SEIDO Special Report: Guzmanroufakis
Minister Guzman has finally defined the general guidelines of his debt strategy, setting the stance to begin the three fronts negotiations with local law bondholders, international law bondholders, and IMF. There will be no fiscal consolidation in Fernandez’ Administration. Also, aggressive anti-market rhetoric has appeared in the official speech, raising the political bet.
On the positive side, although details were scarce, having a strategical message is an advance after a number of missteps (PBA and AF20) that signaled that the government was losing the grip and lacking a cohesive plan. On the negative side, the message is very risky. Guzman’s speech has signaled that Argentina’s debt restructuring will not be Uruguayan or Ukranian style.
The question now is whether Argentina will end up being Greece or being Argentina.
Negotiation will inevitably take longer than what was exposed in the official calendar or what could have been achieved in a low haircut or NPV neutral reprofiling. If the government seeks and aggressive haircut (i.e. > 50), the international-law bondholders have no incentive to rush an agreement as the short term threat looks weak: The government has enough cash in reserves to pay for the USD 10bn in Foreign Law + IFIs financial needs for this year and an open default is too costly.
2020 total net debt service
By Jurisdiction, USD Bn
*as of February 12th
On the other hand, the Government’s grip on local law is much stronger, as recent reprofiling of AF20 has shown (while PBA int. Law was paid in cash). Financial needs for Local Law climb up to USD 30bn until the end of the year (USD19bn in ARS and USD11 in USD), with USD 2.8 average between March and June
Finally, negotiation with the IMF, has no significant milestone until 2022 repayments. Delaying an agreement, starting at what seems to be a very divergent starting position, will probably come at low costs for both parties.
We believe a “one size fits all” solution is out of reach in the short term, given the initial stance of the government. We also believe that “Greek” strategy will unnecessarily delay a solution to the debt crisis, and will have pervasive consequences on activity throughout the year (forecast of -1.0% now with downside risk)
Appendix
Net USD debt service until Dec-2021, as of February 12th
USD bn
Net ARS debt service profile until Dec-2021, as of February 12th
USD bn
Note: We use our BADLAR, CER and exchange rate projections for any new floating rate debt issuance.
Anual net financial needs until 2023, separated by currency
USD bn
