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ECONOMY | 22-04-2020 23:02

Argentina skips US$500-million debt payment, starting default countdown

Economy Ministry confirms government did not pay up on interest payments due today, kicking off a race against time 30-day negotiation to avoid default.

The Economy Ministry has confirmed that Argentina did not make fulfil US$500 million in debt repayments on three foreign bonds due Wednesday, starting a 30-day countdown to a possible default.

That could only be avoided should the government and bondholders reach a deal on restructuring its massive foreign debt, a state of affairs that at present looks unlikely.

Argentina will invoke the standard grace period for securities maturing in 2021, 2026 and 2046, the Ministry said in a statement. If the interest remains unpaid or a restructuring agreement is not reached before May 22, when the grace period expires, the bonds will be considered in default.

The country officially started a US$65-billion debt restructuring Wednesday, reiterating terms first unveiled last week that would push back interest and capital payments to save some US$40 billion. The failure to pay came a week after the government of President Alberto Fernández first presented its proposal to restructure around US$66 billion in debt, saying it would ask creditors to approve a suspension of its debt obligations for three years and a 62 percent reduction for interest payments.

The Ministry said Argentina would use the period to seek creditor acceptance of its proposal, which it has said will remain in force until May 8 and aims at "restoring the sustainability of public debt in foreign currency."

According to a regulatory report forwarded to the Luxembourg Stock Exchange, holders have until May 8 to accept the proposal, and while the conditions were kinder than some investors expected, several large groups of creditors said they needed an improved offer to sign up. 

If creditors do not accept the offer – and at least three groups of bondholders have said they will not – Argentina will officially be in default by the end of May, its second default in two decades.

Argentina is under a mandatory quarantine due to Covid-19 and was in a recession with high inflation and 35.5 percent of its population in poverty even before the pandemic. The economy is expected to contract by close to six percent this year thanks to the impact of the nationwide lockdown.

Wednesday's statement from Argentina's government highlighted "its willingness to pay even in the most serious international context" and said it is looking for a debt profile "compatible with a path of sustainable growth in the medium and long term, which improves future repayment capacity future and basic social indicators."

Investors had expected the government not to make the payment after bondholders expressed their rejection of Argentina's proposal. 

– TIMES/AP/BLOOMBERG

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