A team of IMF economists is in Buenos Aires negotiating the rejig of US$44 billion in loans that Argentina says it cannot pay.
The International Monetary Fund showed zero flexibility Monday in talks that were expected to set the tone for a massive bond restructuring ahead, as IMF Chief warned that the institution won't take any loss, a suggestion made by Vice President Cristina Fernandez de Kirchner.
"We are the last resort for nations in a desperate situation," IMF chief Kristalina Georgieva told Bloomberg in a televised interview. "This means that all the state members must be sure that the money that we lend is reimbursed, so we can keep providing this security net to the world."
Local debt prices took a hit last week after the government was forced to abandon a bond sale due to low investor interest, and then stunned holders by unilaterally pushing back the principal payment of a local bond that had been due on Thursday.
A statement expected from the fund on Wednesday, at the conclusion of the talks, may indicate how much debt relief it is willing to grant, and how supportive it will be of the country’s plan to restructuring more than US$50 billion in sovereign bonds.
“An IMF statement that supports a lenient restructuring offer would boost bondholder confidence,” said Mateo Reschini, a trader with Rosario-based brokerage LBO.
“But if the IMF sounds like it will not be flexible on collecting its own loans, it will be mayhem because that would mean Argentina would have to be even harsher in the restructuring of is privately held bonds,” the expert added.
Argentinian bonds fell an average of two percent last week. With the government warning of a “deep restructuring” ahead, economists agreed prices still have room to move down depending on the signals that come from the IMF meetings.
“The market is just as afraid of the IMF at this point as it is of the government,” he added.
Economy Minister Martin Guzman told Congress last week that the government will neither impose fiscal austerity on a country already in a recession nor keep paying what he called unsustainable debt that President Alberto Fernandez inherited when he took office in December.
Guzman said austerity policies previously prescribed by the IMF were to blame for Argentina’s debt crisis and warned that future policies would not be dictated by bondholders, who are likely to find the upcoming negotiations “frustrating.”
The minister has set a March 31 deadline for getting the debt revamps done, a time frame that analysts call challenging.