Argentina has successfully restructured almost all of its $65bn debt with private creditors in a major milestone that will enable the country to put an end to its ninth sovereign debt default.
Martin Guzmán, Argentina’s economy minister, announced on Monday that 99 per cent of creditors had accepted his government’s offer, which extended maturities on the debt and lowered interest rate payments from an average of 7 per cent to about 3 per cent.
“May we never again enter this labyrinth [of indebtedness], please,” President Alberto Fernández said in a speech, flanked by regional governors and leading members of congress.
“Know that in 10 years’ time, in 2030, Argentina will owe $38bn less than what we owed last year. None of this was easy, but if there’s something Argentines know how to do, it is to pick ourselves up when we fall. Today we are standing, and on the move,” he added, singling out Pope Francis, an Argentine, and the leaders of Mexico, Germany, France, Spain and Italy for their support during the negotiations.
The debt exchange, which will enable creditors to swap their old bonds for new ones, puts an end to a tense and often acrimonious nine-month-long negotiation process that appeared at times to be in danger of collapsing.
The Argentine government will now focus on restructuring its $70bn debt with multilateral institutions. On Wednesday last week it formally requested to begin negotiations with the IMF, which has lent Argentina $44bn as part of a record $57bn bailout programme extended during a currency crisis in 2018.
The breakthrough with private creditors came in early August, just hours before the expiry of the government’s latest deadline to strike a debt deal. In the months leading up to the agreement, relations frayed between Argentina and its biggest bondholders, which included BlackRock, Ashmore and Fidelity, as well as the hedge funds VR Capital and Monarch Alternative Capital.
The government’s threat to walk away from negotiations helped to galvanise an eleventh-hour compromise with key creditors, which allowed Argentina to move forward the timing of some of its payments to bondholders without changing the aggregate amount it would pay out.
Both investors and government officials alike expressed relief that the protracted process was over. However, investors have flagged that completing the debt restructuring with private creditors was just the first step for Argentina to regain its financial footing.
“What comes now is whether or not the Argentine government is able to use the opportunity of having a very clean financial [slate] for the upcoming years to ensure that growth starts to pick up materially,” said Alberto Bernal, chief emerging markets strategist at XP Investments. “If they can’t grow with that very [low] level of upcoming debt payments, then there is really nothing much you can do.”
Patrick Esteruelas, head of research at Emso Asset Management, called the debt deal “a necessary but not sufficient condition to get Argentina on a long-term path to debt sustainability”.
He warned that Argentina still lacked a credible medium-term fiscal and monetary policy plan, and that any forthcoming agreement with the IMF was unlikely to lead to a dramatically different policy mix. Rather, he said he anticipated the deal would amount to a “can-kicking exercise”, which may further cloud the country’s outlook.
“I’m optimistic that Argentina is not going to default on its debt service obligations in the next four years, because it has very little debt to default on,” added Mr Esteruelas. “But after year five? All bets are off.”