IMF officials say Argentina can improve debt restructuring offer

IMF officials say Argentina can still improve its restructuring offer on $65bn of debt with foreign creditors as it continues negotiations after slipping into default last month.

“There is still room for Argentina to increase payments to private creditors,” Julie Kozack, deputy director for the IMF’s western hemisphere department, told the Financial Times on Tuesday.

Ms Kozack’s comments come a day after the IMF released a two-page statement on Argentina’s revised restructuring proposal, which calls for payments to begin in 2022 compared with 2023 previously, among other improvements for bondholders.

The IMF said the current terms would restore the sustainability of the country’s debt, but that there was not significant capacity to raise the offer much further.

“There is only limited scope to increase payments to private creditors and still meet the debt and debt service thresholds,” the IMF wrote on Monday.

On Tuesday, Ms Kozack clarified that the government’s proposal “falls a bit below” the fund’s parameters, suggesting some flexibility in the current terms.

Nevertheless, a person with direct knowledge of the IMF’s thinking cautioned that it would be “very hard” to improve the deal beyond a net present recovery value of 50 cents on the dollar while maintaining a sustainable debt burden. That compares with the government’s current offer of almost 46 cents, using a 10 per cent exit yield. The latest counter offers from private creditors imply a recovery value of about 53 to 58 cents on the dollar.

After the government extended the deadline on its offer by another 10 days on Monday night, Argentina’s economy minister Martín Guzmán insisted there was only “scarce” room to modify its proposal to reach a deal that would avoid a messy default with potentially devastating economic consequences.

A person familiar with the government’s thinking said it was a “big deal” that the IMF had drawn a line in the sand at 50 cents on the dollar, given that all parties accept that Argentina will need to seek further financial assistance from the multilateral lender. The IMF can only lend to countries if it considers their debt burden to be sustainable. There should be a deal if creditors accepted the IMF’s position, the person added.

After lending Argentina $44bn since a 2018 currency crisis, the IMF said in February that Argentina’s debt was unsustainable, calling on creditors to make a “meaningful contribution” to provide debt relief for an economy now in its third year of recession, and saddled with one of the world’s highest inflation rates.

In three separate statements, the bondholder groups weighed in on the IMF’s assessment that there was “limited scope” for the government to improve its offer.

“It is up to Argentina to show a serious desire to bridge the remaining gap, and it will be unfortunate if Argentina instead hardens its position in response to the IMF’s statement,” said Dennis Hranitzky, the legal adviser to the exchange bondholder group, in a statement released on Monday.

The group holds bonds issued from previous debt restructurings in 2005 and 2010, following Argentina’s 2001 default, and has put forward a joint proposal with the largest bondholder group, led by BlackRock. They say their terms would result in more than $36bn of cash flow relief over the next nine years.

In a statement also released on Monday, the group involving BlackRock, Fidelity and Ashmore said that the IMF’s position “indicates that it is possible to reach an implementable and sustainable debt restructuring and for Argentina to improve its current position”. The group added that the difference between the government’s latest proposal and their joint one was roughly 1.5 per cent of gross domestic product spread across the next 10 years.

In a statement released on Tuesday, a third creditor group involving Greylock Capital Management and GMO encouraged the government to consider its proposal, which it said could result in roughly $35bn of cash flow relief for the country by some estimates.

Its latest proposal “fits within the IMF’s assessment of the republic’s debt service capacity while requiring Argentina to make only a modest annual fiscal effort” of 0.2 per cent of GDP, the group added.

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