Argentina Announces Debt ‘Reprofiling’—Selective Default— Amidst Financial Meltdown

Aug. 29, 2019 (EIRNS)—After another day of uncontrolled market turbulence, last evening, Argentine Finance Minister Hernan Lacunza announced that the Mauricio Macri government will “reprofile” its foreign debt—others call it a selective default—in an admission that the debt is no longer “sustainable” according to the International Monetary Fund’s criteria, and that meeting upcoming debt obligations is impossible.

The measures announced, which include extending maturities on short- and long-term debt and renegotiating the current $57 billion standby loan with the IMF, are necessary, Lacunza said, to relieve an enormous “financial burden” on the government, and protect foreign reserves. An IMF mission which had been in the country since Aug. 24 to evaluate whether to release the next $5.4 billion tranche of standby loan, left shortly before Lacunza’s announcement. Many Argentine analysts suggested today that the Fund itself had recommended the “reprofiling,” since the government has failed to meet the key guidelines that would qualify it for the next tranche.

The last two days have seen total market chaos—with uncontrolled peso devaluation which several Central Bank dollar auctions couldn’t stem (the peso now stands at 61 to the dollar), hemorrhaging of reserves and stock market crash. More broadly, inflation is out of control at 51%. The “zero deficit” the government promised the IMF is unattainable; economic growth will decline again this year, and failure to roll over short-term Treasury bonds, as occurred this week, has left the government with no access to private capital markets. As Ambito Financiero’s Carlos Burgueño pointed out today, while the IMF mission was only supposed to look at numbers through June, the projected negative figures for the third quarter would have likely clinched its evaluation that only a “reprofiling” could justify releasing the $5.4 billion. Even then, the $5.4 billion isn’t guaranteed.

The plan will delay $7 billion in payments on short-term local debt due this year; seek “voluntary reprofiling” of $50 billion of longer-term debt (much of it held by foreign investors), and postpone repayment of $44 billion owed to the IMF, due between 2020 and 2023.

The unstable Macri, meanwhile, continues to blame financial upheaval on the results of the Aug. 11 primary, in which he was crushed by the opposition Fernández-Fernández ticket, and demands that Presidential candidate Alberto Fernández take responsibility for ensuring financial stability. Fernández refuses, and in a tough Aug. 26 statement, charged that “those who have caused this crisis, the government and the IMF, have the responsibility of ending the social catastrophe which today an ever-larger portion of Argentine society is living through.”