Default then deal? Argentina hits payment deadline with distance left in talks

imageEconomy2 hours ago (May 22, 2020 08:55AM ET)

(C) Reuters. FILE PHOTO: Argentine one hundred peso bills are displayed in this picture illustration

By Adam Jourdan and Hugh Bronstein

BUENOS AIRES (Reuters) – Argentina faces a hard deadline to make $500 million in already delayed bond interest payments on Friday, which investors expect it will miss, pushing the country into a ninth sovereign default amid complex restructuring talks with creditors.

The likely default on three bonds occurs in the context of negotiations to revamp around $65 billion in foreign debt with a new deadline for a deal pushed on Thursday to June 2 amid signs the two sides may be warily edging closer to an accord.

Argentina and its creditors, who have traded proposals over the last month, have indicated they are eager to avoid a messy default that could spark years of litigation and lock the major grains producing country out of global capital markets.

The country’s economy minister, Martin Guzman, told Reuters late on Thursday the government planned to amend its offer to creditors and that talks were on a positive course, though there remained an “important distance” to reach a deal.

“These are critical times. What’s achieved now will affect the lives of millions of people and will likely have spillover effects on an entire class of assets,” he said.

Creditors too have shown signs of flexibility and indicated they are unlikely to take immediate action against Argentina over any default, as long as talks are on the right course.

A major creditor group holding around $16.7 billion of Argentina’s international bonds said on Friday that while failure to pay would trigger defaults on various bonds, it recognized Argentina was seeking a comprehensive deal.

The Ad Hoc Bondholder Group, including names like Ashmore, BlackRock (NYSE:BLK) and AllianceBernstein (NYSE:AB), cautioned though it wanted more engagement from Argentina, which it said was still lacking.

“The Group welcomes Argentina’s expression of an intent to work with creditors, but actions speak louder than words,” it said in a statement.

The Economist Intelligence Unit’s regional director for Latin America and the Caribbean, Fiona Mackie, said in a note that a default would make reaching a deal even more pivotal for Argentina’s economy, already sunk in recession for two years.

“Without it, Argentina faces a troubling outlook not just this year, but for several years to come,” she wrote, adding fears of losing access to credit markets would spur the government to strike a deal.

“The alternative is grim, and includes the growing risk of a hyperinflationary spiral all while economic activity remains subdued by financing constraints,” she said.

Default then deal? Argentina hits payment deadline with distance left in talks

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