BUENOS AIRES – Argentina missed a bond payment on Friday, turning closer to another crushing standard that would dip it into a new period of economic isolation and deepen a recession that has been exacerbated by the coronavirus pandemic.
The forgotten deadline means that Argentina has technically entered the standard for the ninth time in its history. But the government signaled that it was making progress toward a deal with creditors for $ 66 billion in foreign debt restructuring and announced that negotiations would continue until June 2.
“I want the world to see us as an honorable country that fulfills its obligations,” he said in a speech Thursday night.
Argentina’s last default on its debt in 2014, and its long history of spending beyond its means and defaulting on loans, has given it a reputation as a death blow. But its current efforts to negotiate a favorable restructuring of its debt have drawn wide support from prominent figures, including Pope Francis and Senator Elizabeth Warren of Massachusetts, a lawyer and recognized expert on bankruptcy and commercial law.
“As Covid-19 exacerbates an already weak economy, this is not the time for Wall Street creditors to take advantage of any country struggling to deal with debt burdens,” Warren recently wrote on Twitter. “A fair deal will help save more lives.”
A group of 138 economists, including Nobel laureates Joseph Stiglitz and Edmund Phelps, signed an open letter urging Argentina’s creditors to enter into an agreement with the money-stricken country. The International Monetary Fund has also expressed optimism about the negotiations on restructuring Argentina’s debt, which it has characterized as “unsustainable”.
Argentina’s Minister of Economy, Martín Guzmán, who is leading the negotiations, expressed optimism that the country would avoid a long-standing default.
“Argentina is holding constructive negotiations with its creditors,” he said in an email. “The positive thing about all of this is that there is a willingness on all sides to close a deal, now the deal must be a deal that is sustainable.”
Hans Humes, C.E.O. from Greylock Capital Management, which is involved in the negotiations, said Thursday during a panel discussion hosted by the Wilson Center that the consequences of Argentina technically slipping to default on Friday would be minimal in the short term.
“There must be sufficient flexibility to reach an agreement that is acceptable,” he said, sounding optimistic about the ongoing negotiations.
The government’s original offer to creditors who were rejected round called for a three-year grace period on future payments, a reduction of loan balance of 5.4 percent and a reduction of interest payments of 62 percent.
Argentina had initially offered to pay about 40 cents on the dollar, while creditors demanded 60 cents. Analysts say the two sides seem closer to accepting a midpoint between 50 and 55 cents.
Argentina’s economy, which has been in a recession for more than two years, got a big hit after the government imposed a strict shutdown in mid-March to curb the spread of coronavirus.
Analysts said there would be no significant consequences for Argentina missing the deadline for Friday.
“A soft standard does not look like such a negative scenario compared to what we are dealing with today,” said Todd Martinez, an expert on Argentina at Fitch Sovereign Ratings Group. “In practice, not much is changing, though it can have some psychological effect.”
But if the talks break down in the coming days, Argentina will face a new, long period of economic isolation and contraction.
“If it extends over a longer period, this is when you will start to see difficulties in accessing businesses and people, as well as complications in the stock market and inflationary pressures,” said Daniel Marx, a former finance secretary who heads Quantum Finanzas, a consulting firm.
Although polls show that Argentinians prefer not to fall into default, the issue has not dominated the news in recent days.
“I really don’t follow it,” said Victoria Ferreira, a 37-year-old venue. “I’d rather worry about things I can solve.” Living in Argentina, she added, means that there is always “a connection with uncertainty.”