Argentina’s Fernandez Hints at Uruguay-Style Debt Solution

(Bloomberg) -- Presidential candidate Alberto Fernandez indicated he would tackle Argentina’s debt problem by adopting a strategy similar to that of Uruguay, which successfully extended its bond maturities in 2003.

“It’s not going to be that difficult to do something similar to what Uruguay did,” Fernandez said at a business conference in Cordoba, Argentina, adding that the goal would be to buy time to repay the debt without imposing a haircut to investors. “I’ve spoken to many investment funds and they’re aware that that can be a way out.”

In a broad outline of his economic agenda, the Argentine front-runner said that the country needs to lower interest rates and that currency controls are not the solution to developing the economy, but a transitory measure. He added that, under current conditions, Argentina can’t repay its debt.

“We have never said there would be a haircut,” Fernandez said. “What we say to bondholders is that we need to grow to pay. If not, there is no way to pay.”

Uruguay is often cited as a successful case of debt reprofiling in emerging markets. Without changing coupons, the government succeeded in launching a voluntary debt exchange that lengthened debt maturities on 18 international bonds. An overwhelming majority of creditors accepted the terms of the new bonds, avoiding a default while Uruguay’s economy recovered.

What Our Economist Says

“Fernandez’s hint at a Uruguay-like reprofiling makes sense and is good news in that it signals that he aims at a negotiated reprofiling. What is unsettling is that his argument that the country needs to lower rates and export more says very little about his plans to fight inflation.”

-- Adriana Dupita, Latin America economist, Bloomberg Economics

Fernandez defeated President Mauricio Macri in an Aug. 11 primary vote by a wider-than-expected margin. The Argentine currency and bonds have since sold off as investors priced in larger chances of default in the coming years. Argentina holds presidential elections on Oct. 27.

Fernandez emphasized that boosting exports and consumption in Argentina are critical, and that one doesn’t have to be chosen over the other. He also considers Macri’s current reprofiling proposal to be the same as a default.

“They call it reprofiling but what they’re saying is they can’t pay,” Fernandez said. “In other times, it was called default.”

To contact the reporters on this story: Patrick Gillespie in Buenos Aires at pgillespie29@bloomberg.net;Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Walter Brandimarte

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