Argentina’s creditors face debt restructuring dilemma
A funding crisis risks getting worse for Argentina’s government unless it can strike deals with a mix of local, foreign and multilateral creditors who are owed $101bn of debt.
Last week Mauricio Macri, the country’s embattled president, announced that the country had postponed payment on $7bn of short-term local debt for up to six months and was seeking a “voluntary reprofiling” of $50bn of longer-term debt, the majority of which is held by foreign investors. The government said it would also delay repayment of $44bn of loans already disbursed by the IMF.
While the country’s shorter-dated bonds plunged in the days after the announcement, investors had long expected Argentina to need more breathing space before it would be able to service its debts.
According to Ashmore, an investment firm, Argentina has some $30bn coming due in 2020. Its obligations pile up between 2021 and 2023, with approximately $25bn owed in the first year and a collective $70bn in the latter two years.
But the sizeable portion owed to foreign investors could be a sticking point, said Edward Glossop of Capital Economics, given that those creditors have more scope than their local counterparts to push back on whatever deal the government puts forward.
But Mr Glossop said he was optimistic that a deal could somehow be struck. He noted that bondholders had a vested interest in getting around the restructuring table quickly, because of the growing likelihood that Alberto Fernández, the Peronist opposition candidate, would take the presidential reins in December.
“If you think the debt is ultimately unsustainable and needs to be restructured, you’re probably thinking that any ‘reprofiling’ will be more mild under Macri,” he said. “You could potentially lock in a better restructuring deal now than you would get under Fernández.”