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Weekly Report - 14 May 2020 (WR-20-19)

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TRACKING TRENDS

ARGENTINA | Taking debt renegotiations into extra time. On 10 May the Argentine government extended the deadline of the expiry of the formal debt restructuring offer it has made to holders of US$66bn worth of sovereign bonds issued under international law until 22 May.

The move by the government led by President Alberto Fernández came after insufficient bondholders accepted its offer by the 8 May deadline it had set; 75% must agree for there to be a binding global agreement. Groups of bondholders had already rejected the offer, arguing that the debt write offs proposed by the government were unjustified, and called for the terms of the offer to be improved [WR-20-18].

The Fernández administration has ruled this out in an apparent bid to pressure bondholders into accepting the offer or face the prospect of trying to collect on the debts following a default.

President Fernández had said that he would not extend the 8 May deadline, raising concerns about an imminent default. But, after only a minority of bondholders (fewer than 20%, according to press reports) signed up to the offer before the deadline, the government issued a decree extending the deadline for accepting the offer on the grounds that it still believes that an agreement can be reached.

Since then, Fernández has urged bondholders either to accept the offer or present a counteroffer before the new deadline. However, Fernández was clear that any counteroffer must meet the debt sustainability criteria outlined by his government, warning that otherwise his administration would not accept it.

The 22 May deadline coincides with the end of the grace period that Argentina has in order to meet US$500m in foreign debt repayments. The Fernández administration has said that it is not willing make any debt repayments until a debt restructuring agreement is reached. If no deal is reached, and the overdue payment is not made by then, Argentina will be in technical default.  

 

CHILE | Economy struggling. Chile’s central bank requested a US$23.8bn flexible credit line from the International Monetary Fund (IMF) on 12 May “to protect the economy from eventual external shocks” in the face of the coronavirus (Covid-19) pandemic. The IMF said that its managing director, Kristalina Georgieva, would recommend that the request be approved by the board of governors.

A week earlier the central bank reported that the economy contracted by 3.5% year-on-year in March. This equalled the worst decline in the monthly economic activity indicator (Imacec) since July 2009. The Imacec had just started to stage a recovery, expanding by 2.7% in February, after the economy contracted in the wake of last October’s social unrest.

The Imacec record will be smashed in April and May, and there is no sign of the economy picking up soon. President Sebastián Piñera announced his determination to open up the economy and avert “a social crisis from unemployment and bankruptcy” at the start of May but his government has been forced to shelve its ‘Plan Retorno Seguro’ amid a surge in Covid-19 cases. On 13 May Piñera announced a full lockdown in the capital and surrounding areas to take effect from 15 May as the government is losing the “Battle of Santiago” as it was dubbed last week by the health minister, Jaime Mañalich [WR-20-18]. There were 2,660 confirmed new cases of Covid-19 on 13 May, an increase of 60% on the previous day, and 12 fatalities, the majority in the capital.