Sunday, February 25, 2024

ECONOMY | 04-08-2020 18:38

Economists praise debt deal but warn challenges on horizon

Experts welcome government's agreement with creditors, but warn that Argentina must now correct imbalances and other issues.

Analysts on Tuesday welcomed news of Argentina's debt deal with its main foreign creditors, though they warned that further economic issues lie ahead.

Multiple economists told Perfil that the scope of the agreement deserved praise and that markets would now grant the administration time to correct macro-economic imbalances, especially where the fiscal situation and printing money is concerned. 

The specialists said that the challenge of making Argentina's economy sustainable now begins, with the government having to revert the grave social consequences left behind by the coronavirus pandemic and its accompanying lockdown.

"The first thing to underline is that any agreement at all is positive, over and above the price which had to be paid for it, because the worst scenario was no deal," said economic consultant Christian Buteler. "But the process of negotiation is another story. The process was highly deficient, not meeting deadlines and offering 39 cents per dollar, only to end up paying 54.8. Argentina defaulted on several bonds so the negotiation process was mishandled but the agreement is good news."

Buteler, while amplifying that the concept of debt sustainability, insistently maintained by the government "remains hanging in the air."

"They cannot tell me that sustainability ended at 39 cents per dollar and is now at 54.8. So you have to say that Argentina is not sustainable, not at 54.8 nor 50 either," he affirmed.

The market specialist considered that with this agreement with the main creditors, "Argentina has gained time to try and resolve its macro-economic problems and more than anything return to credit markets because if it does not achieve that, there is no way of paying."

Claudio Zuchovicki, a capital market manager with the Buenos Aires Stock Exchange (Bolsa), stressed: "The agreement is important, more important for what it avoids, it helps. I still think that it could have been negotiated earlier and taken less time but luckily a deal could be done."

Yet he also underlined that the extra cost assumed with the main foreign creditors is not so dramatic.

"It’s true that there is an additional cost which could be significant but that cost is deferred in time and in reality is relative because it depends on the discount applied," explained Zuchovicki. "Those two extra cents per dollar paid by the government seems to me cheaper than the time which would have been wasted by entering into conflict and the money which the country would have lost through that situation. That is avoided without anything being created. And now comes the real challenge, it’s better to have done the deal but that does not mean that as from now there is a new Argentina. "

Similarly, ACM consultant and debt specialist Jorge Neyro said that the deal had been "many long months in coming."

"It’s important. Argentina does not need more problems than it already has," he said. "Continuing in default without any settlement was not going to contribute towards solving any of the problems we have because that situation contaminates the relationship with overseas investors, real investments and loans so being so close to a settlement, it made no sense not to reach agreement."

In the economist’s view it must be considered that "Argentina nowadays has some more problems, especially with the pandemic and quarantine, [default] is not the panacea, no way."

He warned, howevr, that "the government now has to face up to several important chapters. The most immediate is an agreement with the International Monetary Fund but there the road is not so tremendous because negotiations with the IMF are generally friendlier and it’s a long-term relationship."

Regarding the bond swap deadline of August 4 at 5pm, Economy Ministry sources indicated that for formal and administrative reasons, the final closure of the bond swap would be postponed until August 24.


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by Fernando Nolé, Perfil


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