Statement from Members of the Ad Hoc Group of Argentina Exchange Bondholders and of the Argentina Creditor Committee
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The Ad Hoc Group of Argentina Exchange Bondholders
Oct 22, 2020, 14:34 ET
NEW YORK, Oct. 22, 2020 /PRNewswire/ -- Argentina's external debt restructuring closed only one month ago. Creditors came together to provide $37bn in cash-flow relief and accepted a heavy loss of value in order to smooth the country's path to recovery from a deep recession and the Covid-19 pandemic.
Argentina insisted on negotiating its commercial debt restructuring prior to elaborating a detailed economic plan and negotiating a new IMF program. Bondholders asked many times during the restructuring discussions for specificity on an economic program and expressed concern about what would happen the day after the exchange closed. In response, Minister Guzman assiduously refused to provide specific parameters of an economic agenda to creditors, insisting simply that fiscal sustainability and the rebuilding of international reserves were his firm goals.
Unfortunately, thus far, the creditors' concerns have proven to be well-placed. Argentina's economic authorities have not only failed to restore confidence, but policy actions taken in the immediate aftermath of the debt restructuring have dramatically worsened the country's economic crisis. Rather than allowing prices to achieve equilibrium and stimulate desired economic activity, the central bank has reinforced an exchange rate policy that promotes imports, discourages exports and has depleted reserves to a dangerous level. The resulting gap of more than 100% between the official and parallel exchange rates virtually ensures that reserves cannot be rebuilt—a classic case of unsound money pushing out sound money.
Steps taken to force otherwise solvent Argentinean borrowers to restructure their debts have undermined basic confidence in the sanctity of contracts. By delivering the message that even sustainable debts will not be repaid, Argentina's authorities have alarmed many creditors, who are left to wonder if their sacrifices to provide a debt structure Argentina is capable of servicing were essentially meaningless in the face of a borrower that may simply be unwilling to pay.
Meanwhile, macroeconomic stability appears to be an ever-receding mirage. The fiscal and monetary exigencies of 2020 are perhaps understandable, but it is clear that the intention to run a 4.5% primary and 6% overall deficit in 2021, funded by printing pesos, is so damaging to both domestic and external confidence as to be self-defeating. With no apparent policy anchors and a seeming unwillingness to take difficult decisions, Argentina's economic policymaking undermines the very post-Covid recovery it is meant to spark. While the government declines to say anything about its monetary or fiscal goals for 2022 or beyond, markets are left to assume the worst and extrapolate from 2021.
As a result, Eurobond prices are lower than in the aftermath of the PASO election last year. Instead of heralding a re-opening of access to markets to support Argentina's manifest investment needs, the aftermath of the debt restructuring is a virtual wasteland for Argentine credit. It is no longer plausible for Argentina's government to blame its woes on the economic legacy it inherited. After nearly a year in office, Argentina's government has yet to offer a coherent and sustainable economic vision to Argentine society and to markets.
This vicious cycle needs to be broken. Argentina's government faces difficult times and trade-offs. Creditors have already played their part, providing a historic opportunity to Argentina for a fresh start. It is now up to Argentina and the IMF to play theirs.
The Exchange Bondholder Group is comprised of 18 investment institutions, all of which voluntarily participated in Argentina's recently-consummated exchange offer by tendering Exchange Bonds. Prior to that exchange, Exchange Bondholder Group collectively held over 15% of the outstanding Exchange Bonds issued by Argentina under its 2005 indenture and 2010 indenture supplement. Exchange Bonds were issued to investors who participated in the 2005 and 2010 debt exchanges, through which bondholders voluntarily accepted large reductions in net present value to assist Argentina's recovery from the 2001 default. The Argentina Creditor Committee is comprised of 30 investment institutions, all of which voluntarily participated in Argentina's recently-consummated exchange offer. Prior to that exchange, Argentina Creditor Committee Group collectively held over 8% of the outstanding Bonds issued by Argentina under its 2005 indenture, 2010 indenture supplement and 2016 indenture.
