On February 19, the International Monetary Fund’s staff concluded that Argentina’s debt was now ‘unsustainable.’ Previously, the IMF Debt Sustainability Analysis published in July 2019 considered it sustainable but ‘not with high’ probability. Over the seven months, some of the risks stated in the DSA materialized, and “gross public debt rose to nearly 90 percent of GDP at end-2019, 13 percentage points higher than the projection at the time of the Fourth Review.” For example, the depreciation of the peso by over 40% was detrimental since a chunk of the debt is held in foreign currency. This happened before president Alberto Fernández announced quarantine and lockdown measures to control the coronavirus’s spread on March 20.
Covid-19 has exacerbated Argentina’s economy. During the Inter-American Dialogue discussion hosted on June 1, “Argentina: Between Covid-19 and Default,” the director of the Institute of Latin American Studies at Columbia University, Maria Victoria Murillo, stated that low-income Argentines who could no longer earn an income now became increasingly dependent on the state. This group of Argentines includes those who work in the informal sector and depend on their daily income to eat. The former minister of the Treasury and former president of the Central Bank of Argentina, Alfonso Prat-Gay, pointed out during the same event that the government’s emergency income has yet to reach a third of the 9 million informal sector workers in the country. Moreover, former minister Prat-Gay recognized that 75% of small and medium-sized companies had not received help from the state.
Amid the global pandemic, Argentina was due to pay $500 million of debt on April 22. After a failure to make the payment, it entered a 30-day grace period, which the administration used to restructure its debt. Nonetheless, the parties did not reach an agreement, and the failure to pay the same amount on May 22 entered the nation into its ninth economic default.
Before the country entered default, Reuters reported that the government’s “initial offer was around 40 cents on the dollar while counter-offers floated by key creditors last week are just under 60 cents.” Reuters also quoted Joseph Stiglitz, a Nobel Prize-winning economist that advised now-Economy Minister Martin Guzman while at Columbia University, saying that Argentina cannot pay more than it offered and that the pandemic supports this assertion.
Now, post-default debt talk decisions are due on June 12, and Argentina continues negotiating with creditors, hoping to avoid repeating the 2002 default litigations. In a recent opinion editorial for the New York Times, Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C., wrote that the IMF Staff’s analysis “concluded that the Argentine government could not afford to make any debt payments in foreign currency to private creditors from 2020 to 2024.” However, during the Dialogue’s webinar on June 1, former minister Prat-Gay mentioned the government’s new offer to pay down the coupons that have already matured and to begin paying bonds by 2022.
Bloomberg News, in an article published on June 9, cited a different proposal that includes warrants linked to Argentine agricultural exports to close the gap between the government’s offer and the creditor’s demands. Moreover, though the article recognizes differences between investors and the government, it also displays ‘renewed optimism’ “as some key investors sign non-disclosure agreements this week to return to the negotiating table.” This NDA comes with trading restrictions, and concerns remain that it “could prevent investors from participating in an auction for the nation’s credit-default swaps on Friday.”
The Bloomberg article continues to state that while Argentina is “closer to a pact to restructure $65 billion in foreign debt,” it might not happen by June 12. Finally, Reuters acknowledged that a failure to reach a deal could prevent Argentina’s “access to loans and impact its private sector.”