Argentine government urged to begin negotiations with creditors

Argentine government urged to begin negotiations with creditors

IIF tells new economy minister imminent talks needed for securing debt restructuring deal

An industry group representing a large portion of Argentina’s bondholders wrote a letter to newly appointed economy minister Martín Guzmán on Monday, advocating for negotiations between creditors and the government to begin promptly.

In the letter seen by the Financial Times, Timothy Adams, president and chief executive of the Washington-based Institute of International Finance, wrote to Mr Guzmán that “early discussion between the representative private creditor committee and the sovereign debtor, in close consultation with the official sector, is particularly important in facilitating an effective voluntary debt restructuring agreement”.

The IIF, which represents more than 450 institutions across the financial industry, also sent Mr Guzmán a set of principles it had previously published about best practices for debt restructurings, stressing the importance of broad fiscal policy targets to anchor any deal.

“Such a discussion is important in facilitating an effective voluntary debt restructuring agreement on a fair burden sharing, thus promoting high private sector participation, restored market access, renewed output growth, and debt sustainability,” the industry group wrote in its publication.

President-elect Alberto Fernández, who will be inaugurated on Tuesday, announced Mr Guzmán’s appointment on Friday. According to local reports, the incoming economy minister is set to unveil a plan to begin renegotiating some $100bn of debt with private creditors and the IMF as early as Wednesday. Last year, the fund extended a record $57bn bailout to Argentina.

Mr Guzmán, a disciple of the Nobel laureate Joseph Stiglitz, favours a swift resolution to Argentina’s debt negotiations, as soon as March, given the urgent need for debt relief in order to resume economic growth. Mr Guzmán has also argued that Argentina should not request any further disbursements from the IMF, with some $12bn in payments pending.

According to local reports, he will seek to suspend capital and interest payments for at least two years, in order to give the country a chance to escape from recession and be in a stronger position to pay its debt once the economy is growing again.

It remains unclear whether the plan would include a haircut on principal. An analysis by Elypsis, an economic consultancy in Buenos Aires, argued that with a primary surplus of 1 per cent of gross domestic product in 2021 and the economy growing at 2 per cent, it would be “realistic” to assume a haircut of at least 20 per cent to assure debt sustainability. At present, Argentina’s primary fiscal deficit is almost 1 per cent of GDP, but the deficit including interest payments is closer to 4 per cent.

Bondholders have pushed back on any restructuring plans that include sizeable losses on the face value of the bonds they hold, warning that the too harsh use of so-called haircuts could make the debt “uninvestable”. Multiple groups have formed in recent months in preparation for forthcoming negotiations.

Greylock Capital Management, T Rowe Price and GMO are among at least 20 members involved in one creditor committee, while Connecticut-based hedge fund Gramercy and London-based investment manager Macrosynergy Partners have teamed up with other creditors in a second group. A third group representing investors holding debt issued by the Province of Buenos Aires has also formed.

The country’s dollar bonds edged higher on Monday, with the century bond maturing in 2117 rising more than 1 per cent to 42 cents on the dollar.

Colby Smith and Benedict Mander

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