Argentina’s provinces will likely have to wait until the sovereign concludes a proposed restructuring of its billions of dollars of debt before they can do the same to avert defaults, Chaco Governor Jorge Capitanich warned on Friday.
The provinces have to wait to see what the federal government’s strategy is for restructuring the sovereign’s debt, he said, saying this will “open the door” for the sub-sovereigns to follow suit.
“With the model that Argentina takes and the impact that this has, provinces can access the process of restructuring,” he told LatinFinance on the sidelines of the 1st Integration and Development Forum in Montevideo.
“No province can really get round the sovereign’s negotiations,” said Capitanich, who spoke at the conference organized by the regional development bank Fonplata and LatinFinance. The forum hosted both investors as well as officials from the fund’s five member nations: Argentina, Bolivia, Brazil, Paraguay and Uruguay.
The sovereign is preparing to restructure more than $100 billion in foreign-law debts by March 31, a timeline that Capitanich, who was a chief of cabinet in the federal government from 2013 to 2015, said he is confident will be met.
Argentina’s process is “sequential,” with the first step to reach an agreement with the International Monetary Fund, the country’s biggest creditor at $44 billion, and then the private creditors, both of local-law and foreign-law bonds, he said. The IMF has already expressed support for Argentina’s proposal to ask bondholders for a haircut on the value of their bonds.
The financial problems stem from the country’s economic and financial crisis, which started in April 2018. A more than 240% depreciation of the peso over the past two years has pushed up the cost of servicing dollar bonds in peso terms, while an economic recession in its third year is reducing tax revenue. At the same time, inflation of more than 50% is pushing up expenditures at a faster clip, making it hard to service the debts.
A deal with the IMF will then pave the way for the provinces to restructure their debts, if need be, and for multilateral lenders to offer more financing for infrastructure projects in the country, he added.
Chaco took care of its immediate debt maturities in February, Capitanich said.
“We have amortized the services of interest of a bond taken out in 2016, a bond due 2024,” he said. “We are complying with all of our financial obligations.”
That’s not so the case with other provinces, some of which are at the risk of defaulting this year.
In January, Buenos Aires, the country’s biggest province, asked creditors for a four-month deferment on a $250 million bond payment. But after failing to get the 75% acceptance from bondholders for the postponement to be successful, the province wound up dipping into its own finances to make a last-minute payment to skirt default.
Buenos Aires Governor Axel Kicillof had asked the federal government to bail it out, but President Alberto Fernández and his economy minister, Martín Guzmán, both shot his idea down as they focus on restructuring the sovereign debt.
In February, La Rioja failed to make a $14.7 million payment on a $300 million, dollar-denominated green bond due in 2025.
Others could follow suit. Six provinces face debt payments of $105.3 million this month, of which Buenos Aires province faces the largest at $57 million, according to data from Research for Traders in Buenos Aires. The other provinces are Chubut, Córdoba, Jujuy, Salta and Santa Fe.