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President Mauricio Macri called for calm and dialogue with the opposition as Argentina sought to avoid a ninth sovereign default by asking its creditors, including the IMF, to have more time to pay back $ 101 billion in debt.
The peso fell and bond yields jumped on Thursday in response to the proposed debt restructuring. Market movements are deepening a crisis triggered this month when Reform MP Macri suffered a huge unexpected defeat in a primary national election that virtually wiped out his chances of reelection in October.
"There are 59 days left before the elections. My job as president is to do my best, but it never depends on just one government, "Macri said in a televised speech Thursday morning, implicitly rejecting assumptions that elections could be organized. .
The peso fell 2.89% before reducing some of its losses, while the country's dollar bond yield also rose, indicating lower prices. The obligation of the century has fallen to only 40.55 cents per dollar, while the government's short-term bond maturing in 2021 has fallen below 50 cents per dollar. It yields now almost 60%.
Argentine financial markets had already collapsed following the primary elections, fearing that a government led by the Peronist opposition candidate Alberto Fernández would mean a return to large budget deficits and jeopardize the bailout plan. billions of dollars from the IMF.
Mr. Macri had hoped to project a confident economic management image and avoid drastic measures before the elections. However, a recent short-term public debt auction failed to attract enough investors, forcing Buenos Aires to act.
What constitutes a sovereign defect?
Defining a sovereign default is often difficult in practice, as many countries have formulated their debt restructuring in "voluntary" terms.
As a rule, one of the major credit rating agencies declares a default or selective default when a country does not meet all its obligations, that it 's all about. late or incomplete payment or outright repudiation. Moreover, a financial sector organization placed under the auspices of the International Swaps and Derivatives Association may declare a "default of payment" triggering what so-called credit default swaps, a kind of 39, insurance against defaults.
Countries can extend their repayment terms without defaulting if they organize a voluntary exchange of old bonds against new longer term bonds, possibly by softening the deal by offering payouts. higher interest in return. But such an exchange should not be forced to be considered as really voluntary.
For example, the record restructuring of the Greek debt in 2012, of an amount of 200 billion euros, was supposedly voluntary, but it only occurred thanks to the pressure exerted by the government on European banks and the use of collective action clauses – an agreement reached with a majority of creditors binding creditors.
In the case of Argentina, it is likely that even a voluntary reshaping would in practice harm Argentine bondholders and thus constitute a default – the ninth in the history of the country and the third since the turn of the millennium. Robin Wigglesworth
Argentina plans to defer $ 7 billion of short-term local debt payments due this year and will seek a "voluntary carry forward" of $ 50 billion in longer-term debt – largely held by investors foreigners – as well as the $ 44 repayment deferral Billions of loans already disbursed by the IMF.
"The government aims to improve the prospects of the financial program in the short, medium and long term," said Hernán Lacunza, Minister of Finance, on Wednesday evening. "This is due to short-term liquidity problems and not to solvency problems of the debt."
Mr. Lacunza, who recently took office following the resignation of his predecessor following the first electoral defeat, said the rescheduling of Argentina's debts should give the government vital relief in terms of reimbursement of 2020 to 2023.
But an economic adviser close to Alberto Fernández said he feared that these measures failed to restore the economic stability sought by the government, risking panic among Argentines unable to exchange their investments for cash.
"It's a bombshell. This is a very complicated situation with many risks, "said the advisor. "The problem is that if people react badly and you end up with a race to the banks."
Although Argentina is only asking for a voluntary extension of repayment dates, rather than "messing around" the payment of interest or the amount of its debt, this measure will likely be considered another sovereign default by certain measures.
The markets were expecting debt restructuring after the August 11 election clash, as the collapse of the peso had significantly increased the cost of servicing Argentinian debt, mainly denominated in dollars, and boosted inflation. Capital Economics estimated this week that the government had $ 30 billion in debt maturing this year and $ 50 billion next year.
The IMF has a delegation in Buenos Aires that assesses the government's compliance with the bailout program and will soon decide whether or not to disburse the $ 5.4 billion in future loans. In a statement, the fund said it was "analyzing [the debt operations] and evaluate their impact. Staff understand that the authorities have taken these important steps to meet liquidity needs and preserve the reserves. "
He concluded: "The fund will continue to be alongside Argentina in these difficult times."
Fernández strongly criticized the IMF, blaming it – as well as Macri – for imposing a "social catastrophe" on the Argentinian people, who are suffering from recession, high unemployment and a high unemployment rate. galloping inflation.
Simon Waever, Citi's strategist in New York, said the country's bond market already took into account a significant risk of default, likely limiting market spillovers.
"Expansion of maturities of treasury bills and locally owned long-term debt will be faster than trading with external bondholders," Waever said in a note to clients.
"Bonds should remain under pressure initially as a result of these announcements until future policies are clearer, because of their still heavy weighting. However, with prices already close to 40 [cents on the dollar]we consider that the disadvantages are more limited. "
Alberto Ramos of Goldman Sachs said the timing of the announcement was surprising. "If there was a political transition, the market was expecting a bit that Argentina would have to reprofile its debt," he said. "But what no one expected was that they would start the process with this administration."
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