05/08/2020 - 2:03
Martín Guzmán prepared himself years for what will happen between today and the next few weeks. Restructure a debt and prevent Argentina from falling into default. The result of the negotiation will finish shaping not only his thesis but also the perspectives of the Government . Alberto Fernández will choose whether the country improves the offer or if it is approaching default to close a chapter that began to be written in the PASO of August 2019 when the country risk soared and the economy entered a zone of turbulence that only the exchange clamp calm.
Tomorrow, Saturday, the Ministry of Economy plans to make an announcement . For experts, the possibility that the minister announces a debt settlement today is low . The offer would have achieved no more than 40% acceptance. At the local level, the offer registered 70% adherence, although this represents less than 10% of the value of the securities that are exchanged.
What does it mean if Argentina does not achieve a successful swap? First, you will not have the right to change the bond prospects and thus kick the maturities without being sued. Second , that the date to watch will be May 22 . That day the grace period expires to pay a maturity of US $ 503 million that was not paid in April. If that date is crossed without an agreement with the bondholders, the country will fall into default. Guzmán and his advisers will have from today at 6 pm -the offer closes at 5 New York time-, 15 days to close the matter.
"There are differences with the default of 1982 and 2001. Today the bondholders are more dispersed and the politicians do not want to go into default" (Daniel Marx)
The minister presented two weeks ago a menu of 5 bonds to exchange 19 titles issued by Néstor Kirchner and Mauricio Macri. The bondholders rejected the offer, basically, because the new securities do not pay interest in the first three years, they have a capital drawdown (low but symbolic) and the coupons are minimal. They ask for more.
It's possible? Many believe yes and it is not far to reach an understanding. Even the economist Jeffrey Sachs , who supports Guzmán, said that by eliminating the capital drawdown and if the bondholders ask the government agencies for guarantees to sweeten the Argentine offer, the agreement would be closed . Separate comment: the IMF not only did not issue any statement on the proposal but made it clear yesterday that it is a matter for the country and the creditors. Did Economy expect an endorsement from Kristalina Georgieva in this instance? Some say yes.
"A default scenario increases the risk of inflationary acceleration and the dollar gap for these months" (Elisabet Bacigalup, chief economist at abeceb)
The minister sits in his comfort zone with the support of international academics (such as Sachs, Joseph Stiglitz and others who said so on Wednesday) that he achieved on Wednesday and, yesterday, from local figures. The question for many is whether this is enough to accomplish their task.
While the Government maintains that the economy is in virtual default, and has even said that it prefers that alternative to an agreement that conditions its room for maneuver in the coming years, other experts assure that there is no objective condition for Argentina to go into cessation. of payments. If an economy has not materialized its collapse, as was the case in Argentina in 2001, the 'benefits' of a default do not outweigh those of avoiding it.
According to Daniel Marx , former Secretary of Finance, Argentina has a level of debt over output (70%) higher than the average for the region (50%) but lower than that of Brazil (90%). And Brazil is nowhere near default. "It is because an important part of its debt is financed in local currency," he stresses.
"What if there is a default?" The main impact would be legal, there would be breaches of contracts, and it would lead creditors to the United States courts to litigate. "(Brad Setser, economist at the Council on External Relations and signatory of the letter of support for Martín Guzmán).
The dollar debt with the private ones that Argentina seeks to exchange is about US $ 83,000 million (20% of GDP). Adding up what is in the hands of the public sector and organizations, we reach the 70% that Marx calculates.
The Argentine team and the IMF argue that the Argentine debt is not sustainable due to the burden of maturities that it carries forward and, above all, because it is expressed in a currency that the country does not issue.
"I agree that we must restructure," says Fernando Marengo , economist and partner at Estudio Arriazu. "But Argentina does not have a solvency problem, but a liquidity problem . " Debt maturities in foreign legislation dollars this year are $ 3.1 billion of the $ 46 billion in total. The rest are payments with the public sector, securities in pesos and dollars, local legislation (a large part has already been able to reprogram).
There is more data that suggests that the level of Argentine debt does not justify Argentina going default:
"If Argentina were to default, which I do not see necessary, it would lose a five-year period or a decade. It would not get out so quickly" (Fernando Marengo, associate economist at Estudio Arriazu).
- The portion of the debt represented by this exchange is 16% of GDP.
- The strongest bondholders are the holders of the Kirchner 2005 swap securities, representing 6% of GDP.
What impact could occur in the economy if there is default?
"It would raise the risk of inflationary acceleration and the dollar gap , " says Elisabet Bacigalup , chief economist at Abeceb. “But in the short term it does not mean a greater drop in activity. The impact would be felt more in 2021 and beyond. Today the GDP would fall 8.3% and if it goes into default it could be 9% ” . The consulting firm CERX estimates a contraction of 10.5% still fixing the debt.
