a “meaningful contribution” to ease the country’s “unsustainable” debt burden. Many bondholders view an extension of maturities as a sufficiently generous concession.
