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Weekly Report - 18 June 2020 (WR-20-24)

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ARGENTINA: Still playing for time

The Argentine government has extended, for the fourth time, the deadline for the holders of US$66bn of sovereign debt issued under international law to accept its debt restructuring offer. But this might not be the last extension. With the new 19 June deadline looming, there is still no sign that a deal will be struck before then. However, President Alberto Fernández insists that his government wants to reach a deal with bondholders, take the country out of default, and resolve its debt problems once and for all. This suggests that while the Fernández administration may be driving a hard bargain it will ultimately cede to bondholder demands and secure a deal for the sake of the national economy. 

The latest deadline extension was announced by Argentina’s economy minister, Martín Guzmán, hours ahead of the expiry of the previous deadline on 12 June. In a statement, Guzmán explained that the new extension would be used to analyse the latest proposals by bondholder groups of what improvements could be made to the government’s offer in order to make it more palatable.

According to Guzmán, the government is now seeking to “maximise the support of investors” for its offer. To secure a binding deal, the government needs at least 75% of all bondholders to subscribe to it. The negotiations are confidential, but it is being reported that the government is still far from reaching this threshold and that is why it has adopted a flexible stance that contrasts with its initial hard-line strategy.

President Fernández himself confirmed that the government was working on yet another improved offer that “moves a little closer to the creditors”. The economy ministry announced that this new improved offer was presented to bondholders on 17 June. Given that two days does not provide much time for this to be evaluated, the speculation is that the government will have to extend the deadline beyond 19 June to give sufficient scope to bondholders to weigh up the improved offer.

According to local media reports, a new 10-day extension is likely. However, there are no guarantees that the new improved offer will be accepted by a majority of bondholders, with some reportedly losing patience with the government and its negotiating strategy. Bondholders complain that while they have made it clear that the aggressive negotiating style adopted by Argentina does not impress them, the government and Guzmán, in particular, continue to adopt an aggressive stance.

Yet despite all of this there are still hopes that a deal can be struck. The difference between the government’s offer and the bondholders’ demands is not deemed to be insurmountable. And it is evident that the Fernández administration needs to resolve the debt situation to stabilise Argentina’s domestic economy and start plotting the path back to recovery.

Argentina is still reeling from the foreign currency crisis of 2018-2019, exacerbated by the subsequent economic crisis caused by the coronavirus (Covid-19) pandemic this year. The country is set for a third straight year of recession in 2020, with most forecasts pointing to a 6%-7% GDP contraction. Not resolving the debt problem will only make it harder for the country to recover; and the longer it takes to resolve the deeper the damage to Argentina’s economy and its people.

There are growing calls in Argentina for the government to close a deal with bondholders sooner rather than later so as to allow the country to start setting the foundations for an economic recovery. It is worth recalling that resolving the debt dispute with foreign bondholders is only one component of Argentina’s debt problems. The Fernández administration also needs to renegotiate its debt with the International Monetary Fund (IMF). Meanwhile, some provinces, such as Buenos Aires, Río Negro, Mendoza, Santa Fe, and Chubut, have also missed debt repayments and are facing default unless they can restructure their debts. It is unlikely that this will be possible, however, unless the national debt issue is resolved first.

Fernández calls for patience

During a television interview on 18 June, President Fernández was questioned as to why his government had not yet closed a deal with bondholders even though he had said that resolving the debt problem would be his administration’s immediate priority and that he hoped this would be done by March. Fernández said that the government was putting all its efforts into the negotiations and was keen to reach a deal as soon as possible but that this needed to be a fair deal. He also called for patience, noting that it took Argentina a whole year to conclude the 2005 debt renegotiations. “I don’t understand why there is such a hurry now,” Fernández, who was part of the government that conducted those negotiations, said.

Vicentín

The executive director of Vicentín, Sergio Nardelli, met President Fernández and part of his cabinet in the official presidential residence Quinta de Olivos, along with the governor of Santa Fe, Omar Perotti, on 11 June in order to discuss the future of the agro-export firm, which was founded in 1929. Perotti said Fernández had not yet sent the bill to congress to expropriate the company and was open to “alternatives”. On 12 June Vicentín representatives also held a meeting with senor officials at the state-run oil firm Yacimientos Petrolíferos Fiscales (YPF) to discuss alternatives to expropriation. But alternatives now appear to be off the table. Vicentín’s assets will be placed in a trust managed by YPF’s agriculture arm, which will then absorb it entirely.

Vicentín expropriation stirs up controversy

A large convoy of vehicles took part in protests in Argentina’s northern province of Santa Fe on 16 June against the decision by the federal government to assume control of the local agro-export firm Vicentín [WR-20-23]. There have also been street protests and pots-and-pans protests (cacerolazos) in the province in recent days.

President Alberto Fernández, who announced the move on 8 June, defended the decision to “rescue” the company in a radio interview on 14 June, to prevent it “falling into foreign ownership” like four of the other seven major agro-export firms in Argentina, while the production minister, Matías Kulfas, described it as “a virtuous intervention” to save jobs.

“The only alternative left to us is expropriation,” Fernández said. But Vicentín shareholders published an open letter in various local newspapers accusing Fernández of not having considered alternatives at all. The opposition Juntos por el Cambio coalition, meanwhile, denounced the move as “dangerous, illegal, and unconstitutional”, raising the old argument of whether it is Fernández or his vice president Cristina Fernández calling the shots.

Vicentín has debts of US$1.35bn, and the opposition argued that the expropriation would place a heavy burden on the state. This also sends a mixed message to creditors, after the Fernández administration defaulted on its debts last month, arguing that it had no cash with which to honour them