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ECONOMY | 01-02-2020 08:03

Government’s bid to tackle debt crisis begins in earnest

Bill to restructure foreign debt flies through lower house, faces Senate vote next week; Economy Ministry releases timetable – but Wall Street remains sceptical.

Lawmakers in the lower house Chamber of Deputies granted almost unanimous approval to a government bill to restructure the country’s foreign debt on Wednesday, as Argentina’s move to tackle its debt problem stepped up a gear.

The bill, presented initially by Budget Committee chairman Carlos Heller (Frente de TodosCABA), passed with 224 votes in favour and just two against, after opposition Juntos por el Cambio lawmakers opted to back the bill. Officials say the debt load is unpayable amid a deep recession.

The legislation now heads to the Senate for final approval next week.

This swift passage of the bill in a special session on Wednesday – even preceding extraordinary sessions called by President Alberto Fernández for later this month – highlights the importance the government attaches to handling Argentina’s large debt. Hours later, the government released a timetable for the restructuring process, a step that had been long-awaited by bondholders and financial analysts, eager for more detail about the plans.

Earlier that day, Fernández flew off to Europe for a whistlestop tour of European capitals, during which he will ask the leaders of France, Germany, Italy and Spain to support Argentina’s bid to restructure its creaking debt-load.

On Friday, the president met with Pope Francis at the Vatican, with the Peronist leader later saying the Argentine pontiff had promised to do all he could to support his country through the debt crisis.

National public debt ranges from US$311 billion to US$340 billion according to various estimates, well over 90 percent of Argentina’s gross domestic product (GDP). The amount to be renegotiated, explained Heller, refers exclusively to liabilities under foreign law, which stand at around US$195 billion (57 percent of GDP), including debt with private bondholders and with bilateral and multilateral organisations, according to reports.

President Fernández hopes to close negotiations with creditors before March 31, as he will then face heavy maturities.

The only opposition in the lower house came from the two Frente de Izquierda (FIT) deputies, whose supporters demonstrated against the “fraudulent and illegitimate” debt outside Congress on Wednesday evening.

IMF TALKS

Talks will step up a gear this month. Representatives from the International Monetary Fund (IMF) held “positive” talks on Tuesday with Economy Minister Martín Guzmán in New York, in town to speak at an event organised by the Council of the Americas. Afterwards, IMF officials said a mission team would travel to Buenos Aires later this month, with talks set to take place from February 12 to 14.

The Fund granted Argentina a record credit line of US$56 billion in 2018, of which Macri received US$44 billion while President Fernández has indicated he does not want to receive any more cash from IMF.

Guzmán has repeatedly emphasised the need for “a sustainable solution” to paying debt.

“Today the situation is critical, the debt burden cannot be sustained,” he told reporters this week.

The government’s bill declares the sustainability of external public debt a “priority” and authorises the government to carry out a “restructuring of interest maturity services and capital amortization of public securities issued under foreign law.”

It also enables the Economy Ministry to include in the corresponding documentation for the issue of future debt agreed in the renegotiation “those clauses which extend jurisdiction in favour of foreign courts, waiving the defence of sovereign immunity exclusively with respect to claims in that jurisdiction and the undersigned contracts and public credit operations” while clarifying that “any waiver of Argentina’s sovereign immunity can never apply to the Central Bank, public domain and assets performing an essential public service, among others.”

The Economy Ministry is further authorised “to issue new public bonds to reprofile interest payment deadlines and capital amortisations; to determine the timing, terms, methods and procedure of these new bonds and to appoint institutions and financial advisors as co-ordinators of the restructuring process, among other prerogatives.” All pertinent operations within this restructuring are to be tax-exempt.

The bill also establishes that the Executive branch will determine the nominal amounts.

‘CENTRAL PROBLEM’

“The debt is the central problem of the Argentines. It is impossible to face the payment of the debt in these conditions. We are not going to stop assisting those who have the least to pay the debt,” said Justicialist Party chairman José Luis Gioja (Peronist-San Juan) during the fivehour debate.

Heller proclaimed, before the start of the debate, that there was consensus on the need to renegotiate the debt and recalled that the 2015-2019 government of president Mauricio Macri had acknowledged that current payment plans were out of reach.

Macri’s opposition coalition, Juntos por el Cambio (“Together for Change”), agreed to support the bill in exchange for creating a working roundtable group to analyse the sustainability of the debts each of Argentina’s provinces have with the federal government.

“This is not an ideological debate but about public responsibility,” opposition caucus leader Mario Negri (Radical-Córdoba) underlined.

In an earlier caucus meeting Radical party chairman Alfredo Cornejo said that he agreed with Buenos Aires Province Governor Axel Kicillof that debt should be rolled over in pesos.

But Frente de Todos caucus leader Máximo Kirchner was scathing in his criticism of the Macri administration, accusing it of “irresponsibly placing the country in debt to the tune of US$30 billion annually and then to crown it all, going to the International Monetary Fund.”

Gustavo Menna (RadicalChubut) reminded Kirchner that part of the debt being restructured corresponded to the 2005 and 2010 bonds issued under the presidencies of his parents.

Jorge Sarghini, from the Federal Consensus party responding to Roberto Lavagna, justified his support for the bill by saying: “Just being on the brink of default is an emergency situation.”

Left-wing lawmaker Nicolás de Caño fiercely criticised the pact between the Fernández government and the opposition, which, he said, would be used to “pay the fraudulent debt that Macri left us.”

TIMETABLE

On the same day the government laid out its agenda for debt negotiations with private creditors, publishing a timetable on the Economy Ministry’s website.

According to the government, Guzmán will first present a debt sustainability analysis before Congress in mid-February. At that time, the government also plans to hire a financial advisor in order to finalise its offer to creditors, which will be presented early March, with a view to closing a deal later that month.

While the government presents its debt plan to Congress, an IMF technical mission will visit the country. It is the first mission team the Fund has sent to Buenos Aires since the Fernández administration took office.

In meetings held in Buenos Aires this week, Economy Ministry officials reportedly told two investor groups that the plan will be made public soon and would include guidelines on the coupons the government believes it can pay, according to Bloomberg.

The news agency also illustrated that many Wall Street traders remain deeply sceptical over Fernández’s self-imposed March 31 deadline.

“This is an extraordinarily ambitious timeline for such a complex undertaking,” ING Financial Markets chief Latin American economist Gustavo Rangel told Bloomberg. “We don’t know the incentive: Do they want this quickly or do they want it to be sustainable?”

Guzmán is expected to meet IMF Managing Director Kristalina Georgieva next week, on Wednesday, February 5, on the sidelines of an event hosted by Pope Francis at the Vatican.

IMF Western Hemisphere Director Alejandro Werner said Wednesday that the Fund was maintaining its forecasts for Argentina on hold as it awaits more economic policy details.

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