beyondbrics

Argentina is fond of repeating that it has no immediate plans or need to return to international capital markets. But in order to keep the window to doing so open, should the need arise, it files an annual update of its accounts to the US Securities and Exchange Commission, in the form of an 18-K filing.

This year’s filing reveals a trove of information the government usually prefers to keep under wraps.

Take, for example, the actual amount of money owed to “holdouts” – or bondholders who did not take part in the restructurings in 2005 and 2010 in the wake of its $100bn default in 2001.

The government likes to say that more than 91 per cent of the defaulted debt has been restructured and that since it acted in good faith with two debt swaps, it has no more obligations towards them. What it is less keen to reveal – and as the 18-K now shows – is that the outstanding amount is a hefty $11.2bn ($6.8bn in principal and $4.4bn in interest).

That matters for two reasons. First, holdouts are becoming litigious in new ways. Secondly, the US, taking note of the voiciferous holdout lobby, has sought (so far unsuccessfully) to block multilateral development loans to Argentina and could well take a harder line on Argentina’s long overdue Paris Club debts.

Argentina has been hazy on how much it actually owes to the Paris Club, a group of 19 creditor nations whose debts Argentina stopped paying a decade ago, and negotiations to repay have so far yielded much rhethoric but no substance. In its 18-K filing, the government discloses that it still owes some $8.9bn ($6.3bn in unpaid debts and $2.6bn of penalty interest). Until now, Argentina had been thought to owe some $7bn to the Paris Club, and the issue of interest was not clear.

As for regular debt servicing next year: capital plus interest payments add up to $7.8bn plus 5.4bn pesos, or $1.3bn – some $9.1bn in total. Some $2.5bn is due to multilateral lenders while $5.1bn is the capital and interest on bonds.The government did not spell out how it plans to meet those obligations.

Any attempt to return to international capital markets with the world financial outlook darkening is unlikely, even if a new bond issue were to prove possible without holdouts succeeding in seizing the proceeds. Argentina’s cost of issuing, as measured by credit default swaps, has soared and now slightly exceeds that of Portugal – surely a yardstick by which Argentina would prefer not to be measured. The interest rate now would be closer to 13 per cent than the 8 per cent Argentina could have secured a couple of months ago. For all the government rhetoric – and there is a lot – about how Argentina offers a lesson in how to rise like a Phoenix from default, the country still has much to do if it is to shake off its high-risk reputation.

Related reading:
Argentina: A high-risk recovery, FT
Argentina file, beyondbrics