The first debt renegotiation proposal has already been presented to Alberto Fernandez, with a decisive majority capable of pushing a solution of Argentina's private debt. Last week an initiative was presented to the president economic team and is being pushed by investment fund giants Blackrock and Pimco, two of the three largest private investors in Argentina in the last four years, along with Templeton.

Blackrock and Pimco's proposal was drafted with JP Morgan's support. In essence, it suggests postponing payment of the debt principal for five years, but not imposing deductions or lower rates. It also keeps the interest payments on the debt up to date, but with one very important proviso: the investment funds are willing to lend the new government at least US$ 5 billion - which could be stretched to US$ 10 billion - to pay the interests for the first few years.

Alberto Fernández Taps Martín Guzmán for the Ministry of Finance

The proposal has four big advantages for Alberto Fernández: on the one hand, it does not affect the capital and is in line with what the incoming Minister of Finance, Martín Guzmán, is suggesting. This would make it possible to close the agreement in the short term. Seeking a capital reduction that hits the balance sheets of the investment funds would imply more friction and longer negotiations, as Susan Segal, CEO of the Council of Americas, warned last Tuesday. An extension in maturities terms would leave the private sector with no access to funding for a longer time. That's why Guzmán's deadline for an agreement is March 2020.

At the same time, it would give the incoming president a five-year grace period for the payment of the principal, instead of two as in Guzmán's proposal. Thus, Alberto Fernández would not be required to pay debt principal to private bondholders for the entire duration of his first term in office. In 2020 alone, he would save some 9.3 billion dollars.

Days Before Leaving Office, Macri Defends his Economic Performance

Interest-payments, however, would not be postponed. And if the Ministry of Finance were to say that there is no money to cover the approximately 3.9 billion dollars that must be paid in 2020 under foreign law (and the 4.5 billion dollars under Argentine law), the investment funds would be willing to put 5 billion dollars on the table to cover the interests.

In the absence of market access, for the funds to provide "fresh money" is an interesting incentive for the government. As this proposal is for the beginning of the negotiation, it is feasible that the investment funds are willing to extend this financing for the payment of interests and, according to the sources consulted by LPO, it was not ruled out that the contribution could be stretched to up to 10 billion dollars.

And the fourth advantage for Fernández is that these two investment funds, along with a number of smaller firms that have already endorsed the proposal, account for 65% of the debt bonds, leaving Guzmán closer to the level needed for each series of bonds so that the rest of the bondholders will be compelled to accept the proposal.

Incoming Finance Minister Martín Guzmán.

Anyway, the proposal first has to be accepted by Guzmán, who will probably have objections since under this scheme of restructuring, the debt continues to grow. "I doubt that Guzmán will accept this type of step-up because it kicks the problem further and increases the debt, when the debt issue has to be resolved at the root," said an influential Wall Street analyst.

The IMF saw the proposal and found no objections, it only made it clear that as a privileged creditor it should be the first to collect the 44.5 billion dollars that the country received between 2018 and 2019.

The analyst told LPO that he doubted that the IMF would back a restructuring proposal without first seeing the government's macroeconomic plan to make the debt sustainable again. However, Alberto Fernandez confirmed during his cabinet presentation that "we have been working silently with the IMF".