Argentina plans to default on its local dollar-denominated debt by delaying payments until the end of the year as the country falls deeper into recession and restructuring talks with foreign bondholders are delayed.
A decree in the Official Gazette said the government will defer principal and interest payments until Dec. 31. It said payments may resume earlier if the Economy Ministry determines that’s warranted given progress in creating a sustainable debt plan.
Argentina has already been unilaterally delaying payments on peso-denominated debt, even as it kept current on overseas obligations and embarked on restructuring talks. Now it’s clear the government is treating debt governed by local laws different than the foreign-law obligations. The government’s payments on foreign-currency, local-law debt total $4.5 billion to $8.4 billion over the remainder of the year, according to estimates from consulting firm 1816 Economia y Estrategia and TPCG, a Buenos Aires-based brokerage.
After a brutal recession left the country unable to pay its debt even after a record IMF loan, Argentina is in talks with foreign bondholders over $69 billion of overseas notes. While it has stayed current on those securities, they trade as low as 26 cents on the dollar, showing that investors have priced in a default.
“The global backdrop has changed so much in the last months, and that affects the balance of payments, IMF help, everything,” said Paul McNamara, Investment Director at GAM UK in London.
Local dollar bonds maturing in October slid 4.4 cents to 26 cents on the dollar.
Argentina was due to pay one of its largest local dollar maturities, a key $1.4 billion payment of Bonar 2024 bonds, on May 7.
“The imminent payments of government debt issued under Argentine law and in dollars add to the context of deterioration of the social and economic situation due to the public health emergency,” the government said in the decree.
President Alberto Fernandez said in an interview published Sunday that the coronavirus pandemic had pushed debt talks to the back burner and that the country would prioritize the health emergency. Argentina has been on lockdown to try to stop the spread of the virus for weeks; so far there have been 1,554 confirmed cases with 46 deaths.
Even before the health crisis, Argentina was mired in recession with sky-high inflation and insufficient central bank reserves. Along with Ecuador and Zambia, it’s the country with the highest sovereign risk of non-payment in the world.
The debt decree listed several public securities that are exempt from the measure, including non-transferable notes held by the central bank and certain dollar-denominated notes issued by the Treasury, such as those owned by the pension-fund administered by Anses.
— With assistance by Scott Squires