(Bloomberg) -- Argentina’s debt load is unsustainable, the International Monetary Fund said, offering what is effectively a seal of approval to the government’s plan to saddle creditors with losses in a renegotiation of its liabilities.
A “meaningful contribution” will be necessary from private bondholders to restore the country’s debt sustainability, the IMF wrote in a statement Wednesday following a week of meetings with Argentine officials during its first technical mission in Buenos Aires under Alberto Fernandez’s presidency.
“The primary surplus that would be needed to reduce public debt and gross financing needs to levels consistent with manageable rollover risk and satisfactory potential growth is not economically nor politically feasible,” the Fund said.
Even if hardly surprising for a country that has lost more than a third of its international reserves since July and had installed draconian capital controls, the Fund’s declaration is another chapter in Argentina’s long history of fiscal crises and debt mismanagement. The nation had defaulted eight times in its history and is on course to contract for a third straight year in 2020 after the economy probably shrank 2.5% in 2019.
Fernandez is seeking to renegotiate billions of dollars in debt with private creditors, including a $56 billion loan with the Washington-based organization. The last time IMF officials commented on Argentina’s debt was in the fourth review of the credit line in July 2019, when they called it “sustainable, but not with a high probability.”
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“They’re stating the obvious -- it’s the loans the IMF made to Argentina that made the debt unsustainable,” said Hans Humes, chief executive officer at New York-based Greylock Capital, which is leading a sovereign creditor group.
Argentina’s record IMF loan has been on hold since August after Fernandez pulled off a shock upset of incumbent Mauricio Macri in a presidential primary vote, sending markets reeling.
“IMF staff emphasized the importance of continuing a collaborative process of engagement with private creditors to maximize their participation in the debt operation,” according to the statement. Debt rose to nearly 90% of gross domestic public at the end of 2019, the Fund said.
In a sign of what may come when markets resume on Thursday, traders placed bids for Argentina’s 2021 bonds at a three-week low of 52.6 cents, down 0.6 cents after the IMF’s announcement.
Economy Minister Martin Guzman warned investors last week they’ll probably be frustrated with negotiations, which he intends to wrap up by the end of March. South America’s second-largest nation owes over $38.7 billion to bondholders just this year, with payments peaking in May.
Guzman will meet IMF Managing Director Kristalina Georgieva at the G-20 Finance Ministers and Central Bank Governors Meeting that takes place in Riyadh, Saudi Arabia, on Feb. 22-23.
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