Federico Furiase , chief economist at Eco Go, shows which are the two main macroeconomic distortions that default generates. "First, it presses on the dollar and the Central Bank has to let the official exchange rate rise, which generates a drop in wages . The other is that as a product of the lower purchasing power, imports contract and the economy produces less, generating a adjustment in the external sector . "
"Ideally, the two sides would agree to a realistic and payable swap to avoid default. However, if such an arrangement could not be reached in time to avoid default, I think a postponement or standstill agreement is preferable until the crisis is over "(Eduardo Levy Yeyati, UTDT).
There are several impacts to the economy of a default. One is in the provinces . 80% of the consolidated debt of the 24 jurisdictions is expressed in foreign currency. "The 60% is international government bonds, which are the most may be affected by this restructuring process" , calculated Felix Piacentini , an economist and expert on provincial finances.
If there is default, will the Government pass the dollars to the provinces that want to continue honoring their commitments? From May to December, the maturities in foreign currency of the provinces total US $ 2.2 billion. In May there are US $ 211 million with Buenos Aires, Córdoba, Mendoza and Neuquén among which they have to pay after the failure or success of Guzmán's renegotiation is known. This Monday the province of Buenos Aires could enter into default if it does not reach an agreement.
"The economy will fall 7% this year without considering a default scenario. If that happens, the contraction would be greater. There would be more pressure on the dollar and more external adjustment because less would be imported" (Federico Furiase, chief economist at Eco Go).
"The provinces have taken two different strategies , " says Piacentini. “Some are honoring their dollar commitments without renegotiation attempts like Jujuy and Córdoba . Others, such as La Rioja and Buenos Aires , have tried to follow the Nation until the result of global debt restructuring is known, in the hope of being able to take advantage of and have a stronger argument with their creditors for a write-off and / or restructuring. In these cases they have played to threaten not to pay or stretched the legal terms to put pressure on the creditors ”.
Fausto Spotorno mentions another sequel that the default would leave: financing for the private sector . "Companies will stop receiving money from their parent companies. That way the investment would suffer . ” Argentina would thus be outside the radar of exporting agencies and export credits.
If Argentina does not pay the due date on the 22nd, litigation will begin in international courts. The threat of embargoes and the memory of the Frigate Libertad will appear again.
Brad Setser , an American economist who works at the Council for International Relations in New York and who signed the letter of support for Guzmán's initiative, told Clarín that “the default is already reflected in the prices of Argentine and Argentine bonds. it is outside the international markets. The only sources of financing for the country in the coming years will be the domestic market, the IMF and the rest of the international organizations . ” What if there is a default? " The main impact would be legal, there would be breaches of contracts and it would lead creditors to the United States courts to litigate . "
"The result of the Argentine debt swap can be taken as a precedent in other restructurings that are carried out in the near future. That is why the exchange result is relevant for foreign academics and think thanks ”(Jorge Neyro, ACM economist).
Sebastian Grund , an expert in the legal aspects of sovereign debt and an academic at Harvard, offers his point of view why the Argentine case is relevant to other countries . “ The restructuring of Argentina will be an important test for the collective action clauses that the country incorporated in the new bonds to avoid lawsuits by the holdouts . It will also be financially so . ” Jorge Neyro , economist at ACM, thinks the same as Grund. "The result of the Argentine debt swap can be taken as a precedent in other restructurings that are carried out in the near future. So the exchange result is relevant for foreign academics and think thanks . "
The uncertainty about what the magnitude of the global recession and recovery, difficult calculations to find out which have the capacity to repay Argentina 's economy to meet debt payments in dollars in the coming years. Hence, for Setser the best is a standstill , a figure used to describe a transitional agreement with creditors until the Covid crisis clears up and then negotiations would follow. "It would be better to default," says Setser.
"If there is default, there will be companies that will stop receiving money from their parent companies. In this way the investment would suffer ”(Fausto Spotorno, chief economist at the Orlando Ferreres & Asociados study).
"Ideally, the two parties would agree to a realistic and payable exchange to avoid default," says Eduardo Levy Yeyati , dean of the UTDT School of Government. “For reference, that distance between creditors and the government may be 10 cents per dollar today. Splitting the difference at 5 cents, that equals less than 1% of 2020 GDP, that is, less than half of what the economic team estimates the impact of the default on output would be only in 2020. However, if such an arrangement could not be reached in time to avoid default, I think a postponement or standstill agreement is preferable until the crisis is over . "
Is this situation similar to the one Argentina experienced in the default of 1982 or 2001? Marx lends himself to the game of differences and similarities . "In 1982 the world was coming from a period of very high rates, commodity prices had deteriorated sharply and debt was in the hands of large banks. In 2002, the previous recession had been severe, the terms of trade were poor and the political class believed that with the default a weight would be lifted " . And today? "Commodity prices are not good, but they are not a disaster either, and the political class is united in favor of there not being a default. Yes, the fiscal situation is weaker and we have a more complicated credibility history . "
Tomorrow Guzmán will announce how the story continues. To be continued .