Argentina could take quick route to restructure debts: Moody’s
September 27, 2019 |
Argentina's return to debt markets can follow Uruguay's example or revisit a tortured history
Argentina, struggling once again with debts and technically considered in default for asking creditors to accept late payments on outstanding sovereign bonds, can resolve the situation quickly or revisit its tortured history of a drawn out restructuring, a senior Moody's Investors Service analyst said on Thursday.
Gabriel Torres, a senior credit analyst at Moody's, said Latin America's third largest economy could use Uruguay's example of renegotiating its debt by extending maturities without investors taking discounts on their investment or delay a restructuring much like they did from the 2001 default and set themselves up for a more challenging road ahead.
Argentina has to restructure more than $100bn and return to the markets so it can borrow again to cover high public spending and keep on top of future debt payments.
However, President Mauricio Macri, considered a market-friendly conservative, may not be able to push through the restructuring in the face of his slimming chances to win the October 27 general election that could make him a lame-duck leader. He was defeated by Alberto Fernández, a moderate left-leaning politician whose running mate is former President Cristina Fernández de Kirchner, in an August 11 primary election.
"If I'm a creditor, why would I negotiate with this government when it is the next government that will have to make the decision?" Torres asked. "This is a decision for the next government."
Fernández, who still has to win the election, has repeatedly said that he wants to pay the debt, but has hinted this could involve a restructuring. "The debts are going to be honored, but not at the expense of the suffering of Argentines," he said at during a visit to Spain earlier this month. Fernández has not provided details, however.
Torres said that, based on his understanding of the comments from the left-leaning coalition, the next administration would try to avoid the same kind of restructuring the country undertook in 2001 on roughly $100bn of sovereign debt, the largest single default at that time. In that instance, Argentina did not launch a restructuring process until 2005 and then asked for a 76% discount on $82bn in debt. It took a second restructuring offer in 2010 to reach a 93% acceptance rate. The remainder was settled in early 2016, a long process that kept it out of financial markets for 15 years.
"It's not important how much you owe. It is important that you have access to the market," Torres said. "This is what the next government is going to have to face. If the market believes in what it is doing, then it will have access to financing."
Torres expects the approach that Argentina's next government takes will be similar to that of Uruguay, which defaulted on $5.4bn in 2003. Uruguay asked creditors to swap the defaulted bonds for new ones with longer maturities and without a discount, helping it return to borrowing a year later and regain investment grade status in 2012.
Torres said there is little room for Argentina to drag out a restructuring. After the 2001 default, Argentina's economy recovered in part thanks to a boom in commodity prices, led by soybeans, a leading export. This allowed it to build fiscal and trade surpluses, providing a cushion to keep on top of public spending even while it had no access to international capital markets. Eventually, being locked out of capital markets forced the government of Cristina Kirchner to adopt fiscal policies that distorted the overall economic framework.
Since then, the fiscal and trade accounts have fallen back into deficit, and public spending has surged to 40% of GDP this year from 25-26% of GDP in 2001 to 2002, Torres said.
With a small local capital market — at 15% of GDP, compared with the average in Latin America of 50% of GDP — Argentina is heavily reliant on foreign financing, he added.
In 2020, roughly $38.45bn in Argentine government debt matures, but the repayment burden drops significantly after that and remains relatively low for the next 15 years.
While its upcoming debt repayment schedule is not considered excessively heavy, Torres warned that Argentina cannot allow the default to extend for too long because "it will need to return to the markets for financing in the next few years."
Torres, speaking at a seminar in Buenos Aires, added that Moody's already very low credit rating of Caa2 for Argentina faces the prospect of being dropped to Caa3.