“Covid-19” … a good reason for Argentina to again default on its debts

The “Monetary Fund” expects the economy to contract by 5.7% this year

The Argentine economy is close to announcing its inability to pay the interest installments of international loans due within two weeks, a possibility that threatens to revive its old reputation as a country that suffered from serial economic failures, for the Latin American country to return to the same suffering, but this time due to the Corona virus pandemic.

In the event that Argentina defaulted, which until last Friday seemed likely, this will be the third time, in two decades, that the country has failed to repay loan installments, after billions of dollars of foreign debt have accumulated on it in a deep cycle of economic imbalance. Argentina will join Lebanon as the first to default due to the financial turmoil caused by the virus. And 45 million people in Argentina have already suffered in the third year of a serious downturn when the scourge of the Coronavirus hit the world, accelerating economic suffering after imposing a general lockdown that included many companies and leaving workers without work.

The Corona pandemic came suddenly to put obstacles in front of the government’s plans to restructure $ 66 billion of debts owed to a group of foreign creditors, including investment banks on “Wall Street” and other private investors around the world. Some of that debt is leftover unpaid loans resulting from Argentina’s 2001 default.

It is worth noting that the earliest due date for interest payments will be on May 22nd at a value of $ 500 million. The $ 66 billion includes Argentina’s outstanding debt, the value of treasury bonds, 3-year deferral of payments, 62 percent write-off of interest value, and 5.4 percent of base installment value.

The country’s inflation rate is over 50 percent, and the International Monetary Fund expects the economy to shrink at a rate of 5.7 percent of GDP this year.

The government says more than 20 percent of its revenue can go to debt service installments, which makes it impossible for it to fulfill its obligations to creditors.

And international creditors have expressed their discontent with Argentina’s debt restructuring plan, which was to be approved last Friday. There is no indication that the creditors and the government are close to striking a deal. With the exception of an agreement to extend after May 22, for further negotiations, Argentina will default for the ninth time in its history.

Jimena Blanco, head of the Americas research team at Verisk MapleCroft, a risk advisory firm, said she had determined the probability that Argentina would default at 89 percent. “It is very difficult to reach an agreement when both sides (the creditor and debtor) say they are right,” she added. By the end of last year, “Argentina submitted its offer to the creditors and said it was the only offer, which you either accept or reject.”

The administration of President Alberto Fernandez, who took office in December, has indicated in recent days that it is ready to make some concessions. But the government said it had little room to maneuver, given international expectations that its economy would contract by about 6 percent this year.

The government’s offer to creditors is to demand a three-year grace period for future payments, with a 5.4 per cent reduction in loan balance and a 62 per cent cut in interest payments, which the three largest groups of creditors have rejected.

Argentina’s recent crisis comes after years of efforts to reintegrate itself into the global economic system after its failure in 2001 to pay debt installments totaling $ 100 billion, which led to one of the largest economic collapses in recent Latin American history, and years of court litigation American.

And all the gains Argentina made in reducing poverty over the past decade went in the opposite direction, so President Macri sought a $ 57 billion loan from the International Monetary Fund.

Argentina’s gloomy outlook has turned into a disaster, after it was announced that the country had been infected with the new Corona virus pandemic last March. Argentina imposed one of the strictest lockdowns in Latin America on March 20, which helped keep the number of deaths from the pandemic relatively low. However, measures including border closures and strict quarantines have devastated an already weak economy and left many Argentines in the pain of hoping for a better era.

Economists say that if the days we are now experiencing are normal times, it makes no sense for Argentina to get sympathy for falling short again. But the broader economic collapse caused by the coronavirus may give Argentina some excuse for bargaining.

In the same context, Miguel Kegel, the former finance minister who runs the “Equinox Consulting” company, said, “Coronavirus contributes to improving Argentina’s chances of concluding a suitable deal. Creditors are losing money everywhere, and Argentine bonds are of very low value, so there is a possibility that if Argentina makes a reasonable offer, the creditors will not object. ”

Claudio Loser, a former director of the International Monetary Fund’s Western Hemisphere Department, agreed that the pandemic could make creditors hesitant to insist on strict payment terms. “Creditors have to be careful because I don’t think they will find the same sympathy for their cause, as they have done in the past,” he added. There is a perception of the great damage the epidemic has inflicted on the world. Therefore, what is happening to Argentina is more understandable. ”

It is worth noting that Ecuador has recently reached an agreement with bondholders to delay paying interest on $ 20 billion in debt until next August. Earlier this week, a group of 138 economists, including Nobel Prize winners Joseph Stiglitz and Edmund S. Phelps, wrote an open letter supporting Argentina’s efforts to restructure its debt. “Debt relief is the only way to fight the epidemic, and put the economy on a sustainable path,” the economists wrote. However, to make meaningful concessions such as an optional three-year suspension of payments, creditors are likely to want to see a detailed plan of how Argentina intends to revive sustainable growth, says Daniel Kerner, managing director for Latin America at the Eurasia Group for risk advisory. Political.

The average Argentine will probably not feel the impending impact of a default. The country is already closed to international capital markets, and investors are largely moving away, not only from Argentina, but also from all of the so-called emerging economies.
– The New York Times special service for Asharq Al-Awsat

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