Argentina's Fernandez reassures creditors with 'no haircut' talk
Investors are closely watching Fernandez’s comments on debt after the South American nation was forced to announce plans to renegotiate around $100 billion in bonds after a sharp market crash in August pushed the country toward default.
The Peronist candidate, who soundly beat market-friendly incumbent President Mauricio Macri in an August primary, is the favorite to win the Oct. 27 general election. How his administration will handle the debt crisis is one of the key questions for the country and its local and global backers.
“Hearing Fernandez refer to a Uruguay-style re-profiling is a very positive thing,” said Roger Horn, senior emerging market strategist at SMBC Nikko Securities America in New York, adding that most investors were braced for some sort of loss.
“It at least shows a market-friendly intention.”
Fernandez, in comments posted on Twitter late on Thursday, said debt was Argentina’s “biggest issue,” but that the country - in recession for much of the last year - would meet its obligations in full if given time to revive growth.
“We never said we wouldn’t pay or that there would be a haircut,” he wrote. He aimed criticism at Macri’s administration for taking on too much debt.
“We will pay the debts by growing and exporting... The only way is to export. The other channel has been exhausted, which is to borrow,” he said.
In separate comments at an event in Cordoba, he said Argentina should be able to replicate the model of neighboring Uruguay, which successfully undertook voluntary debt renegotiations in 2003 and is widely seen as a positive model.
By contrast, in 2005 and 2010, under a prior Peronist government, Argentina pushed bond holders to take a massive ‘haircut’ that hurt its reputation on financial markets and sparked a multi-year battle with ‘holdout’ creditors.
Credit Suisse said in a note on Friday that Fernandez’s comments were decent news for the country’s creditors.
“We think that Fernandez’s remarks regarding paying debt without a haircut, along with his track record, suggest that he could pursue a moderate economic policy course if elected,” the investment bank said.
The country’s over-the-counter bonds were up an average of 1% by early afternoon local time, traders said.
Argentina’s century bond 040114HM5= traded up nearly one cent at 43.15 cents on the dollar according to MarketAxess data, while the January 2028 benchmark 040114HQ6= rose more than a cent to trade at 41.15 cents, both on small trading volumes.
Credit Suisse added, though, that how Fernandez would achieve his goals of spurring growth while maintaining fiscal discipline under a $57 billion credit facility struck with the International Monetary Fund last year remained “unclear.”
Marshall Stocker, a portfolio manager at U.S.-based investment management firm Eaton Vance, was also skeptical.
“We are headed on a path to restructuring and the asset prices reflect this,” he said. Fernandez plans to raise wages and fix prices were “mutually exclusive” with aims to steady the currency and inflation, he said.
“He can’t do everything he and his team suggests they’re going to do. That’s why it’s so difficult to determine how extensive the (debt) reprofiling will be.”