Facing default, Argentina's Macri seeks debt rescheduling [View all]

[sandensea]

Amid the worst economic crisis in nearly two decades and facing a likely default, Argentine Economy Minister Hernán Lacunza today announced that his office will be seeking a partial debt rescheduling.

The re-scheduling would affect $57 billion in debt - much of which currently yields 75% interest in pesos or 7% in dollars.

No principal reduction - or "haircut" - was proposed. Instead, Lacunza is seeking to swap $7 billion in debt maturing within the next few weeks for debt payable within 6 months.

A "voluntary reprofiling" of $50 billion of longer-term debt will also be sought.

Argentina's $330 billion public debt has grown 50% in 4 years and now consumes 16% of the national budget.

The high yield on these notes had made them popular investments until Monday - when only 5% of $1.6 billion in maturing dollar-denominated 'Letes' were rolled over.

Because the proceeds are largely being dollarized and wired overseas, these maturities are contributing to a rapid depletion of Argentina's foreign exchange reserves - which fallen by over $10 billion in August to $58 billion.

Net reserves, however, have dwindled to $13 billion - well below this year's projected current account deficit of $20 billion, as a result of mounting foreign debt interest outlays.

International Macri Fund

Lacunza also mentioned the possibility of rescheduling $45 billion in IMF debt, most of which is due by 2023.

This debt is part of a record, $57 billion bailout granted to Argentina in June 2018 - reportedly at the insistence of U.S. President Donald Trump, who sought to boost re-election chances for right-wing President Mauricio Macri (a longtime personal friend).

The political motivation behind the bailout led local critics to refer to the IMF as the "International Macri Fund."

Macri was instead dealt a drubbing by voters on August 11, losing by 16% to center-left candidate Alberto Fernández.

Fernández has repeatedly called on Macri to reschedule Argentina's $200 billion foreign public debt - the most problematic type, as it can only be serviced in dollars or other hard currencies.

Back to the Future

The proposals drew comparisons to Argentina's infamous, July 2001 "Mega Swap."

The Mega Swap involved an exchange of 37 types of notes and bonds for longer-term, higher-interest bonds. The swap was accepted by most bondholders, and delayed up to $30 billion in payments but added $38 billion in additional interest payments in the out years.

The Mega Swap was a boon to banks seeking to unload Argentine bonds – but failed to stem the crisis or avoid a default just six months later.

Of the $82 billion in defaulted bonds that had to be restructured in 2005 (triggering a wave of holdout lawsuits), 60% were issued in the Mega Swap.

At: https://translate.google.com/translate?hl=en&tab=wT&sl=es&tl=en&u=https%3A%2F%2Fwww.baenegocios.com%2Fpolitica%2FGobierno-anuncia-un-canje-de-deuda-para-estirar-los-vencimientos-20190828-0039.html



Argentine officials (left) discuss today's debt rescheduling proposal with visiting IMF officials.

Today's announcement, if enacted, will postpone some short-term, high-interest obligations until next year - when a new administration is expected to be in office.

Javier Milei, a libertarian Argentine economist, noted that "if a government fails to repay debts at the agreed-upon time and terms, and if, moreover, it swaps the debt at rates other than market rates, it's a selective default."