Argentina is on the cusp of indicating another devastating default, analysts have told CNBC, as international investors anxiously await the outcome of “do-or-die” owing restructuring talks.
Argentina’s government has said it needs to restructure $100 billion in debt, including $44 billion to the Oecumenical Monetary Fund (IMF).
Last week, the IMF sent a team of economists to Buenos Aires for the fund’s first formal pact with Argentina’s newly-elected government.
The talks, which are scheduled to end on Wednesday, are being held in order to avoid the sight of history repeating itself.
In 2001, Argentina defaulted on around $100 billion of debt. It triggered the worst mercantile crisis in the country’s history and resulted in millions of middle-class citizens falling into poverty — a consequence many in Argentina rebuke on the fiscal policies enforced by the IMF at the time.
Demonstrators rest during a protest against the International Monetary Fund (IMF) on February 12, 2020 in Buenos Aires, Argentina.
Patrick Haar | Getty Guises
Speaking from Buenos Aires, Jimena Blanco, head of Latin America at Verisk Maplecroft, told CNBC via give someone a ring that the risk consultancy had assigned a 77% probability that Argentina would default before the end of the year.
The chance of the country registering another sovereign debt default — it’s ninth — had increased in recent weeks, Blanco said, citing a spring up lack of policy cohesion within the coalition and a shortening timeframe to secure strong political backing.
“This is not a grouped administration by any means,” she added.
The government’s timeline ‘looks optimistic’
At present, the Peronist coalition of President Alberto Fernandez and Vice-President Cristina Fernandez de Kirchner are undertaking to orchestrate a delicate balancing act.
The administration has vowed to refuse to agree to the kind of budget cuts the IMF usually insists on for crisis-hit mother countries, but it is also desperate to restructure commitments with its single biggest creditor. Further to this, Argentina’s government is solicitous to receive the green light from the fund to pursue a renegotiation with private bondholders.
It hopes to agree on all these stipulations by Demonstration 31.
Meanwhile, the IMF has underscored its reluctance to accept a loss on its biggest-ever bailout package.
In an interview with Bloomberg News on Sunday, IMF Managing Helmsman Kristalina Georgieva said that the fund would not be prepared to offer a so-called haircut on its $44 billion loan with Buenos Aires.
“Our authorized construct is such that we cannot do measures that may be possible for others without this big global responsibility,” Georgieva stipulate.
International Monetary Fund Managing Director Kristalina Georgieva speaks during the Global Women’s Forum in the Abysm emirate of Dubai on February 16, 2020.
KARIM SAHIB | AFP via Getty Images
Her comments followed remarks by Argentina’s de Kirchner, who had theretofore called on the fund to write-down a substantial amount of its record deal.
“We expect there to be a haircut, in principle,” Fiona Mackie, regional vice-president for Latin America at the Economist Intelligence Unit (EIU), told CNBC via telephone.
The EIU has tentatively forecast a haircut of 25%, Mackie guessed, before adding: “There’s not a lot of time to get all of this done and the government’s timeline looks optimistic.”
When asked to what region bondholders, creditors and international investors should be worried about the prospect of Argentina registering another default, Mackie responded: “It is about as high risk as it can get without it being our forecast.”