Argentina Aims to Restructure Debt With IMF, Bondholders
Argentina’s government said Wednesday that it will look to restructure its debt with the International Monetary Fund and bondholders in an effort to stem a crisis of confidence that has upended the country’s financial markets.
Finance Minister Hernán Lacunza said the government aims to extend the maturity of its debt denominated in local and foreign currencies to provide stability for the peso as growing concerns about the country’s political stability and its ability to repay its debt sparked a currency crisis earlier this month.
Mr. Lacunza said the measures would ease financial restraints on the government from 2020 to 2023.
He said that recent volatility was fueled by the country’s presidential campaign amid investor unease about the return to power of the nationalist Peronist movement, which could unravel President Mauricio Macri ’s market-friendly policies. Demand for short-term government debt has plunged as a result of market turbulence, Mr. Lacunza said in a news conference.
Peronist presidential candidate Alberto Fernández, who is the favorite to win October’s election by a wide margin, lashed out at the IMF and the government this week by blaming them for the country’s economic stagnation, high inflation and steady capital outflows resulting from austerity measures implemented with the IMF’s backing. Mr. Fernández had previously said he would renegotiate Argentina’s bailout package with the IMF.
Mr. Macri suffered a crushing setback in a primary vote earlier this month, a defeat that makes his re-election in October unlikely amid rising unrest over his austerity measures and rising consumer prices.
“Every political group wants to win the election, but that’s not an excuse to put at risk the well-being of Argentines,” Mr. Lacunza said. “We have to agree on maintaining stability as a nonnegotiable priority.”
The initiative seeks to extend the maturity for short-term debt issued in Argentina as well as bonds issued abroad without reducing the capital or the interest, Mr. Lacunza said.
He said the government also proposed holding talks with the IMF to restructure the $57 billion bailout package that Argentina received last year, the largest bailout in the history of the IMF. Argentina originally agreed to repay IMF debt starting in 2021.
Mr. Lacunza said the move is aimed at providing stability to the Argentine peso, which has depreciated sharply against the dollar this month in the run-up to October’s presidential election.
The weaker currency is expected to fuel inflation that is already one of the world’s highest. Economists expect inflation to reach anywhere between 50% to 70% this year.
The IMF said on Wednesday that it is assessing the impact of the government’s proposed measures to extend the maturity profile of its debt obligations.
In a statement, the IMF said it “understands that the authorities have taken these important steps to address liquidity needs and safeguard reserves.”
More than $10 billion in foreign debt and some $8 billion in peso-denominated bonds are due later this year. About 80% of Argentina´s debt is denominated in dollars, and net foreign currency reserves currently cover only 60% of Argentina’́s financing needs of about $100 billion, according to estimates from London-based consulting firm Capital Economics.
In an effort to shore up the peso, Argentina’s central bank has sold close to $1.5 billion in currency markets this month.
The large intervention “hasn’t been enough to stop the peso from weakening further against the dollar,” Capital Economics said in a note to investors on Wednesday.
By Ryan Dube and Santiago Pérez