AArgentina has improved the debt rescheduling offer to its creditors. President Alberto Fernandez spoke of a “last attempt” that required his country to make maximum efforts. At the same time, he set a deadline for acceptance until August 4. The South American country can no longer service its debts and has been considered insolvent since May.
It is trying to get foreign investors holding around $ 65 billion in bonds to waive a significant portion of their claims. Negotiations with investors had reached a dead end after two groups of creditors asked for more protection.
The government in Buenos Aires has now responded by offering to convert 2005 bonded bonds into new paper with the same bond terms. The improved offer also includes higher interest coupons. If the talks fail, Argentina threatens to lose access to the international credit markets and a lengthy legal battle with an uncertain outcome.
The country, which has had nine bankruptcies in its history, is in recession and is also struggling with the consequences of the virus crisis. Finance minister Martin Guzman said in May that Argentina could not continue to spend 20 percent of its government revenue on interest payments, especially in times of viruses. The country expects an economic slump of around twelve percent this year due to the corona consequences. The inflation rate was more than 50 percent recently.
The International Monetary Fund has described the country’s debt burden as unsustainable. Argentina has a total debt of $ 323 billion (as of the end of 2019). The country had already gone bankrupt in 2001/02 after it had stopped servicing its debts. After that, the government had agreed with most donors on debt relief and bond exchanges.
At that time, several hedge funds bought the bonds at comparatively low prices, but refused to cut their debt. An agreement after many years of litigation ultimately cleared the way for Argentina to regain a foothold in international credit markets. But this is now under threat again. Argentina has not serviced its debts since February.
The rating agencies Standard & Poor`s and Fitch have already classified Argentina as insolvent. The creditors had rejected an initial rescheduling offer. For bonds with a nominal value of $ 65 billion, Argentina offered to reduce the interest debt by 62 percent and the debt by 5.4 percent, but creditors should wait three years before the country would start making further repayments.