Argentina Can’t Pay Debt Until Economy Grows, Fernandez Says

(Bloomberg) -- Argentina is willing but unable to pay its debts under current conditions and needs the economy to grow again before meeting its obligations, President Alberto Fernandez said in his first speech after being sworn in.

The government will seek “constructive and cooperative” dialogue with the International Monetary Fund and bondholders to address the debt load, Fernandez said, without giving additional details. The outgoing administration of Mauricio Macri left Argentina in “virtual default,” he said.

Fernandez, 60, read off a list of challenging economic indicators that he’s inheriting including the biggest debt load as a percentage of gross domestic product since 2004, when the country was in default and he was cabinet chief. Investors are awaiting details from incoming Economy Minister Martin Guzman on his plans to confront the debt crisis which may include proposals to extend maturities.

“The country is indebted, cloaked by an instability that discards the possibility of development and leaves it hostage to foreign financial markets,” he said. “Argentina should grow with a project of its own and implemented by Argentines, not dictated by foreigners with old recipes that always fail.”

Fernandez’s speech was “constructive,” said Shamaila Khan, the New York-based director of emerging-market debt at AllianceBernstein. “They obviously didn’t have much policy details. But I don’t think we were expecting that from an inauguration speech.”

IMF Managing Director Kristalina Georgieva congratulated Fernandez on his inauguration and said they have the same goals.

“We fully share your objectives of pursuing policies that reduce poverty and foster sustainable growth,” Georgieva said in a tweet Tuesday afternoon. “The IMF remains committed to assisting your government in this endeavor.”

Debt Challenge

Macri, who reinserted Argentina into global bond markets after taking office in 2015 but later failed to control inflation and kick start growth, signed a record $56 billion IMF credit line last year. The implied probability of non-payment over five years with credit-default trading stands at about 95%.

Macri, who was forced to reimpose capital controls in September after markets sank due to a primary election that showed Fernandez set to win the presidency, had also announced plans to “reprofile” a total of $101 billion in debt between payments due to private creditors and the IMF.

Moody’s Investors Service Inc. said restructuring Argentina’s medium- and long-term debt will be a challenge for Fernandez’s administration, and that the future of the nation’s credit ratings will depend on “losses imposed on bondholders as well as the long-term sustainability of the government’s yet-to-be-defined economic program.”

Fernandez said that the 2020 budget can only be drawn up once the debt negotiation has been completed, as well as some economic and social measures haven been implemented to compensate the impact of the crisis in the economy.

“Solving the problem of the unsustainable debt that Argentina has today is not a matter of winning a dispute. The country has the will to pay, but it lacks ability to do it,” Fernandez said.

Argentina’s bonds traded lower Tuesday, with notes due in 2028 falling 0.5 cent to 40 cents on the dollar.

--With assistance from Jorgelina do Rosario, Andres Guerra Luz, Scott Squires and Sydney Maki.

To contact the reporter on this story: Patrick Gillespie in Buenos Aires at pgillespie29@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Walter Brandimarte

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