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Argentina delays payments on $9bn in dollar-denominated debt

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Via Financial Times

Argentina has delayed payment on roughly $9bn in dollar-denominated debt for the second time in five months, pushing off payment until August 31 while calling on bondholders to show “good faith” in talks to restructure the country’s massive debt pile.

The government was due to repay $67m on Friday and an additional $280m on Monday for the local notes, known as Letes, according to local newspaper Clarin. These short-term bonds are sold by the country’s Treasury to individuals and companies. Private individuals and the Argentine provinces will be exempt from the postponement.

“It basically kicks the can down the road,” said Alejo Costa, a strategist at BTG Pactual in Buenos Aires. “The payment for August will just be too massive so we know they have to do something before it arrives.”

Fitch, the rating agency, downgraded Argentina “restricted default” after the plan was unveiled on Friday, noting that it deemed the maturity extension “a distressed debt exchange”. Another rating agency, Standard & Poor’s, followed suit shortly after, downgrading the country to “selective default”.

The last payment delay was announced by the previous government of Mauricio Macri, shortly after a primary vote result that signalled he would lose his bid for re-election in October’s national election, which sent the peso reeling and increased the cost of insuring against a debt default.

The announcement came as little surprise to investors, given Argentina’s record on debt repayment and the central bank’s dwindling stock of foreign reserves, used in the battle to control high inflation and a weak currency.

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“More than anything else, it’s a reality check,” said Walter Stoeppelwerth, the chief investment officer at Portfolio Personal Inversiones. “It’s a recognition that no way, no how do they have the dollars to pay the Letes now.”

The latest move is part of a wider strategy by Argentina’s new president, Alberto Fernández, who took office earlier this month, to restructure a large part of Argentina’s estimated debt load of $332bn. This included loans from the IMF, which extended a $57bn bailout programme to the country last year, the biggest in the institution’s history.

The official government bulletin announcing the new measures said a significant percentage of Argentina’s debt was in foreign currencies, principally the US dollar. A government spokesman said since the dollar was not Argentina’s currency, the dollar debt presented different problems and therefore had to be treated differently in terms of repayment.

Earlier on Friday, the lower house of Argentina’s Congress approved an emergency economic bill, known as the Social Solidarity and Production Reactivation plan, which includes an array of tax increases on grain exports, personal property and foreign assets held abroad.

A Treasury official told financial newspaper El Cronista that the economic reforms were part of a wider plan to help shore up the country’s finances, the details of which will be released in the next few weeks.

The reprofiling of the debt came on the heels of an interest-rate cut by the central bank, which on Thursday slashed the benchmark policy rate from 63 per cent to 58 per cent in an attempt to revitalise the economy.

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