Argentina will not make $500 mln debt payment

Argentina will not make $500 mln debt payment

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Argentina will not make a payment of $500 million on three foreign-law bonds due on Wednesday, as it seeks to restructure them over the next few weeks, Economy Minister Martín Guzmán said on Tuesday. 

“We will not be able to face the payments of the next days,” he said in an interview with El Destape Radio. 

The payments are for Global Bonds that mature in 2021, 2026 and 2046, all of which are part of a $66.2 billion restructuring offer that Guzmán announced last week, and roundly rejected for foreign bondholders.

The plan is aimed at giving the country time and a financial breather to pull out of a recession in its third year that is only expected to get worse as a result of the COVID-19 pandemic. The proposal calls for a three-year grace period on capital and interest payments, a 62% discount in interest payments and a 5.4% reduction in capital payments, which combined would provide $41.5 billion in debt relief. 

Three major bondholder groups snubbed the offer, saying it falls short of what the country needs to achieve sustainable growth and puts too much of the burden on international creditors. 

Guzmán downplayed the impact of the expected nonpayment.

"Argentina is already in a situation of virtual default,” he said, adding: “So, it is not that Argentina today has access to the international credit markets and then after failing to meet the debt payments that are coming in the coming days it will lose that access.” 

He also said he would not make any changes to the offer despite the rejection from the bondholder groups, which include major investment funds like BlackRock and Fidelity. 

“The offer is what it is,” Guzmán said, adding that it was drafted based on conversations with bondholders. But he said the creditors made demands that he considers unsustainable, and even less so because of the economic impact of the pandemic. 

“We can’t pay anything more, and with the coronavirus even less so,” he said. 

He also defended the offer, calling it “serious,” “reasonable” and done “in good faith,” and said that the rejections had been expected to put pressure on Argentina to improve the proposal. “But as I said, it can’t. Because offering more is not sustainable and we are not going to do that,” he said. 

The tactics are not unusual by both sides as they seek to come to a middle ground, but so far neither side appears to be ceding and this is raising concerns of a hard default

In a note to clients on Monday, Walter Molano, chief economist at BCP Securities in Greenwich, Connecticut, said Argentina has the resources to make the $500 million payment on Wednesday, but said that he expected the government would choose to not pay as a pressure tactic. This means the government has 30 days to make the payment or go into default — or to reach an agreement with the bondholders.

That is what Guzmán appears to think. “Now is the time for creditors to make a decision,” he said.