Economy Ministry delays payment of AF20 bond principal

The government announced Tuesday that it will delay paying principal on a peso-denominated bond that had been due this week, while it works on restructuring an overall debt it says is unpayable at a time of economic hardship.

The decision comes after failed attempts to exchange it for other securities.

The announcement by the Economy Ministry, headed by Martín Guzmán, comes ahead of crucial debt restructuring talks with a mission team from the International Monetary Fund (IMF). It also contained some fierce language slamming "speculation," saying it would not allow "Argentine society" to be "held hostage by international financial markets."

The Ministry said payment of principal on the AF20 bond, which was issued in July 2018, will be put off until September 30 "to be able to count on more time to be able to restructure this bond in a form consistent with the rest of the external debt restructuring. The payment had been due on Thursday. The Ministry said Argentina will continue to pay interest on the bond, worth some 95 billion pesos (US$1.55 billion) when it was issued.

The bond's paymentwas meant to be linked to the evolution of the exchange rate, something which made it highly attractive. Since then, the peso has depreciated by some 55 percent.

President Alberto Fernández's government is attempting to restructure a foreign debt of more than US$100 billion, roughly half of which is owed to the IMF, according to the Associated Press. Argentina's total external debt is US$311 billion, according to the latest figures, of which it owes US$44 billion to the IMF.

The Economy Ministry blamed the administration of former president Mauricio Macri for creating the debt problem, and for the AF20 bond, in a fiery statement.

"What it did was emit debt tied to the dollar in an unsustainable situation, a recipe to aggravate the problems," a statement said. "What followed it known: the macroeconomic damage deepened, the Argentine peso depreciated significantly and as a consequence, the debt burden impose by this bond rose to still more unsustainable levels."

Guzmán has warned that Argentina needs "a sustainable solution" to paying its debt.

"Today the situation is critical, the debt burden cannot be sustained," he said last month.

The Economy Ministry confirmed it would exempt any bondholders holding the equivalent of less than US$20,000 from the postponement and that they would be paid.

Argentina periodically faces financial crises and liquidity problems that have led it to refinance its debt. At the end of 2001, it declared a record default on just over US$100 billion in debt during the worst economic crisis in its history. It is currently dealing with a contracting economy, high inflation and a weakened currency.

The new government this month offered a debt swap, but foreign investors who hold most of the debt rejected the plan.

"This government is not going to accept that Argentine society is held hostage by international financial markets, nor is it going to favour speculation over the welfare of the people," the ministry said.

The announcement prompted a quick three-percent drop on the Buenos Aires Stock Exchange.

"This decision, together with the rather aggressive language in the official press release, suggests a hard negotiation with the bondholders in the coming weeks and months," says Fernando Losada, head of emerging market research at Oppenheimer & Co, told Bloomberg.