Argentina’s economy minister has sought to raise the stakes with the country’s bondholders by suggesting his government would consider defaulting on $65bn of foreign debt unless investors engaged in negotiations to alleviate its financial burden while tackling the coronavirus pandemic.
Speaking to the Financial Times before the expiry on Friday of an offer involving a three-year debt service moratorium, Martin Guzmán said the government would not accept a deal “based on illusions and rosy scenarios” because it would herald yet another debt crisis in the future.
Asked whether a default was too great a price to pay for Argentina, Mr Guzmán said: “Every path is associated with trade-offs.”
Negotiations between the government of Peronist president Alberto Fernández and the country’s international creditors have been deadlocked after main creditors including US fund managers BlackRock, Fidelity and T Rowe rejected an offer that would involve the suspension of all debt payments for three years, a 62 per cent reduction in interest payments worth $38bn, and a 5.4 per cent cut in principal repayment, valued at $3.6bn.
Argentina must seal a debt restructuring accord with its biggest creditors before May 22 — the end of a 30-day grace period for payments it has already missed — if it is to avoid its ninth sovereign debt default.
Martin Guzmán: ‘We need to make sure we have the instruments to deal with the dramatic situation the country is going through. Doing something that just means hiding the problem under the rug would mean more agony’ © Agustin Marcarian/Reuters
But after snubbing meetings with the Argentine government last week, those creditors on Monday reaffirmed their opposition to the terms of Buenos Aires’ proposal.
“Indeed, some of our creditors have opted not to engage during the last week,” Mr Guzmán said. “We will continue working and engaging in good faith with our creditors with the goal of restoring debt sustainability.”
The 37-year-old economist said the bondholder group led by BlackRock had made a counter-offer that was “not even close to providing the relief that Argentina needed to restore debt sustainability”.
Part of the problem was that it did not include any reduction in principal or interest payments, only a rescheduling of interest payments equating to an estimated 8 per cent ultimate reduction in the value of the debt, he said.
Mr Guzmán insisted this was also the view of Argentina’s financial adviser, Lazard, and the IMF, which became the country’s largest creditor after lending it $44bn since a 2018 currency crisis. The IMF declined to comment. White & Case, which serves as the legal adviser to the group involving BlackRock, declined to comment, as did BlackRock, Fidelity and T Rowe Price.
An unsustainable debt burden would tip the economy into “freefall”, undermine the government’s ability to implement the policies necessary to deal with the economic crisis, and ruin the business climate for the private sector, Mr Guzmán said.
“It will be better for everyone if this [deal] gets done sooner rather than later, but our efforts will not cease until we have solved the problem [of achieving debt sustainability],” he said. “It would be of little value to make a promise that we will be unable to fulfil.”
Analysts say a default would prevent Argentina’s government, regions and companies from tapping financial markets for credit. Foreign investment would dry up, hitting growth and tax collection. The central bank would be forced to print more money to finance public spending, in turn fuelling inflation and causing a potential capital flight and further weakness in the peso.
Looking worn down by months of talks with creditors, Mr Guzmán insisted there were still “multiple combinations of parameters” for a debt deal that “would work for us”.
In his high-ceilinged office overlooking the presidential palace in an unusually quiet downtown Buenos Aires, the minister kept repeating his goal was to restore “debt sustainability” to help reach a primary fiscal balance by 2023.
“There is flexibility within the constraints that we face,” said Mr Guzmán, rejecting creditors’ depiction that Argentina had presented them with a “take-it-or-leave-it” offer.
Argentina has been under strict quarantine restrictions since mid-March that will last until at least late May © Natacha Pisarenko/AP
Mr Guzmán — described by some investors as an ideologue with little practical experience — sought to defuse concerns that Argentina’s vice-president Cristina Fernández de Kirchner, who presided over the last sovereign debt default when she was president in 2014, might exert undue influence in the talks.
The whole ruling coalition is “absolutely committed” to an orderly resolution of the debt crisis, the minister said, adding that he had been working “extremely closely” with President Fernández “in every step of this process”.
Mr Guzmán rejected the notion, pushed by some debt restructuring experts and financial analysts, that it was best to wait for the economic outlook to clarify and Argentina’s economy to stabilise before sealing a deal.
Argentina has been under strict quarantine restrictions since mid-March that will last until at least late May. This has helped contain the spread of Covid-19. The country has recorded 250 deaths, compared with more than 7,000 in neighbouring Brazil.
But Mr Guzmán argued that the government needed financial room to deal with the fallout of the lockdown, which has deepened the country’s economic woes inherited from the previous administration of Mauricio Macri — including one of the highest inflation rates at about 50 per cent and poverty afflicting a third of the population.
“We need to make sure that we have the instruments to deal with the dramatic situation the country is going through,” he said. “Doing something that just means hiding the problem under the rug would mean more agony.”
Additional reporting by Colby Smith in New York