Argentina's front-runner for president proposes quick debt restructuring

Argentina's front-runner for president proposes quick debt restructuring

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Alberto Fernández, the front-running candidate to become Argentina’s next president in December, said he would seek to restructure the country’s defaulted debts quickly and without a discount.

Argentina defaulted on its debts in August when it asked creditors to accept late payments on outstanding sovereign bonds. This has sparked concerns of a repeat of the drawn-out process that kept the country effectively blocked from the international capital markets for 15 years after a $100bn default in 2001.

Fernández, a moderate left-leaning politician, said his proposal would be to restructure the debt far faster than back then, during part of which time he was the chief of cabinet, from 2003 to 2008. Argentina holds general elections on October 27.

“We can face the debt with a serious and sensible negotiation with the creditors,” he said late Thursday at an event in Córdoba, a city in the center of the country.

The model to follow, he added, is that of Uruguay. Unable to pay $5.4bn in debt in 2003, Uruguay asked creditors to swap the defaulted bonds for new ones with longer maturities and without a discount. The process allowed the sovereign to return to borrowing a year later and regain investment grade status in 2012.

“Due to international conditions, it will not be difficult to do something similar to what Uruguay did,” Fernández said in his televised speech. “There will be no difficulties to achieve that. It will save time and there won’t be discounts.”

Quickly restructuring the roughly $100bn worth of sovereign debt now in question would give the country time to return to economic growth and boost exports so that it will have the dollars to service the debt going forward.

“Growing and exporting is the great challenge,” he said, adding that it is “the only way to get genuine dollars.”

Argentina's benchmark January 2028 bond, which carries a coupon of 5.875 percent, traded up 0.1210 points in price, bidding 39.62 with a yield of 22.035 percent. The 2117 Century bond, carrying a yield of 7.125 percent, gained 0.75 points to bid 42.75, yielding 16.652 percent, according to data from Refinitiv.

Argentina’s economy is expected to contract 2.5% this year and another 1.1% in 2020 before recovering with 1.9% growth in 2021, according to the latest survey of economists by the central bank of Argentina. The country gets most of its dollar inflows from exports of soybeans and other crops, however the incipient development of oil and natural gas resources in the Vaca Muerta, one of the world’s biggest deposit of shale, could become another major source of foreign currencies.

About 4% of Vaca Muerta’s acreage is in full-scale development, and while pipeline bottlenecks are limiting the growth of gas production and export potential, oil exports are due to start on a regular basis next year. Daniel González, CEO of state-backed YPF, the busiest player in Vaca Muerta, said on Tuesday that oil exports from the play could rise from negligible this year to a regular 60,000 barrels per day in 2020 and go on to reach 500,000 barrels per day in 2024. At current crude prices, he calculates that revenue on these exports would be $10bn per year in 2024.

On Thursday, Gabriel Torres, a senior credit analyst at Moody’s Investors Service, said Argentina has to restructure its debts so it can return to the markets to borrow again in order to cover high public spending and keep on top of future debt payments. 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 to cover debt payments and public spending, which he said has surged to 40% of GDP this year from 25-26% of GDP in 2001 to 2002.