December 20, 2019 / 2:12 PM / a month ago

Argentina creates external debt unit, economy bill moves to Senate

BUENOS AIRES (Reuters) - Argentina appointed a government team to kick off talks with creditors to renegotiate about $100 billion in sovereign debt as the new center-left administration of President Alberto Fernandez postponed payments on some of its short-term debt.

Lawmakers meet to debate and vote on an emergency economic bill proposed by new President Alberto Fernandez, at the National Congress, in Buenos Aires, Argentina December 20, 2019. REUTERS/Agustin Marcarian

The “external debt sustainability management unit” was created in the context of the government’s sweeping economic bill, expected to be passed by the Senate later on Friday, according to a statement by the Secretariat of Finance.

The secretariat said it was inviting financial institutions and advisers to be part of a process that would allow “the recovery of external public debt sustainability.”

Fernandez, inaugurated Dec. 10, inherits an economic crisis, including annual inflation of more than 50% and an economy that is expected to contract for a third straight year in 2020. In addition to trying to get the economy back on track, the government must steer debt revamp talks with bondholders and other creditors, including the International Monetary Fund.

Earlier on Friday, after 20 hours of debate, Argentina’s lower House approved the government’s economic plan, which includes an array of tax increases on grains exports, personal property and foreign assets held abroad.

The Senate was expected to pass the measure, dubbed the “Social Solidarity and Production Reactivation”, Friday night.

The cornerstone of Fernandez’s program, the law aims to maintain fiscal balance to guarantee the future payment of public debt and, at the same time, expand social spending to boost the economy as Argentina struggles with higher poverty and increased unemployment.

Also on Friday, the government said it would postpone payments on some short-term notes known as “Letes” until Aug. 31, 2020. About $9 billion in such payments due to expire from Friday would be affected, according to a government source.

The postponement did not come as a surprise, according to Nikhil Sanghani, a London-based economist at Capital Economics, but longer-term concerns still linger for investors.

“The government has merely kicked the can down the road and maturity extensions alone will not be enough to resolve the debt problem. We think that it will have to pursue a large debt write-down next year,” Sanghani said.

Fitch downgraded Argentina to ‘RD,’ or “Restricted Default,” a credit rating applied to borrowers that have defaulted on one or more of its commitments while to continuing to meet others.

Reporting by Walter Bianchi, Cassandra Garrison, Hugh Bronstein, Eliana Raszewski and Nicolas Misculin; additional reporting by Rodrigo Campos in New York; Editing by Alison Williams, Steve Orlofsky, Dan Grebler and Richard Chang

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