Argentina’s Guzman Says Nation Must Work to Cut Bond Yields

(Bloomberg) -- Argentina must reduce its bond yields before returning to international capital markets in a process that will likely take some time, Economy Minister Martin Guzman said on the day the country concludes a $65 billion debt swap.

In the shorter term, it will continue to work with the 1% of bondholders who did not accept the government’s debt restructuring offer, he added.

“We need to work on consistent macroeconomic management to decrease the yield to levels that we consider acceptable. And again, that will take time,” Guzman said in an interview with Bloomberg Television on Friday. “The government will not need to access the international market for a while.”

Argentina managed to exchange 99% of its old bonds for new ones, clearing the way for the country to emerge from its ninth default in history. The government said earlier this week that it would issue a total of $63.2 billion in new dollar-denominated bonds as part of the exchange, and 4.18 billion euros ($5.01 billion) of debt denominated in the single currency.

The new dollar bonds are yielding about 11% in unofficial, over-the-counter trading, according to traders.

European Bondholders

Argentina will also continue to work with the retail bondholders in Europe who hold the 1% of debt that wasn’t included in the agreement, Guzman said during the interview.

“The remaining 1%, we will continue working on it, it’s mostly a technical issue,” Guzman said of the holdouts. “There were some retail bondholders that were registered in Europe that did not get chance to vote but we don’t see that as a problem.”

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Later Friday, Guzman announced that Argentina had separately restructured 98.8% of dollar debt under Argentine law, adding that the country’s problems with the sustainability of its dollar debt are over. Investors in the local debt have until Sept. 15 to participate in the swap.

“The problem of unsustainable indebtedness in foreign currency is resolved,” he said at a press conference. “We are on track to get to where we want to, which is a more stable Argentine economy with more opportunities.”

IMF Talks

After the restructuring, Guzman and his economic team must negotiate a new program with the International Monetary Fund to replace a failed $57 billion bailout granted to the country during a previous government. The new IMF plan will be sent to congress for approval before the deal is signed, Guzman said in the BTV interview.

All options are on the table for the programs with the Fund, including two types of aid packages known as a Stand-By Arrangement and Extended Fund Facility, he addded, adding that the new deal will be different from the previous one because it will be based on different premises for economic policies.

The 2018 IMF program “deepened the recession. Now we are moving forward to a different kind of program,” Guzman said.

President Alberto Fernandez is expected to lay out his long-awaited fiscal, monetary, and foreign exchange policies with the new annual budget proposal that will be sent to congress by Sept. 15. Argentina is suffering its third straight year of recession with the economy poised to contract 12.5% in 2020, on pace for the worst one-year decline on record. Unemployment is above 10% and inflation hovers over 40%.

A key issue of the economic plan is a wide gap between Argentina’s official exchange rate, now at 74.44 per dollar and several unofficial rates, some as weak as 132 pesos per dollar. At the press conference Friday afternoon, Guzman said the government aims in the near term to stabilize the gap, with a longer-term goal to eventually narrow it.

“We understand that a stable gap is an objective for the economy to function properly,” Guzman said. “On the horizon, the aim is to reduce it.”

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