President Mauricio Macri called for calm and dialogue with the opposition as Argentina sought to avoid a ninth sovereign default by asking its creditors, including the IMF, for more time to pay down $ 101bn of debt.
The peso fell and bond yields spiked on Thursday in response to the proposed debt structure. Market moves deepen a crisis triggered this month when reformist Macri suffered an unexpectedly heavy defeat in a nationwide primary election that anything but wiped out his chances of re-election in October.
"There are 59 days left for the election. Getting there in the best way is my responsibility as president, but it never depends on just one government," Macri said in a television address Thursday morning, implicitly dismissing speculation about elections could be promoted.
The peso fell 2.89 percent before mating some of the losses, while the return on the country's dollar bonds also spiked, indicating a fall in prices. The century's bond fell to just 40.55 cents on the dollar, while the government's shorter dated bonds maturing in 2021
Argentina's financial markets had already plunged in the wake of the primary election with concerns that a government led by opposition candidate Alberto Fernández would mean a return to major budget deficit and jeopardize the country's $ 57 bn. IMF bailout.
Macri had hoped to project a picture of confident financial management and avoid drastic t A recent auction of short-term government debt, however, failed to attract enough investor support, forcing Buenos Aires to take action.
What constitutes a sovereign default?
Defining a sovereign default is often difficult in practice, with many countries couching over debt relief in "voluntary" terms.
Typically, one of the major credit rating agencies will declare a default or selective default when a country fails to meet all of its debt obligations, whether by late or incomplete payment or outright rejection. Individually, an agency for the financial industry under the auspices of the International Swaps and Derivatives Association can declare a "non-payment" that triggers so-called credit-default swaps, a form of insurance against debt fraud.
Countries can extend repayment plans without default if they construct a voluntary exchange of old bonds for new long-term bonds, perhaps weakening the agreement by offering higher interest payments in return. But such an exchange must not be forced to be truly voluntary.
For example, Greece's record-breaking debt restructuring of EUR 200 billion in 2012 was supposedly voluntary, but only happened thanks to governments' pressure on European banks and the use of collective bargaining clauses – these meant that a deal signed with a supermajority of creditors was binding. all creditors.
In Argentina's case, even a voluntary repatriation is likely to have a negative impact on Argentine bondholders in practice, and will therefore constitute a standard – the ninth in the country's history, and the third since the turn of the millennium. Robin Wigglesworth
Argentina plans to postpone $ 7 billion in payments on short-term local debt maturing this year and will seek a $ 50 billion "voluntary repatriation" of long-term debt – much of it held by foreign investors – in addition to postponing repayment of $ 44 billion of loans already paid by the IMF.
"The government aims to remove the outlook for the financial program in the short, medium and long term," Hernán Lacunza, Finance Minister, said late Wednesday. "This is due to short-term liquidity stress and not due to debt solvency problems."
Mr. Lacunza, who recently took over after his predecessor withdrew in the wake of the primary poll, said the rescheduling of Argentina's debt should provide the government with vital relief from 2020 to 2023.
But a close financial adviser to Alberto Fernández expressed concern that the measures could fail to restore the financial stability sought by the government and potentially raise panic among Argentinians who cannot switch investments for cash.
“This is a bombshell. It is a very complicated situation with many risks, ”the adviser said. "The problem is if people react poorly and you end up with a run in the banks."
Although Argentina is only seeking a voluntary extension of repayment dates, rather than "cutting" interest payments or the amount of debt, relocation will probably be doomed to constitute another sovereign default on some measures.
The markets had expected a debt restructuring following the shock of August 11, because the collapse of the peso had pushed costs to serve Argentina's mostly dollar-denominated debt sharply and boosted inflation. Capital Economics estimated this week that the government had $ 30bn in debt due this year and another $ 50bn next year.
The IMF has a delegation in Buenos Aires that is assessing the government's compliance with the bailout program and will soon decide whether to pay out the next $ 5.4 billion of loans. In a statement, the fund said it was "in the process of analyzing [the debt operations] and assessing its effect. The staff understands that the authorities have taken these important steps to meet liquidity needs and safeguard reserves. "
It concluded:" The Fund will continue to stand with Argentina during these challenging times. "
Fernández has been strongly critical of the IMF, blaming it – along with Macri – for imposing a" social disaster "on the Argentine people, suffering from recession, high unemployment and rising inflation.
Simon Waever, a strategist at Citi in New York, said the country's bond market already priced at a significant risk of default, likely limiting market declines.
“Extending maturity on T-bills and locally held long-term debt will be faster than to negotiate with external bondholders, "Waever said in a note to clients.
"Bonds are likely to remain under pressure initially as a result of these announcements until there is greater clarity in future policy due to continued heavy positioning. However, with prices already approaching 40 [cents on the dollar] we see disadvantages as more limited "
Alberto Ramos of Goldman Sachs said the timing of the announcement was surprising." If a political transition occurs, the market was expecting Argentina to have to reposition its debt, "he said." But what no one expected is that they should get the ball rolling with this administration. "