We make four observations, some new, some worth repeating, on Argentina’s plans for a sovereign debt restructuring ahead of a crucial period in the process over the next few weeks.
- Creditor power: One of the lessons from the Province of Buenos Aires consent solicitation debacle (other than signalling the authorities’ unpreparedness, opportunism and “lack of a plan”) is creditor power (a message that might also have been repeated in the failed ARGDUO swap this week).
- Legal complexities: We think the bonds’ different legal standings (some actual, some perceived) add to the complexity of a sovereign restructuring, making the ambitious timetable the government set out on 29 January even more challenging.
- Public debt sustainability: We still do not know what the perimeter of the government’s foreign debt restructuring is, nor do we know on what basis the government thinks the debt is unsustainable.
- Cash flow: Although insolvency may be questionable, cash flow – or illiquidity – is a more legitimate concern (albeit stemming from a self-imposed negative confidence shock).
Economy Minister Guzman is due to present his long-awaited debt sustainability assessment (some time over 12-17 February) and the IMF technical mission gets underway (12-14 February), as the government tries to steer a path towards restructuring, according to its very ambitious (even not credible) timetable.