Gallagher Authors FT Alphaville Op-Ed on Argentina’s Debt Crisis
Kevin Gallagher, Professor of Global Development Policy at the Frederick S. Pardee School of Global Studies and Director of the Global Development Policy (GDP) Center, published an op-ed post in Alphaville in The Financial Times (April 20, 2020), arguing that Argentina’s new government needs to put into place a global sovereign debt restructuring program.
Entitled, “Argentina’s creditors must face up to the coronavirus challenge,” the post highlights that Argentina is clearly willing to negotiate its debts, but it should not have to pay the price for the lack of an orderly system to resolve unsustainable debts. Particularly when time is not only money, it is death. The International Monetary Fund’s (IMF) March assessment, before COVID-19, pinned Argentina’s external private sector debt at $80 billion, $66 billion of which is due in the next few years.
More from the op-ed:
Despite this turbulence, Argentina has put forward a pragmatic proposal to reprofile their debts. Martin Guzmán — the Minister of Economy — released his initial offer to bondholders on Thursday, April 16. Guzmán declared 21 bonds worth $66 billion as eligible for negotiation, 63 per cent of which were issued in the past four years — the so-called ‘“Macri bonds”.
Rather than seeking a major haircut to the base capital of these bonds, Argentina has asked for an extension of the grace period on repayment for three years, consistent with the IMF’s assessment. Instead, the majority of a haircut would come in the form of interest rate reductions of 62 per cent. All in all, Guzmán and team are only asking for $3.6 billion in core capital restructuring; just 5.4 per cent of the total.
This good faith offer should not only be negotiated swiftly in order to avoid a further economic collapse or to help bondholders earn a return, but to avoid the spread of the virus across Argentina.
The full piece may be read here.
Kevin Gallagher is a professor of global development policy at Boston University’s Frederick S. Pardee School of Global Studies, where he directs the Global Development Policy Center. He is author or co-author of six books, including most recently, The China Triangle: Latin America’s China Boom and the Fate of the Washington Consensus. Read more here.