By Hugh Bronstein
BUENOS AIRES (Reuters) – Argentine bond prices fell 1.3% on Thursday after the International Monetary Fund essentially gave the government a green light to restructure its bonds, the latest chapter in the once-wealthy country’s long history of financial crises.
The Fund, wrapping up a week-long visit to Argentina, said rising public debts meant the country needs a definitive plan to restore debt sustainability, which would require a “meaningful contribution from private creditors.”
The question is how much of a haircut private creditors will be asked to take in the upcoming bond revamp.
“The IMF opened the door for Argentina to begin debt restructuring. Now the focus shifts to determining what a ‘meaningful contribution from private creditors’ means, and what will happen with the debt Argentina owes to the fund,” local brokerage SBS Group said in a report.
Argentine bond prices are down 4.8% so far this year. Country risk spreads <11EMJ> stood 82 basis points wider at 2,117 over safe-haven U.S. Treasury paper, indicating an increase in the perceived likelihood of default.
Spreads have blown out from 1,770 basis points, where they ended 2019, as Argentina struggles to revamp about $100 billion in bonds and loans, including $44 billion owed to the IMF.
Central bank chief Miguel Pesce told local radio on Thursday that a bond default was possible but not probable.
“The government will make an offer, and that offer can be accepted or rejected. But the government will not accept any kind of proposal that is not sustainable in the short or long term,” Pesce said in an interview with radio station La Red.
One of the richest countries in the world a century ago, Argentina has suffered from decades of financial mismanagement. It has defaulted eight times in its history, with bondholders dragging the country through long court battles seeking payment.
Economy Minister Martin Guzman has said he wants to avoid a rancorous restructuring but vows to neither make unsustainable debt payments nor impose fiscal austerity on an economy in its third year of recession.
Alberto Bernal, chief emerging markets strategist at XP Investments in New York, said he was not surprised by the IMF statement and remained optimistic about chances for an investor-friendly debt re-negotiation.
“If Argentina wants to grow and get out of this mess, it has to treat bondholders with respect,” he said. “If it tries to take advantage of the bondholders, investors will fight and the macro situation will get worse.”
Guzman heads to Saudi Arabia on Thursday for a G20 meeting, where he is scheduled to meet with IMF chief Kristalina Georgieva and U.S. Treasury Secretary Steven Mnuchin.
Asked if Argentina’s debt restructuring plans would be discussed during the general sessions at the G20 or as among topics in the Guzman-Mnuchin bilat.
A senior Treasury official confirmed the meeting to reporters and said that the United States expected Argentina to lay out its economic plans at the G20 summit.
“Of course people are very interested in the economic plans of the Argentine administration and I think we are all hoping that there will be strong policies that can help put Argentina on a sustainable growth path,” the official said.
(Reporting by Hugh Bronstein; Additional reporting by David Lawder in Washington, Walter Bianchi, Eliana Raszewski, Hernan Nessi and Jorge Otaola; Editing by David Gregorio and Lisa Shumaker)