MercoPress. South Atlantic News Agency

Argentina's debt restructure haircut proposal “is not enough” and will have to be revisited, says ex IMF economist

Argentina is starting a virtual road show this week to present its offer, which aims to renegotiate US$ 72 billion of sovereign and provincial debt

Argentina’s latest effort to restructure its overseas debt probably won’t be its last, according to ex IMF advisor and Harvard University economist Carmen Reinhart, who has sounded alarms overcoming emerging markets crises in Venezuela and Turkey.

If anything, she said in an interview, Argentina’s initial offer merely kicks the can down the road. It will need to be revisited in a few years given the impact of the pandemic on the global economy, she said.

“Unless Argentina manages to grow spectacularly, which would border on the miraculous given the current global situation, the debt package that they put together is not going to be big enough in terms of haircuts,” Reinhart said. “In all probability, it will have to be revisited, and there will be one more round of efforts to restructure.”

Argentina is starting a virtual road show this week to present its offer, which aims to renegotiate US$ 72 billion of sovereign and provincial debt. The Argentine government will call on about 20 institutions and funds -- including BlackRock Inc., Ashmore Group Plc and Fintech Advisory Inc. The proposal was immediately panned by creditors when it was unveiled on April 17.

Argentina is seeking a three-year moratorium on debt payments, a 62% reduction in interest payments and a 5% cut in principal. Holders of the country’s overseas debt are being offered a series of new securities of various maturities, none of which will accrue interest before 2022. No principal will be returned before 2026.

Argentina’s efforts come as calls grow among indebted countries for debt standstills. Yet the nation isn’t representative of the broader pool of nations seeking debt relief since its woes predate the pandemic, Reinhart said.

“I find it difficult to make the case convincingly that a standstill, even extended to a year, would cover the kind of debt relief that Argentina is looking for,” Reinhart said. “If anything, the dire situation among emerging markets with Covid means the depth of Argentina’s haircut has to be bigger. This has really wiped out the prospect of recovery, at least over the nearer term horizon.”