Default Looming? Argentina Asks IMF to Restructure Debt Payments

Argentina will renegotiate with the holders of its sovereign bonds and the International Monetary Fund to extend the final payment date of its debt obligations as a way of ensuring the country’s ability to pay, Minister of Economy Hernan Lacunza informed Wednesday.

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“The markets will see this as a default,” Hernan Esteves, an economist with Buenos Aires consultancy FyEConsult, told Reuters, adding that “the problem is that you have a debt restructuring proposal launched by one government, but that will have to be executed by the next government.”

At a news conference in Buenos Aires after meeting with the IMF team visiting Argentina, Lacunza said the government would “re-profile” the debt payments owed to the IMF under a US$56.3 billion standby agreement, the largest in the institution's history.

The country risk of Argentina - meaning the uncertainty of the country paying back its debts - as of Wednesday surpassed the 2,000 point-level reaching 2005 numbers. 

Interest and principal payments on bonds issued under international and local law will not be altered in the restructuring. The changes in final debt payments would be aimed at obligations held by institutional, rather than individual investors, he added.

The crunch point will come in 2021 as debt repayments are due to begin in the first quarter while the latest loan disbursement of $5.4 billion is expected next month.

According to official figures, the IMF has already delivered US$44.5 billion to the Macri administration. Between June 2018 and July 2019, however, US$36.6 billion were taken out of the country by private investors.

Yet as of Friday, the administration continued its old tactic of buying back devalued pesos by selling so-called Central Bank LELIQs, doing so in two separate auctions. However, these short-term bonds have a 74.98 percent interest rate attached to them so that the government is accumulating a daily debt of US$45 million in interest, worsening the debt cycle even further.

Argentina’s peso closed 3.1 percent weaker at 58.1 per dollar on Wednesday. 

Recession-hit Argentina has suffered market volatility due to poor macroeconomic and neoliberal austerity measures that have pushed the economy to the brink of collapse, as extreme poverty, poverty, unemployment, homelessness all have increased since Macri took over.

“Those who have generated this crisis, the Mauricio Macri government and the IMF, have a responsibility to end and reverse the social catastrophe whereby a growing portion of Argentine society is going through,” progressive “Front for All” party said in a statement.

The party has Alberto Fernandez and former president Cristina Fernandez de Kirchner (2007-2015) as their presidential ticket for the October 2019 elections. The pair won the primary presidential elections with 47.65 percent of the votes on Aug. 11 while the current president was 15 points behind with 32.08 of the ballots.

After Fernandez met with the IMF team on Monday he publicly established that he is distancing from the structural adjustment policies.