Argentina Imminent Default

On 21 May Argentina’s economy ministry announced that it has extended the deadline for holders of Argentine sovereign bonds issued under international law to accept the debt restructuring offer it has tabled to 2 June.
Arganetina debt restructuring

Analysis:

The announcement gives the government led by President Alberto Fernández more time to strike a deal with bondholders to restructure Argentina’s onerous foreign debt, but it does not prevent the country from being declared in default today (22 May) unless it makes a past due US$500m foreign debt repayment. Missing this repayment and temporarily falling into default appears to be part of the Fernández administration’s strategy to pressure bondholders into agreeing a deal rather than face the ordeal of trying to collect their money via the courts. But this is a high-risk strategy that could once again see Argentina frozen out of international financial markets and fighting lawsuits for years to come if no debt restructuring deal is reached.

  • The Fernández government’s debt restructuring offer, originally due to expire on 8 May, has already been rejected by bondholders. But the government invited bondholders to present counteroffers or accept its proposal, setting 22 May as a new deadline. This deadline coincides with the end of the grace period for Argentina to make the overdue foreign debt repayment or formally default on it (a deadline that can’t be extended by the government).
  • Some bondholder groups have presented counteroffers, which the two sides are said to be discussing. But to date the government has not accepted any of these, nor presented an improved offer. With the deadline looming the government has once again opted for a deadline extension to try to reach a deal.
  • In a statement the economy ministry said that it decided to extend the latest deadline to continue discussions with bondholders in the hopes of arriving to a “successful restructuring of the debt”. The statement makes no mention of the foreign debt repayment due today. But anonymous government sources have told the local press that this will not be forthcoming, as the Fernández administration tries to send a clear message that it cannot continue paying its debts as they stand.

Looking Ahead:

While a short-lived default followed by a debt restructuring deal would not have major consequences, analysts have warned that there are no guarantees that the government will strike a quick deal with bondholders after defaulting. 

In brief: Uruguay cautiously optimistic on economic recovery

* The monetary policy committee (Copom) of Uruguay’s central bank (BCU) has announced that the decline in the country’s economic activity due to the coronavirus (Covid-19) pandemic will be less marked than previously projected. In its latest monitoring meeting, the Copom concluded that “a gradual return to activity in certain sectors” has enabled it to adopt a more optimistic outlook, although it cited no specific figures and noted that the national economy shows signs of the negative global impacts of the pandemic. The Copom had previously expected businesses to pick up their activity later in the year, in the third quarter. The Copom notes that it continues to closely monitor growth and inflation expectations, and maintains a monetary policy focused on guaranteeing liquidity. Uruguay’s annual inflation rate currently stands at 10.86%, outside the BCU's target range, while its economy is expected to contract by 4% this year, according to the April forecast by the United Nations Economic Commission for Latin America and the Caribbean (Eclac).

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