Argentina’s bloodied bond market could take another beating if debt renegotiations take longer than expected, analysts said on Friday, as investors digested a week full of bearish news and the economy minister’s blunt comments about creditors.
Asset prices were driven down on Monday by a sovereign debt auction that had to be canceled due to poor investor appetite. On Tuesday the government unilaterally postponed a $1.47 billion payment on its AF20 bond from Thursday until Sept. 30.
Then on Wednesday, economy chief Martin Guzman warned that a “deep restructuring” was on the way.
“Considering what Guzman has said, we will experience a longer than previously expected debt renegotiation. And Argentina does not have enough currency reserves for that kind of process,” said Gabriel Zelpo, director of local consultancy Seido.
“If that happens, prices will suffer further,” he added.
While state officials met with International Monetary Fund economists to chart a way out of the country’s debt crisis, over the counter government bonds RPLATC were mostly unchanged on Friday after falling an average of 2% over the previous four days. Economists agreed prices still have room to move down.
“The market is looking for direction given heightened uncertainty on a number of critical issues, but it is not getting much from the authorities,” said Goldman Sachs emerging markets analyst Alberto Ramos.
“Key asset price drivers in the very near future will be the specifics of the government debt restructuring proposal and signals from the IMF.”
A meeting between Guzman and IMF officials on Friday took place in a “constructive climate,” a ministry statement said.
The IMF mission, in Buenos Aires until Feb. 19, is expected to issue a statement about Argentina’s plan for restructuring about $100 billion in loans and bonds.
Guzman has said the government will neither impose fiscal austerity on a country already in recession nor keep paying what he called unsustainable debt that President Alberto Fernandez inherited when he took office in December.
Guzman told Congress that austerity policies previously prescribed by the IMF were to blame for Argentina’s predicament and warned that future policies would not be dictated by bondholders, who are likely to find the upcoming negotiations “frustrating.”
“The hawkish communication about unsustainable debt, irresponsible creditors and no obvious commitment to fiscal discipline all suggest a worse recovery value for bondholders,” Amherst Pierpont Securities said in a note.
Guzman has set a March 31 deadline for getting the debt revamps done.