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Already in default, Argentina hits an impasse with creditors over debt restructuring talks

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Piqueteros and social organizations demonstrate outside Casa Rosada government palace to demand more aid to survive the crisis caused during the lockdown imposed by the government against the spread of the new coronavirus, COVID-19, in Buenos Aires, on June 11, 2020.

JUAN MABROMATA | AFP via Getty Images

Argentina’s debt restructuring talks appear to have hit a stalemate, amid escalating tensions between government officials and international creditors.

The South American country and the “Ad Hoc” bondholder group, which consists of 13 international asset managers and is by far the largest creditor group to Argentina, both published statements late Wednesday effectively accusing one another of refusing to cede ground in order to reach a deal.

Argentina’s government said that it could not “responsibly commit” to the terms offered by creditors, adding some of which were “largely inconsistent with the debt sustainability framework necessary for Argentina to restore macroeconomic stability and make progress towards a program with the IMF.”

“Furthermore, the negotiation process with our investor community has revealed that investor demands frequently diverge and cannot be readily reconciled.”

It means around $65 billion in bonds could be left in default for an extended period. Latin America’s third-largest economy tumbled into its ninth sovereign debt default on May 22 after it missed overdue interest payments.

The “Ad Hoc” bondholder group claimed Argentina’s government had “walked away” from a “comprehensive and sustainable debt restructuring offer.”

The group also described talks with government officials as a “failure.”

Both sides had been scrambling to reach a deal ahead of a June 19 deadline, though this is not thought to have a meaningful impact given the country is already in default. To be sure, this deadline has already been pushed back four times.

How did we get here?

Talks to restructure Argentina’s debt come around six months into President Alberto Fernandez’s administration.

The country’s economy, which was already grappling with a two-year recession, sky-high inflation rates and rising levels of poverty, has been hit hard by the economic impact of a global health crisis.

Argentine President Alberto Fernandez gestures as he offers a press conference to announce new measures regarding the lockdown to slow the spread of the novel coronavirus COVID-19, at Olivos Residence in Olivos, north of Buenos Aires, on May 23, 2020.

Alejandro PAGNI | AFP via Getty Images

To date, 35,552 people have contracted Covid-19 in Argentina, with 913 deaths nationwide, according to data compiled by Johns Hopkins University. In comparison, neighboring Brazil has recorded the second-highest number of confirmed coronavirus infections in the world, with over 955,000 cases and 46,510 fatalities.

Argentina’s Economy Minister Martin Guzman has previously indicated talks with bondholders could not be resolved unless they were deemed to be “successful for giving Argentina the conditions for being back on its feet.”

On May 6, a group of leading economists including Nobel prize-winner Joseph Stiglitz published an article urging bondholders to “act in good faith.” They argued debt relief for Argentina would be “the only way to combat the pandemic and set the economy on a sustainable path.”

It is in this context that talks to restructure Argentina’s debt payments have received international attention.

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