South America

Rethinking Argentina’s Debt

A big question facing Alberto Fernández, Argentina’s new president, is what to do with the country’s debt, the Financial Times reported. Gross government debt is equal to 93 per cent of GDP, its highest level since the 2004 restructuring, while the price of most Argentine sovereign bonds has fallen to less than 50 cents on the dollar. To some, these numbers suggest an over-indebted economy requiring an aggressive debt restructuring imposing significant haircuts on creditors to restore debt sustainability and economic growth. But is this the correct way to look at it? I think not.

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Bondholders have balked at a plea to accept late payment on debt backed by the province of Buenos Aires, in a stand-off that could complicate already delicate negotiations over Argentina’s central government debt, the Financial Times reported. Buenos Aires province’s bonds fell sharply on Wednesday after a group of investors criticised an attempt to secure their approval to postpone a $250m debt payment coming due on January 26.

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Swedish oil refiner Nynas, which is owned by Venezuela’s state-run PDVSA and Finland’s Neste Oil, said on Tuesday it planned to reorganize its business in an attempt to disentangle itself from U.S. sanctions imposed on Venezuela, Reuters reported. Nynas said the proposed changes to its ownership structure, backed by both PDVSA and Neste Oil, were filed with the United States’ Office of Foreign Assets Control (OFAC) on January 17.

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Argentina will send a bill to Congress on Tuesday outlining a plan to address the debt crisis and make payments “sustainable,” Economy Minister Martin Guzman said, Bloomberg News reported. South America’s second-largest economy isn’t able to pay its debt under current conditions and will look to either alter maturity dates, interest rates or outstanding capital amounts, Guzman said. Exact details of the proposal will have to wait, he said, though the bill will cover foreign law bonds as well.

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Argentina’s Chubut province bonds plunged to the lowest since November after local officials said they wanted to renegotiate the debt, Bloomberg News reported. The bonds due 2026 slid as much as 8 cents to 63.3 cents on the dollar after its economy minister Oscar Antonena proposed reducing coupons and suspending principal payments for four years on $650 million of the overseas bonds. Antonena told local reporters that the province is sending the proposal to its local legislature along with a fiscal readjustment plan that would shrink its bloated public sector.

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Argentina’s inflation rate hit 53.8 per cent in 2019, climbing to its highest level in almost three decades and underlining the scale of the challenges facing the embattled country’s new leftist president, Alberto Fernández, the Financial Times reported. The national statistics agency announced on Wednesday that prices rose 3.7 per cent in December after renewed currency volatility ahead of elections last year, confirming Argentina’s place among the top five countries with the highest inflation rates in the world — behind Venezuela, Zimbabwe, South Sudan and Sudan.  Even so, Argentin

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Ecuador is preparing to sell $400 million in bonds backed by the Inter-American Development Bank to fund the country’s housing program, according to a person with direct knowledge of the transaction, Bloomberg News reported. The so-called “social bond” will be offered to investors this week, said the person, who asked not to be identified because the information isn’t public. The IADB would pay bondholders $300 million in the event of a default, the person added.

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Buenos Aires province has started talks with some creditors as officials seek their blessing on a plan to delay a $250 million payment due this month, Bloomberg News reported. Discussions have taken place with more than 10 groups or individual funds that own the overseas notes due in 2021, according to a provincial official who asked not to be identified. The idea is that pushing back the payment will avoid a hard default and allow the province, the federal government and creditors more time to come up with a comprehensive restructuring plan.

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Bonds issued by the province of Buenos Aires fell sharply on Monday after a minister in the national government said the state would not come to its aid in making a big debt payment due at the end of this month, setting investors on alert for tough negotiations over the country’s sovereign debt, the Financial Times reported. Debt backed by Argentina’s most populous province and set to mature in 2021 fell over 10 per cent to 62 cents on the dollar. Another bond maturing in 2027 saw its price slip about 3 per cent to 44 cents, while government debt prices also wobbled.

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President Alberto Fernandez said he has set a March 31 deadline to renegotiate Argentina’s rampant public debt and that a more “innovative” International Monetary Fund approves of the direction his government is taking, Reuters reported. Argentina is in talks with bondholders and other creditors to restructure about $100 billion in debt, among them the IMF to whom it owes about $44 billion. “I think that from here to March 31 our trajectory is going to be very clear,” Fernandez said in an interview published on Sunday by the online news site El Cohete A La Luna.

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