Argentina Gov’t Ponders Counteroffers in Critical Week for Debt Talks

On 15 May, the Argentine government led by President Alberto Fernández confirmed it had received proposals for the restructuring of the country’s foreign debt from three separate groups of bondholders.
Argentina Gov’t Ponders Counteroffers in Critical Week for Debt Talks

Analysis:

The submission of the proposals comes after bondholders rejected the formal offer presented by the Fernández government; and the government invited them to present counteroffers to resolve the debt problem and help Argentina avoid falling into default. The Fernández administration must evaluate the counteroffers and reach an agreement with bondholders ahead of the 22 May deadline for it to pay a past due US$500m foreign debt repayment or face default. Given this tight deadline and the weight of what is at stake there is a risk that no agreement could be reached in time.

  • In a statement issued on 15 May Argentina’s economy ministry confirmed that it had received counteroffers from bondholders and that it was “analysing the characteristics of these proposals and their implications with the objective of restoring the sustainability of the public debt”. The statement provided no further details regarding the content of the counteroffers.
  • That same day, three of the largest groups of bondholders, Argentina Creditor Committee, Fintech Advisory and Gramercy Funds Management, and The Exchange Bondholder Group, published statements confirming they had submitted a joint offer. A separate offer was confirmed by the Ad Hoc group, which includes BlackRock. Both offers are said to demand better terms for bondholders than those outlined in the formal offer tabled by Argentina, which these groups all rejected.
  • The markets responded positively to the news, with Argentina’s risk spread measured by the Emerging Markets Bond Index (Embi) rating published by JP Morgan falling 480 basis points to 2,839, dropping below 3,000 for the first time since March. Meanwhile, over the counter Argentine bonds rose on average 6.4%, according to news agency Reuters.

Looking Ahead:

In a 15 May videoconference Argentina’s Economy Minister Martín Guzmán said the government is “flexible” and that it is working to reach an agreement with bondholders although he reiterated that any agreement must be “sustainable”. While it is likely that the Fernández administration will now present an alternative offer of some shape, bondholders will have very little time to give it due consideration unless the current deadline is extended.

In brief: Reducing fiscal deficit no longer top priority in Uruguay

* Uruguay’s President Luis Alberto Lacalle Pou has said that reducing the country’s fiscal deficit is no longer his government’s top priority and has been relegated to a secondary objective amid the economic crisis produced by the coronavirus (Covid-19) pandemic. Reducing Uruguay’s steadily rising fiscal deficit was one of the main promises made by Lacalle Pou in last year’s electoral campaign. But Lacalle Pou, who assumed office in March, has recognised that the economic crisis means that his administration will now be more focused on protecting jobs and stimulating domestic economic activity rather than cutting the deficit. Speaking in a 17 May televised interview, Lacalle Pou said that “The pledge to save US$900m is no longer a priority, and obviously neither is reducing the fiscal deficit this year”. Lacalle Pou added that the crisis will drive up unemployment in Uruguay but said that he hoped that the US$2.5bn economic rescue package presented by his government would help to mitigate this.

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