MercoPress. South Atlantic News Agency

Argentina and creditors find a path to reach an understanding and avoid default

Guzman said bondholders have submitted three counter proposals to restructure the debt. Both sides were still having “constructive dialogue,” he added

Argentina’s Economy Minister Martin Guzman has hinted that make-or-break talks with international creditors are likely to continue beyond the looming May 22 deadline. It has tentatively elevated hopes that the crisis-prone country will be able to avoid its ninth sovereign debt default.

“We are of the view that there is a big chance that the deadline is extended so we can eventually make the amendments that are necessary in order to achieve a sustainable deal with our creditors,” Guzman said.

Argentina had initially approached international creditors holding some US$ 65 billion worth of bonds with an offer that included a three-year grace period and a significant cut to the country’s interest payments.

Some bondholders were open to the offer, accepting that the country’s debt had become unaffordable and needed to be sustainable, which meant giving more time to pay, but most rejected the deal.

Guzman said bondholders have since submitted three counter proposals to restructure the debt. Both sides were still having “constructive dialogue,” he added, but they needed to deepen the process of collaboration to reach a deal.

Allegedly according to sources, the Argentine proposal is equivalent to some 42 cents to the dollar, while bondholders were demanding some 58/62 cents to the dollar.

But now apparently BlackRock, the world's largest assets management fund, some 6,8 trillion dollars, is prepared to lower its Argentine bonds aspirations to 50/55 cents to the dollar and get over with the issue, but is waiting for a similar conciliatory move from the Argentine government.

Buenos Aires media sources revealed that this approach was mostly the result of friendly talks between Argentina's YPF oil company ex CEO, Miguel Galuccio, and Larry Fink, BlackRock CEO.

“The sooner this gets resolved, the better,” Guzman continued. “The deal has to be successful for giving Argentina the conditions for being back on its feet and that’s how the process will continue.”

Separately, a grace period for a US$ 505 million group of interest payments on three foreign bonds is also set to end on May 22. But even if the deadline is not complied, default is not immediate, since “both sides continue to negotiate”, and the Argentine side has all along insisted it does not want to fall in that extreme.

Talks to restructure Argentina’s debt come around five months into President Alberto Fernandez’s administration. The country’s economy, which was already grappling with a two-year recession, sky-high inflation rates and rising levels of poverty, has been hit hard by the coronavirus pandemic.

In fact, given that approximately 85% of the government’s work to put an offer on the table came before the coronavirus epidemic, the source told CNBC that what the country had offered “might be a bit over the top” given its payment capacity is now less than it once was.

In 2001, Argentina defaulted on around US$ 100 billion of debt. At the time the country's GDP was some US$ 250bn, but now it's closer to US$ 500bn, and the US$ 65bn debt dispute is less critical. The 2001 situation triggered the worst economic crisis in the country’s history and resulted in millions of middle-class citizens falling into poverty — a consequence many in Argentina blame on the fiscal policies enforced by the International Monetary Fund at the time.

But the Argentine economy now under the full impact of the lockdown, according to the latest Indec stats, 11,5% in March compared to a year ago and 9,8% from February. Activity in manufacturing and construction contracted dramatically