BUENOS AIRES, Feb 12 (Reuters) - The International Monetary Fund was set to start talks with Argentina on Wednesday about economic policy, with the local bond market muddled after a failed debt auction and unilateral reprofiling of principal payments earlier in the week.
The government says it needs to rejig $100 billion in debt, including $44 billion in loans to the fund, Argentina’s biggest single creditor, which has sent a team of economists to Buenos Aires to start work on a deal to provide enough debt relief to allow the economy to start growing.
It won’t be easy. Bondholders are apprehensive about the upcoming restructuring. The government has vowed to stop making unsustainable payments while rebuffing the kind of budget cuts that the IMF usually prescribes for crisis-hit countries.
“Demand for local assets remains low amid ongoing debt restructuring discussions,” said a note from JP Morgan. “We keep a neutral stance on the Argentine peso and local assets.”
Latin America’s No. 3 economy is expected by private analysts to shrink 1.5% in 2020 as inflation rages at over 50%.
The IMF meetings in Buenos Aires will start today and last through Feb. 19. “The work climate will be good,” a spokesman for the Economy Ministry said, citing preliminary talks that both sides called constructive.
On Tuesday the government postponed a $1.47 billion principal payment on the country’s AF20 bond until Sept. 30.
The payment had been scheduled for Thursday. The abrupt change in terms followed two attempts to roll over the bond, which attracted low participation among investors.
Sovereign debt prices fell on the news Tuesday and risk spreads widened. Small individual holders of the AF20, who bought the paper before Dec. 20, are not subject to the delay in the payment of principal, the economy ministry said.
On Monday the government voided a local debt auction due to scant investor appetite.
“The events over the first two days of the week seem to confirm the view that the government has not prepared for the complexity of debt restructuring negotiations ahead,” said Manuel Canas, head of London-based emerging markets investment firm Archipel Capital UK. (Reporting by Hugh Bronstein; additional reporting by Gabriel Burin Editing by Chizu Nomiyama)