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ECONOMY | 06-04-2020 09:23

Government postpones local debt payments due in dollars until end of year

The government has issued a decree to defer close to US$9.8 billion in local dollar-denominated debt payments until 2021.

The government has issued a decree to postpone close to US$10 billion in dollar-denominated debt payments issued under local law, cancelling all such actions until the end of the year.

The move, which should relieve pressure on payments due this year, does not impact Argentina's wider bid to restructure around US$70-billion worth of debt in foreign currency issued under international law. 

The government cited the coronavirus pandemic as one of the regions for the delay in the text of its DNU emergency decree, suggesting that imminent payments would exacerbate the social and economic emergency facing the country as it faces up to a public health crisis. The government said the Covid-19 pandemic had  "altered the anticipated deadlines" in the government's timetable for stabilising its debt situation.

Some experts warned that the move could be interpreted by creditors as putting Argentina in "technical default," as it implies a change in the conditions under which those bonds were issued.

The decree defers principal and interest payments on debt denominated in dollars until December 31, or an earlier date that could be determined by the Economy Ministry, should Argentina's debt sustainability outlook improve. Reuters reported Sunday evening that the move would impact as much as US$10 billion due this year, while AFP put the figure close to US9.8 billion.

Exceptions to the decree include public securities, including non-transferable bills held by the Central Bank and selected dollar-denominated bills issued by the Treasury, such as those owned by the Argentine pension fund managed by the ANSES social security agency. The preface to the decree refers to the impact of the coronavirus pandemic as one of the reasons why talks on foreign debt are delayed.

Some analysts said the move would give Argentina valuable breathing room, as well as potentially enable it to make other payments due under local and international law. "As the debt was issued under local law, any creditors wanting to take legal action would need to do so in local courts," reported Reuters on Sunday night.

The Economy Ministry is currently engaged in talks with private creditors in a bid to restructure more than US$69 billion in debt in foreign bonds. The government owes creditors US$4.5 billion in payments of local law bonds, issued in foreign currency, due this year, according to estimates by the Buenos Aires-based consultancy firm 1816 Economy and Strategy.

Delaying up to US$9.8 billion in payments on its public debt leaves it still facing US$3.5 billion in payments this year on its foreign debt.

The government on March 10 decided to move ahead on restructuring of US$68.8 billion of its privately held foreign debt, and had planned to make an offer to creditors by March 31 but then pulled back because of the health crisis.

One of the country's largest local dollar maturities is pending May 7, when a payment of US$1.4 billion for Argentina's Bonar 2024 bonds is due. Economy Minister Martín Guzmán told the media on March 31 that Argentina was considering renewing local dollar bond payments as it had been doing with other peso bonds. 

Authorities also said they would address the upcoming maturity of local Boncer bonds maturing in 2020 in the coming days, according to a statement from the Economy Ministry sent on April 1.

To date, the International Monetary Fund (IMF) – which Argentina owes US$44 billion after a record credit-line granted in 2018 – has backed the country's position, describing its debt burden as "unsustainable." 

Economy Minister Martín Guzmán.is expected to make an offer to private bondholders on around US$70 billion issued in foreign debt and international law later this week, though the process has been hit by delays due to the global coronavirus pandemic and subsequent nationwide lockdown for all citizens.

– TIMES/BLOOMBERG

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