Argentina’s bondholders need to present a reasonable counter-offer to avoid another debt default by the recession-hit nation, according to Nobel laureate economist Joseph Stiglitz.
The Columbia University professor, who has mentored Argentina’s Economy Minister Martín Guzmán, praised the government of President Alberto Fernández for coming up with a plan that would put the country’s debt on a sustainable path. He also warned that creditors may undermine trust in international debt markets by “playing hardball” amid a global pandemic.
“If creditors don’t put forward a sustainable offer, Argentina has no choice; it’s creditors who are really driving the default here,” Stiglitz said in an interview, adding that the country has made it clear it doesn’t want to stop paying its debts. “If it occurs, it will be the decision of the creditors.”
Argentina, which even before the Covid-19 crisis said its debt was unsustainable, is seeking to restructure $65 billion in overseas bonds, and on Monday extended its initial exchange offer until May 22, when US$500 million of delayed interest payments come due. Failure to reach an agreement or come up with the money by that date will result in a default, the ninth since the country’s independence in 1816.
The government has asked bondholders for a three-year moratorium on payments and a steep cut to interest rates, but has said it is open to counteroffers as long as they restore debt sustainability. Creditors have called the deal “unacceptable,” but have yet to propose an alternative.
Earlier this month, Stiglitz and other top economists including Carmen Reinhart, Thomas Piketty, Kenneth Rogoff and Ricardo Hausmann, signed an open letter urging creditors to reach an agreement with Argentina.
Stiglitz, who has been critical of the International Monetary Fund in the past, said this time the Fund is playing a “sensible role” in Argentina’s efforts to restructure its debt.
“Usually, the debtor country doesn’t have a conception of where it’s going, they get bullied by creditors and usually the IMF, which has often acted as a collection agency of the creditors,” he said. “This time, the IMF has played a very constructive role here. My reading is the creditors aren’t used to that.”
Stiglitz added that a default in Argentina would reverberate globally among other debtor nations already looking ahead to potential restructurings, as the virus forces countries to shutter their economies. It could make countries reluctant to engage with foreign creditors in the future, he warned.