The refusal of Finance Minister Martin Guzman to bailout the Buenos Aires Province sparked off the tension between him and Governor Axel Kicillof. A conflict that was reflected in the differing strategy for renegotiating the debt, which on Monday increased the Casa Rosada's concern about a potential default in the country's largest province.
The rejection of the investment funds to Kicillof's unilateral decision to postpone until May the payment of a maturity raised red flags in the Argentine presidency. On Monday, the province defaulted on the payment of 250 million dollars and entered into a discount period before technically going into default on February 5.
If the province, which represents 40% of the GDP, enters into default, it would be a serious threat to the national strategy. Sources inside the presidency told LPO that there is "extreme concern" in the Casa Rosada because they understand that Kicillof is setting the tone by using the ten day grace period and giving the creditors until Friday to accept their request to postpone the payment of the 250 million dollars from BP21.
In the Executive they consider that, through the Solidarity Law that generated a containment of the public deficit and the fact that the inherited primary deficit was below 0.5%, President Alberto Fernández had already done enough to reassure the creditors and move forward with an agreement to restore the sustainability of the debt. But a default in Buenos Aires Province could undermine negotiations at the national leve, a source in Casa Rosada told LPO.
While Kicillof insists that his request to delay payment will reach the acceptance of 75% of the bondholders - as required by the collective action clause of this bond - newspaper La Nación on Monday reported that Minister Guzman disclosed in New York that in the first attempt the acceptance to the governor's proposal was only of 26% of the bondholders. In other words, far from the great degree of acceptance that the governor and his minister Pablo López said they had received.
However, in response to LPO's question, the Ministry of Economy contradicted La Nación and assured that Guzmán never revealed this fact in his meeting in Manhattan. "Guzmán would never say something like that at a public breakfast," said the minister's advisers.
While in the Buenos Aires Province governor's office they stated: "We never talk about percentages" and added that "the process with the creditors is very dynamic and is open until the 31st, we have to see how they react after the new proposal" of advance payment of interest.
First reactions to the new Kicillof proposal were not positive. According to an article in Bloomberg, investors are still waiting for Kicillof to present a "comprehensive plan" of how the province intends to meet all its debt commitments, beyond kicking the can for four months.
"I don't see investors changing their position because of this new proposal," said Joaquin Bagues, head of strategy at Portfolio Personal Inversiones.
Bloomberg's article even links Kicillof's move to Guzman's attempt to open a renegotiation of sovereign debt and highlights the fragility of Argentina's macroeconomy, which is burdened by high inflation and recession. "How can you ask for an extension of the maturity when you don't offer a plan," asks Siobhan Morden, head of Latin America strategy at Amherst Pierpont in New York.
Either way, this counterpoint shows that between Kicillof and Guzmán there are different visions of the ways and times to approach debt renegotiation. And the coordination between the two is strained by a figure that the market considers laughable. It is barely 250 million dollars, when on Monday alone the Central Bank sold 150 million dollars to prevent the dollar from rising.
Investment funds refuse Buenos Aires Province's debt renegotiation deal, bringing Argentina closer to a default
