Argentina has been facing a long-lasting economic crisis, further amplified by the COVID-19 pandemic. Close to half of the population lived in poverty in the second quarter of 2020, reaching an all-time high during the months of mandatory lockdowns. Due to the pandemic, the country also experienced a loss of 3.5 million jobs and unemployment rose to 13.1% in the second quarter since the closures hit small businesses hard. As a result, the impact of COVID-19 significantly hurt the domestic market. The Argentine debt agreement hopes to improve the financial crisis in Argentina.
The Argentine Debt Agreement
To help Argentina with its growing financial crisis, the Ad Hoc Group, Argentina Creditor Committee and the Exchange Bondholder Group have come to an agreement that will provide Argentina with financial relief in terms of its national debt. This relief is a major advancement in expanding Argentina’s access to international capital markets. The agreement lays the foundation for future sustainable fiscal policies that support the economy. Moreover, the debt agreement entails a lift of sovereign bonds by an average of 8.7%. Ultimately, Argentina is actively working toward providing sufficient cash flow within the economy to address rising economic concerns. This agreement also allows Argentina to avoid “protracted and costly legal proceedings with bondholders.”
Restructuring the Economy
The three creditor groups developed the debt agreement to restructure $65 billion worth of accumulated Argentinian debt. The creditors involved will receive 55 cents on the U.S. dollar. Originally, the president of Argentina, Alberto Fernandez, desired to pursue 39 cents. The Argentine debt agreement covers 20% of the public debt of Argentina, which amounts to $323 billion. This presents only a partial solution to Argentina’s financial crisis but will certainly help the country move toward economic stability.
If Argentina defaults on the debt, there are possible consequences. By defaulting, creditors will not be eager to invest in Argentina. Diminishing debt through repayment shows commitment but will lead to less investment in the domestic development of the country through social programs, pension benefits, unemployment packages and more. However, the agreement is a step toward solving the rest of the economic dilemma. It utilizes the restructuring method, which provides Argentina with a long-term plan for rebuilding the economy.
Moreover, the agreement modifies the dates of payment for certain bonds. The modification that will be implemented “will improve the value of the proposal for creditors.” Multifarious investors are interested in the profit restructuring will produce and are betting on a boost in the economy.
Negotiating Future Monetary Policies
Argentina’s debt restructuring does not end there. Argentina and the International Monetary Fund (IMF) will discuss Argentina’s plans on refinancing its $45 billion debt to the IMF. The focus will mostly be on loans maturing between 2021 and 2024. During this period, the International Monetary Fund will hold Argentina accountable for certain economic obligations. This accountability entails that Argentina must utilize “credible economic data” as proof of Argentina’s economic recovery path.
The Road Ahead
Debt relief is an effective solution to addressing Argentina’s financial crisis and rebuilding a resilient economy. Negotiations with creditors involve the nation requesting reasonable interest rates from now on, which will allow Argentina to truly stabilize. The agreement is very desirable as Argentina is also navigating the added impacts of COVID-19. In general, this revamped economic plan will not solely benefit Argentina but also the international financial system. By setting new precedents, Argentina can effectively re-enter the global market, ultimately contributing to global economic growth as a result.
– Lauren Tabor