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Weekly Report - 27 February 2020 (WR-20-08)

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ARGENTINA: Advancing with debt renegotiation strategy

After securing the support of the International Monetary Fund (IMF) for its plans to seek a write-down of the debt owed to Argentina’s private creditors [WR-20-07], the government led by President Alberto Fernández is stepping up efforts to try to secure a debt renegotiation deal. Fernández and his economy minister, Martín Guzmán, have been busy flying around the world to talk to the IMF and foreign bondholders about their debt restructuring proposals. A general agreement appears to have been reached with the IMF. But it is far less clear that an agreement can be reached with bondholders to ensure that Argentina avoids another debt default.

The Fernández government’s debt renegotiation strategy appears to consist of first reaching a deal with the IMF over the US$44bn it owes to it as part of the Stand-By Arrangement (SBA) signed under the Mauricio Macri administration (2015-2019) in order to secure its backing in the separate negotiations it will need to engage in with foreign bondholders. The Fernández government calculates that if it can convince the IMF that it will get back the money that it has lent to Argentina, it can then ask it to pressure foreign bondholders to accept write-offs based on the argument that Argentina is currently in no position to honour these debts.

  • Working with the IMF

According to the Argentine press, the Fernández government has reached a general agreement with the IMF over how to resolve Argentina’s debt problems. This would involve allowing the IMF to conduct an Article IV consultation of the country’s finances to show just how precarious these are in a bid to convince foreign bondholders that the government is not playing hardball with them in demanding write-offs but that these demands are based on a justified need. The Article IV consultation, which has not taken place in Argentina since 2015, would also allow IMF officials to determine what sort of repayment extension plan could be offered to Argentina. 

As part of this strategy, Fernández has been holding discussions with the heads of state of key IMF member countries in recent weeks to explain the plan. This appears to have paid dividends as the Fund has accepted his government’s argument that Argentina’s current debt levels are unsustainable and that creditors should forgive part of it. However, the IMF itself has been clear that due to internal rules it cannot forgive the debt principal it is owed and the best it can offer is to adjust the debt repayment schedule. But IMF Managing Director Kristalina Georgieva has been clear that in order to reach an agreement with the IMF and bondholders the Fernández administration must negotiate in good faith and make reasonable offers.

Georgieva warned the Fernández administration against using its self-imposed deadline to conclude the debt renegotiations by the end of March to pressure its creditors into reaching a deal. Georgieva’s comments came ahead of the 22 February summit of G-20 finance ministers in Riyadh, Saudi Arabia, where she was scheduled to meet Guzmán to discuss the debt renegotiation efforts. Guzmán is the man in charge of leading the debt negotiations and, like Fernández, he has embarked on various international trips since January to present Argentina’s negotiating position to IMF officials and foreign bondholders. In fact, after his meeting with Georgieva at the G-20 summit, Guzmán travelled to the US to hold yet more meetings with IMF officials in Washington DC and with bondholders in New York City.

The speculation in Argentina was that Guzmán’s trip to the US was a sign that significant progress had been made in the meeting with Georgieva and that he was seeking to make headway in negotiations with bondholders. From the US, Guzmán himself said that a “critical moment” had been reached. However, since returning to Argentina on 25 February Guzmán has not made any announcements. This has led the Argentine media to speculate that Guzmán’s talks with bondholders did not go as well as expected and that the government’s confidence that the IMF’s call for a debt write-off would facilitate the negotiations with bondholders had been misplaced. Guzmán is expected to unveil Argentina’s debt renegotiation offer in the second week of March, when a clearer picture of the state of the negotiations should emerge.