Argentina’s most recent debt restructuring proposal would restore debt sustainability and there’s little room to further increase payments to private creditors, according to the International Monetary Fund.
“There is only limited scope to increase payments to private creditors and still meet the debt and debt service thresholds,” the IMF said in a two-page statement published Monday. “Argentine authorities’ revised debt restructuring proposal would be consistent with restoring debt sustainability with high probability.”
It’s the first comment from the IMF since it released an 18-page “technical note” on March 20, analysing the government’s ability to repay creditors. After weeks of silence, insisting negotiations were an issue solely between creditors and Argentine authorities, the IMF is making another public push to support the government’s offer.
To the Fund, a debt deal with a net present recovery value above 50 cents would make it very hard for Argentina to restore debt sustainability, according to a person with direct knowledge of the IMF’s thinking. That estimate assumes a 10 percent exit yield, said the person, who was not allowed to speak publicly because the talks are private.
"Underlying macroeconomic assumptions ... remain subject to exceptional uncertainties, particularly with respect to the impact of the Covid-19 pandemic, with significant downside risks to Argentina’s economic outlook, fiscal position, and — potentially — debt-carrying capacity," the IMF said in its statement.
The intervention comes just a day before the deadline for Argentina's offer – the government is widely expected to extend it in the next 24 hours, perhaps for as long as another 10 days.
In March, the IMF said Argentina needed between US$55 billion to US$85 billion in debt relief in order to put debt on a sustainable track. Led by Economy Minister Martín Guzmán, the government revised its offer to creditors on May 26. Creditors have sent a counteroffer that would provide US$36 billion of cash flow relief.
Neither the net present value of the government’s latest offer or the bondholder’s counter-offer were disclosed.
IMF officials declared Argentina’s debt unsustainable earlier this year, calling on creditors to make a “meaningful contribution” to help restore Argentina’s debt sustainability. Argentina defaulted on May 22 but continues negotiating with creditors to restructure US$65 billion in overseas debt.
The IMF’s role is particularly important because in 2018 it granted Argentina a record US$56-billion bailout when the country was beginning to enter a recession. The loan didn’t help turn around the economy and both sides have been waiting to see how negotiations with private creditors conclude before reworking Argentina’s repayments to the IMF.