Argentina's debt restructuring and economy ahead of the 2023 elections

Briefing 26-09-2023

Sovereign debt has been a longstanding challenge for Argentina's governments. As recently as 2022, Argentinian President Alberto Fernandez secured an outline deal with the IMF to restructure US$44.5 billion of debt from a record 2018 bailout. In fact, since 2001, Argentina has defaulted on its international sovereign debt three times –the first time in December 2001 in the midst of a very serious financial crisis, in 2014, in the middle of a battle against holdout creditors and again in 2020, in the middle of the COVID-19 pandemic. During the same period, Argentina has gone through two debt restructurings. One that lasted from 2005 to 2016, and one that started in 2020 and was agreed much faster. After the 2005-2016 restructuring experience, Argentina implemented two of the lessons learned: (i) the use of collective action clauses in the 2005 and 2016 indenture bonds, and (ii) taking a faster approach to the restructuring process, in both the opening of negotiations with creditors and the formulation of an acceptable proposal. In addition, during the 2020 restructuring, Argentina chose initially to adopt two controversial measures to circumvent collective action clauses, it changed course and managed to complete the restructuring of the desired amount. These actions, along with other economic policy decisions, allowed the country to avoid a crisis similar to that of 2001, despite the challenging global economic environment. In 2022, the country's economy went through multiple shocks, i.e. the ramifications of the Russian invasion of Ukraine, as well as a persistent drought that damaged its crops and exports. The situation persisted in 2023, with an increase in inflation and a depletion of dollar reserves, which added to the government's woes. Even if a crisis is averted, economic considerations will play a critical role in the general elections due to take place in October 2023. While it is too early to say that Argentina will not again find itself in need of restructuring in the near future, experts suggest that the country has learned some lessons from these processes, with regard both to negotiating with creditors and to managing its debt and the legal innovations that can protect it. This could help it manage such processes more efficiently and without the associated economic and social costs.