Argentina’s government said it’s open to new proposals from its creditors to restructure US$65 billion in debt, signalling a greater willingness to negotiate in talks to avoid another chaotic default.
“We are willing to consider any combination of reduction of interest, reduction of principal, extension and maturity of grace period that respects the constraints that define what is sustainable,” Economy Minister Martín Guzmán told Bloomberg News in an interview, two days before a government’s offer to bondholders expires. “We are flexible in terms of the combinations of parameters. The essence is the sustainability.”
Heading into its third year of economic contraction, Argentina is seeking to renegotiate its dollar and euro-denominated debt held mostly by foreign bondholders and avoid what it would be its ninth debt default. Guzmán, a 37-year-old, Ivy-league-educated economist, is leading talks for the government, which says it can no longer meet its liabilities without hurting the country’s future growth prospects.
Large groups of creditors have already rejected Argentina’s first proposal, which includes a 5.4 percent reduction in principal, a 62 percent cut on interest payments and a three-year period before any payments would be due. If an agreement isn’t reached by May 22 when a grace period for coupon payments ends, and Argentina fails to pay, the country will default.
During the interview, Guzmán disclosed that the government already made a concession from its original stance on the grace period, the time when Argentina wouldn’t have to make payments to bondholders.
“In the original terms that we have submitted, we included a four-year grace period,” Guzman said Wednesday at his office in downtown Buenos Aires. “But understanding how critical this was to our creditors, we have reduced the grace period to three years.”
Guzmán said that, as things stand, the government won’t delay the May 8 deadline unless there are “new elements” such as a written proposal from creditors that would justify an extension. So far it has only received one such proposal by asset manager BlackRock Inc on April 11, which was made public by the government on Tuesday.
“We are not planning to extend the deadline at this moment,” Guzman said.
Argentina’s bonds due 2117, which have been trading at deeply distressed levels since August, climbed to a two-week high earlier Wednesday after Bloomberg News reported that the government and creditors were ironing out possible revisions to the debt offer.
The minister also dismissed the notion of a standstill arrangement whereby negotiations would be shelved until the uncertainty surrounding the coronavirus pandemic clears.
“It is not our intention to delay the resolution of the problem,” Guzmán said. “We’re in a very uncertain environment and doing something that moves the problem away will not be effective in reducing uncertainty.”
Despite its current rejection from bondholders, Argentina’s debt proposal received the backing of Nobel Prize winner Joseph Stiglitz and some of the world’s top economists and academics. Thomas Piketty, Kenneth Rogoff, Ricardo Hausmann and 135 other economists wrote an open letter urging creditors to reach an agreement with the South American nation.
The letter was led by Stiglitz, who mentored Guzmán when he worked at Columbia University.
Among the options the government is willing to consider to boost creditor participation is some kind of sweetener or “value recovery instrument,” as long as it’s within the country’s debt guidelines, Guzmán added. The government issued so-called GDP warrants during its 2005 and 2010 restructurings. The instruments, which trigger payouts when the economy expands by more than three percent in a year, paid out in six of their first seven years.
This time around, the government is “flexible” with the kind of instruments that could be designed and included, Guzmán said. While officials initially floated the possibility, they didn’t gain much traction with creditors, which is why they weren’t part of the official plan.
The national government isn’t the only one with a looming debt deadline. The province of Buenos Aires, the country’s most populous, is up against a May 14 deadline that has the potential to set off a default. The minister dismissed the possibility of a bailout from the national government to avoid it.
“The national government isn’t giving bailouts to pay unsustainable debts,” Guzmán said. “Each province faces a different reality. The ones that face problems of unsustainable debt will lead their own processes to restore sustainability.”
by Patrick Gillespie, Jorgelina do Rosario & Carolina Millan, Bloomberg