Debt trouble worsens as IMF gives Macri the cold shoulder

por Federico Poore
The Essential, 26-09-2019

The International Monetary Fund will likely postpone the disbursement of a crucial tranche of its Argentine bailout despite a last-ditch attempt this week in New York by President Mauricio Macri himself.

The president showed up in the final minutes of the meeting between IMF Acting Managing Director David Lipton and Argentine officials Hernán Lacunza (Economy Minister) and Guido Sandleris (Central Bank Governor). But nothing was said about the next tranche of the estimated USD 5.4 billion that the country should have received this month.

In an interview with Bloomberg Radio, Lipton said that the IMF will “work toward an eventual resumption of a relationship [with Argentina] which may have to wait awhile.”

“Macri came out empty handed, with no announcements to make,” economist Mariano Kestelboim, a professor at the University of Avellaneda (UNDAV), told The Essential. “But the IMF will not be lending any more money to a government that no longer has the power to carry out structural reforms.”Lacunza told reporters that the decision over the next disbursement was in the hands of the IMF, but insisted that “it was clear” the country had complied with its fiscal and monetary commitments agreed on with the IMF. The Macri administration at least managed to get a new meeting in 15 days’ time: it was confirmed that a technical mission will meet again in Washington the week of October 14.

Desperate for dollars

“Macri’s presence in that room was a signal that those billions will be sorely needed in the near future,” Martín Kalos, Chief Economist at Elypsis, told The Essential. “They are not crucial as long as the macroeconomic crisis is kept at bay, but if a new crisis breaks out they will be urgently required.” Sources from the Treasury have already acknowledged that those funds are part of its yearly forecast.

“The reprofiling (see below) helped the government kick most payments down the road and the currency controls helped contain the demand for dollars. But the government will be in desperate need for any dollar because they are a scarce commodity, at least until the end of the year,” Kalos explained.

News came as the outgoing managing director of the IMF Christine Lagarde, defended the country’s record USD 56 billion credit line, saying the agency “did the best we could at a time when Argentina leaders came to us with a very difficult situation.” Her successor, Bulgarian economist Kristalina Georgieva, already began dealing with the complex Argentina file by meeting Lacunza on Wednesday.

Just a re-profiling bill

On Thursday last week, and after several days of delays and negotiation with opposition majorities in Congress, the Argentine government finally introduced a bill aimed at re-profiling a part of the country’s public debt, amounts to some USD 32.2 billion.

The bill sent to the Lower House calls for a debt-swap program aimed at lengthening maturities of medium- and long-term debt under local legislation. The ball is now in the opposition’s court — but opposition leaders are not precisely in a hurry to share the political costs of such a move.

A day later, Finance Minister Hernán Lacunza made a strong call for action, saying the government cannot resolve by itself growing investor concerns over the country’s ability to repay its debt and that consensus with the opposition is needed to reach an orderly re-profiling of its obligations.

“Nor this government nor the next one can face a negotiation without political consensus,” Lacunza told Bloomberg in an interview at the Olivos presidential residence.

Unconvinced opposition

But support for the draft, which the government wants to pass as soon as possible, remains unclear.

“We have no commitment whatsoever with this bill”, said national lawmaker Agustín Rossi, head of the Kirchnerite caucus in the Lower House. “If they reached out to someone, it wasn’t us.”

Presidential hopeful Roberto Lavagna said Macri called him on the phone to ask him why they weren’t helping the bill move forward in Congress. But, according to Lavagna, Macri wasn’t aware that the bill had not been filed by his team yet. Macri’s team responded saying it was clear they were talking about a draft that Lavagna’s team had already received.

The Macri administration had previously said it wouldn’t submit the bill until it had reached agreements with the opposition — but desperate times call for flexible measures and Lacunza said they now have the opposition’s support to submit the bill (but still need to agree on its contents).

Collective action clauses

The main change included in the bill is the addition of collective action clauses (CACs) to bonds under local legislation, equaling them to those issued under foreign law, where the CACs are already included.

These clauses would allow a two-thirds majority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring — meaning the government “only” needs to convince 66 percent of bondholders in order to re-negotiate the conditions of the country’s medium- and long-term debt, possibly with a haircut or a change in maturities.

According to newspaper La Nación, the Peronist opposition led by Alberto Fernández and Cristina Kirchner is unlikely to back the bill before the October presidential elections take place. The same newspaper quoted a top government lawmaker who said that Lacunza “was forced to send the bill as a signal to markets” but that its passing was already seen as far from a sure thing.

Foreigners first?

Meanwhile, the announcement of a mandatory extension of maturities of short-term debt held by institutional investors — that is, a technical default on its debt payment — has continued to create outrage among governors and mutual fund investors.

Not only have key districts such as Santa Fe and Buenos Aires province invested heavily in Letes and Lecap bonds and found themselves caught in the deferred payment plan presented by Lacunza on August 30.

The outrage among local investors has been made worse by the fact that foreign investors are getting paid on time – at least until now.

On Monday, the government paid big maturities on its Bopomo peso-denominated bond, as well as the Bonar 2020. Both payments amounted to almost 28 billion pesos, and half of the Bopomo issues were held in the hands of the US’ Pacific Investment Management Company (PIMCO) investment fund.

Some analysts were fearful that the pesos would end up adding pressure on the country’s exchange rate, which was the reason behind the decision not to pay the locally-held short-term Lecaps, Lelinks and Lecer bonds a month ago. So far, however, the Bopomo payments seemed to have had no visible effect was seen on the exchange rate.
Closer to defaulting

Still, provinces remain worried about their financial situation, with fears their own local debt and expenses could get into trouble.

“A defaulting federal government cannot make the provinces default as well. We’re holding talks with other governors and we will take this issue before Congress”, Salta Governor Juan Manuel Urtubey told reporters.

With the pressure mounting from multiple creditors, Argentina position is looking increasingly precarious.

“There’s two macroeconomic scenarios for November/December. Either the IMF payment arrives or it doesn’t. I think the payment isn’t going to come. The IMF is more likely to wait for the next administration. And this is why Macri made this desperate move to participate in the meeting in the US,” Kestelboim said.

“What happened yesterday leaves the country close to a full-on default.”