Argentina's US$65b debt deal inches closer despite standoff

Argentine over-the-counter bonds rose 0.6 per cent on average yesterday after having edged down on Monday. — Reuters pic
Argentine over-the-counter bonds rose 0.6 per cent on average yesterday after having edged down on Monday. — Reuters pic

BUENOS AIRES, July 22 ― Argentina and its creditors are likely to find a way to seal a US$65 billion (RM277 bilion) debt restructuring deal, analysts said, despite a standoff after bondholders joined forces to reject a government proposal and put forward one of their own.

Three major creditor groups on Monday unveiled a joint counteroffer, the first time the trio had unified, lowering their demands but hardening opposition to a “final” offer the government made in early July.

The new proposal closed the gap between two sides' proposals to within around 3 cents on the dollar in terms of valuation, which most said should be bridged in last-ditch talks. The two sides are currently working toward an August 4 deal deadline.

“We expect that negotiations in coming weeks should ultimately lead to an agreement, given the authorities' appetite to avoid a chaotic default that would put the economy in further pain,” Morgan Stanley said in a note.

The investment bank calculated the creditors' new proposal was valued at around 55.8 points at a 10 per cent exit yield, versus 52.4 points for the government's offer, and that the two sides were “inching closer” to an deal even if more talks were needed.

Argentine over-the-counter bonds rose 0.6 per cent on average yesterday after having edged down on Monday.

‘Where the rubber meets the road’

Argentina's President Alberto Fernandez and Economy Minister Martin Guzman, who has led the negotiations, have maintained that the government offer was the maximum effort the recession-hit country could make after slipping into default in May.

“I trust that the creditors understand that we are making a huge effort with the offer we made and that it is the most we can do,” Fernandez said during a video conference yesterday hosted by the Americas Society/Council of the Americas.

He added it was impossible to do more with poverty levels at 40 per cent, adding his government had inherited a country already in a “very complex situation” of recession and unsustainable debt.

“When we came into government in December, it's like Argentina was in intensive care and with an automatic respirator. And then the pandemic came and the respirator was gone. So now we face the situation that we face,” he said.

Citi analysts said that the government's position may soften in coming weeks and that the new counterproposal was a “step in bringing together the two positions.”

“The authorities have stated that the amended proposal presented in early July will not be modified, but we believe this is mostly a negotiation tactic,” the bank added.

A creditor source with knowledge of the talks said that there was confidence both sides could move to find a middle ground between the two proposals.

“It is now really down to where the rubber meets the road. There is a tiny economic difference between the two proposals. There will have to be give on both sides,” the person said, asking not to be named.

The person added that getting a deal done without litigation was in everyone's best interest and that an agreement could be reached in a matter of days if the government was flexible.

“If both sides are willing to move, they can make a deal quickly,” the person said. ― Reuters

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