The government can’t resolve growing investor concern over the ability to repay its debt alone and will require consensus with the opposition to reach an orderly reprofiling of its obligations, Finance Minister Hernán Lacunza said Friday.
With just a month before general elections and the handover for the next administration slated for December 10, a bill to address government debt may not pass through Congress before President Mauricio Macri finishes his term but signals to the market that the issue will be debated and is a priority, Lacunza said in an interview at the presidential residence in Buenos Aires on Friday.
“Neither this nor the next government can face a negotiation without political consensus,” said Lacunza, who’s been in the post for a month. “Argentina must recover credibility and credit in the medium and long-term, both in this mandate and the next one.”
Macri’s government sent a bill to Congress late Thursday to kick start talks around extending maturities on local law bonds to alleviate fears of a looming default. Argentina’s financial markets have collapsed since the August 11 PASO primaries showed the opposition ahead by more than 15 percentage points, sparking fears of the return to an interventionist and populist government that could unwind pro-market reforms and policies.
A debt re-profiling announcement and postponing US$7 billion in short-term payments in August 28 wasn’t enough to stop the reserves bleeding. Four days later on a Sunday afternoon, Argentina’s government imposed capital controls to halt the slump, with limits for exporters to repatriate foreign currency and dollar purchases for individuals. Foreign reserves fell from US$66.3 billion to US$49.7 billion since the primary vote.
The government had previously said it wouldn’t submit the bill until it had reached agreements with the opposition. Lacunza said they had the opposition’s support to submit the bill, but still need agreement on its contents.
Separately, the government has received 13 proposals from banks on how to approach the foreign-law debt reprofiling, added Finance Secretary Santiago Bausili at the same interview. Technically speaking, the process would be “doable” before end-of-year. That’s because it would take two to three weeks to prepare the documentation for a reprofiling plan, and then call for a bondholder assembly to happen 30 days later.
Still, whether it can be resolved in that time period will depend on politics. Lacunza said it will be difficult to begin those talks before the October 27 presidential election.
“Any negotiation during an election period must have political legitimacy, beyond its legality,” he said, in his first interview with a foreign media outlet. “It wouldn’t be prudent or efficient to face this on our own.”
Lacunza will travel next week to Washington to meet representatives of the International Monetary Fund to discuss the status of Argentina’s record US$56-billion credit line. He will meet interim managing director David Lipton, Western Hemispheric Chief Alejandro Werner and Argentina mission chief Roberto Cardarelli.
The IMF’s next disbursement “isn’t essential, or imminent” he said, adding that it would be “convenient.”
The Washington-based lender is unlikely to grant a US$5.4-billion disbursement to the country without knowing the economic policy plans of the government that takes over in December, people familiar with the situation told Bloomberg News last week.
When asked about the impact of capital controls on local-law corporate and province bonds, Lacunza pointed to the Central Bank as the one responsible for those policies. A Central Bank decision on September 17 to allow local-law sovereign bond payments to be cleared from capital controls was led by Lacunza because those were Ministry-issued bonds.
by Jorgelina do Rosario, Carolina Millan & Patrick Gillespie, Bloomberg