Argentina's public debt is unsustainable

The IMF and the government of Alberto Fernández reached the decision to seek private bondholders to assume losses and renegotiate obligations.

Casa Rosada in Argentina.

Casa Rosada in Argentina. / Photo: Pixabay

LatinAmerican Post | Juliana Suárez

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Leer en español: La deuda pública de Argentina es insostenible

After a mission in which members of the International Monetary Fund met in Argentina with members of the cabinet, they published a statement assuring that private creditors will have to make an "appreciable contribution" to counteract the damages of the economic crisis.

During the days when the IMF met in what would be the first economic mission with the new government of Alberto Fernández, the creditors were waiting for conclusions and recommendations to know how to proceed to achieve a better balance against the crisis. However, they came across the decision that they will have to contribute significantly, although it was not established whether this contribution will be capital, interest or both.

In the statement, it said that "IMF staff noted that the ability to face the level and service of Argentina's public debt deteriorated significantly compared to the latest IMF debt sustainability analysis, published in July 2019". Therefore, they determined that the debt could no longer be considered sustainable.

They also stated that some of the risks that had been foreseen in July 2019 included “(i) problems in refinancing the debt due to the increase in new short-term issues; (ii) vulnerability of the trajectory of the public debt to the volatility of the exchange rate, given that a large part is denominated in foreign currency; and (iii) large external financing needs, a variable that is generally a good predictor of crises in emerging economies. ” These risks, despite the attempts of the previous government of Mauricio Macri and the incoming government of Fernández, could not be avoided.

Given this, the IMF expressed concern as GDP contracted more than expected, international reserves decreased by around US $ 20 billion and “gross public debt increased to about 90 percent of GDP at the end of 2019, 13 percentage points more than the projection at the time of the Fourth Review ”.

Hence the need to return sustainable debt for the next revision, so private bondholders are needed to contribute to this sustainability. In view of the results, the IMF determined that financing needs and potential growth are neither economically nor politically feasible, so their unsustainability was determined.

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According to La Nación, "according to a report by the Mauricio Macri government published last September, the debt with private creditors would reach about US $ 113,000 million without considering either the public sector or international organizations." Taking into account that sum, the fund's proposal seeks a “collaborative process with private creditors to maximize their participation in the eventual debt operation” which is intended to restructure the model to be sustainable.

For its part, the Argentine government reaffirmed what the IMF said and welcomed the decision being taken since Fernandez had previously talked about the unsustainability of the model and the need to transform it.

Although the way in which this model of contribution from private creditors is going to work has not yet been clarified, the Minister of Economy said on his Twitter account that they will have to work “to solve this deep debt crisis, end the cycles of unsustainable indebtedness and put our Nation back on its feet ”.

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