U.S. Markets closed

Argentina says to extend maturities of international bonds, IMF debt

By Eliana Raszewski and Hugh Bronstein
Newly appointed Argentina's Economy Minister Hernan Lacunza attends a news conference at the Casa Rosada Presidential Palace in Buenos Aires

By Eliana Raszewski and Hugh Bronstein

BUENOS AIRES (Reuters) - Argentina will negotiate with holders of its sovereign bonds and the International Monetary Fund to extend the maturities of its debt obligations as a way of ensuring the country's ability to pay, Treasury Minister Hernan Lacunza said on Wednesday.

At a news conference after meetings with an IMF team visiting Argentina, Lacunza said the government would "re-profile" the maturities of debt owed to the IMF under a $57 billion standby agreement.

Interest and principal payments on bonds issued under international and local law will not be altered in the re-profiling. The changes in maturities would be aimed at obligations held by institutional, rather than individual investors, he said.

"The priority today is to guarantee stability, because it is useless to launch reactivating measures if there is no stability. The first thing is to recover that stability," Lacunza said at the news conference in Buenos Aires.

The peso took a beating during the day, even though the central bank heavily intervened in the foreign exchange market for a second consecutive day.

Argentine asset prices have gotten slammed since the Aug. 11 primary election showed business-friendly President Mauricio Macri has surprisingly little public support in his campaign to win a second term in the October general election. He was trounced in the primary by center-left Peronist challenger Alberto Fernandez, who is now the clear front-runner.

"President Macri instructed me to solve the short-term problem to guarantee electoral stability, but also in the medium- and long-term so as not to leave a problem for the person who follows, be it he or another candidate," Lacunza said.

He said the measures were taken "so that the president can deploy his policies without the restriction of imminent, or too high, debt maturities."

Argentina's peso closed 3.1% weaker at 58.1 per dollar on Wednesday, even as the central bank sold $367 million of its reserves in a second consecutive day of heavy intervention aimed at controlling the peso's fall.

Worries over Argentina's ability to meet its dollar-denominated debt obligations have increased since the Aug. 11 primary. The peso has lost almost 22% of its value against the U.S. dollar since then. The weakness of the currency has inflamed market concerns about Argentina's ability to pay its dollar-denominated obligations.

Changes in the maturities of short-term debt, known as Letes and Lecap, will be between three and six months, Lacunza said.

He said changes in maturities of bonds issued under Argentine law would require approval from Congress.

"The markets will see this as a default," Hernan Esteves, economist with Buenos Aires consultancy FyEConsult, told Reuters.

"The problem is that you have a debt restructuring proposal launched by one government, but that will have to be executed by the next government," Esteves said. "That makes it very difficult to manage an orderly restructuring."

During trading hours on Wednesday, both Argentina's century bond and the January 2028 traded near 42.5 cents on the dollar, their lowest on record according to MarketAxess data.


"RECOGNIZING REALITY"

"I don't like to use the word default. I prefer to think of it as recognizing reality," said Roger Horn, executive director and senior emerging market strategist at SMBC Nikko Securities America in New York. "With bonds trading in the 40s (cents on the dollar) the market was already expecting a worst-case scenario. It's better to deal with it now than six months from now."

The IMF said in a statement that it was analyzing the government's new debt plan. Argentina has taken "important steps" to address liquidity needs and safeguard reserves, said the statement from IMF spokesman Gerry Rice.

The central bank issued a statement saying it would continue to implement a "restrictive monetary policy" and continue intervening in the foreign exchange market to bolster the peso.

The pushing out of debt maturities was aimed in part at preserving the central bank's dollar reserves, which stood at $57.9 billion as of Aug. 26.

"The decisions that have been taken prioritize the use of international reserves to preserve monetary and financial stability, even if this implies delaying payments to large public debt investors," central bank chief Guido Sandleris said in a separate statement.

"These decisions should lessen the pressure on the foreign exchange market, reduce the eventual demand for foreign currency and guarantee the availability of resources to limit volatility," it said.

Macri took office in late 2015, promising to use orthodox economics to end the cyclical crises that have afflicted Argentina for decades.

But he overestimated his ability to attract the foreign direct investment needed for sustainable growth, while under-estimating the effect that cutting public utility subsidies would have on inflation. His popularity fell as consumer prices, especially home heating gas and electricity bills, shot higher.

The economy is currently in recession with 55% inflation.




(Reporting by Hugh Bronstein and Eliana Raszewski; Additional reporting by Walter Bianchi, Jorge Otaola, Hernan Nessi, Cassandra Garrison, Maximillan Heath and Gabriel Burin in Buenos Aires; Rodrigo Campos in New York; Editing by Sonya Hepinstall, Lisa Shumaker and Leslie Adler)