“the argentinean experience on debt restructuring” dr. sergio chodos
TRANSCRIPT
“The Argentinean experience on Debt restructuring”
Dr. Sergio Chodos
Context
• Capital markets have grown sharply in the last twenty years, particularly since the beginning of the new century. New instruments arose, new mechanisms, new engineering.
• This “disorderly and huge” development of the international financial system led to transform creditors into holders, and debtors into issuers.
• Meantime, backstop of multilateral organizations remain moderate. They became small related to financial market hugeness:
• IMF quota subscriptions is almost 0,7% of GDP• Global financial assets to GDP are roughly 360%• Cross-border capital inflows represent 8% of GDP
• In this sense, “disorderly and huge” capital markets would hardly admit an “orderly” debt restructuring mechanism.
Argentina's Sovereign Debt Restructuring Paradigms
ArgentinaEffective payment
capacity
Creditor - Debtor
Absence of IMF support
Demonstrate good faith to creditors since the repayment capacity is
linked to growth.
Consistent with economic growth and stability.
Consistent with a trend of sustainable debt.
Market consensusMarket acceptability
Issuer - Holder
IMF support
Participation and acceptance of the
market as the main criteria
Market dealers are the major beneficiaries
Repayment capacity not a key driver
(1) Includes pre-default accrued and unpaid interests as of 31 December 2001 (approx. US$2.1 bn.).
Total amount to Restructure: US$81.8 bn. (1)
• Exchange of defaulted debt to performing debt (defaulted debt was almost 45% of the total debt in 2004)
• Acceleration to par• No minimum acceptance threshold• Securities were entitled to GDP-linked warrants • Rights upon future offers
152 Eligible Securities8 Governing Laws
6 Currencies
11 New Securities4 Governing Laws
4 Currencies
Argentina's Sovereign Debt Restructuring Key features
• Recognition of interest in cash at settlement• Benefits from better than expected growth
• GDP-linked security• Repurchase of New Securities
• Early tender allocation of Par Bonds• Most Favored Lender Clause• Open market debt repurchases with unused capacity
• The law restricts the government's maneuvering capacity regarding claims of non-participating creditors, thus ensuring no further exchange offer.
• Was rapidly passed by Congress. Received widespread support.• The law was the milestone to ensure credibility.
The Law
Argentina's Sovereign Debt Restructuring Incentives
Debt Sustainability• Minimizing debt burden• Achieve a trend of sustainable debt• Enhance Debt to GDP and Debt payments to Income ratios • Promote a debt profile consistent with the payment capacity
framework.
Economic growth• To ensure payment capacity• To regain sovereignty
Result to date: 91% of the defaulted debt has been restructured
Argentina's Sovereign Debt Restructuring Goals
Sovereign debt with “market risk” to GDP is about 13,5%, 9,4 times low from 2002.
Debt sustainability
56,1%48,8% 48,8% 45,3% 41,8%
64,0%73,9%
127,3%
138,7%
166,4%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Public Debt with Privates
Total Public Debt
Sovereign Debt -% GDP-
Source: MECON
127%
13,5%
Public Debt with privates and Reserves -% GDP-
96,0%
8,4%9,6%11,8%12,3% 10,0%10,8%14,4%15,9%11,0%
0%
20%
40%
60%
80%
100%
120%
2002 2009 2010 2011 04-Aug-12eSource: MECON and BCRA
Public debt with privates inforeign currency
International reserves
After BODEN 2012 payment: public debt with “market risk” in foreign currency to GDP is about 8,4%.
Debt payments to Income ratio was reduced from roughly 90% to one third in 2011.
Debt sustainability
Payments to national income ratio
payments: capital +interests
21,9%
66,4%
29,0% 27,4% 26,1%
8,0% 5,4% 6,6%0%
20%
40%
60%
80%
100%
2001 2009 2010 2011Source: MECON
Interests Capital
• Public debt sustainability favored financial system stabilityIt reduces vulnerability to external shocks.
It broadens economic policy space to promote economic growth and stability.
Moreover, considering historical experience: debt crisis become financial crisis (1982 and 2001) in the last 30 years.
• Crowding-in private spendingPublic deposits exceed public sector financing.
Public sector constitute a funding source for the financial system. Furthermore, most of the public savings are allocated to privates.
The State doesn't compete with privates for new funds, it crowds-in private spending instead.
Restructuring – Financial stability – Crowding-in
Crowding-in private spending
The financial system and the public sector -deposits of the public sector/ bond and credits to the public sector-
0,10,2
0,4 0,5
0,7
1,1
1,5
1,3
2,02,0
1,9
2,1 2,2 2,1 2,1
0,0
0,5
1,0
1,5
2,0
2,5
De
c 0
2
De
c 0
3
De
c 0
4
De
c 0
5
De
c 0
6
De
c 0
7
De
c 0
8
De
c 0
9
De
c 1
0
De
c 11
Jan
12
Fe
b 1
2
Ma
r 1
2
Ap
r 1
2
Ma
y 1
2
Source: BCRA
The public sector is a net creditor of the financial
system deposits > credits
The public sector is a net debtor of the financial system deposits < credits
times
Crowding-in private spending
The growth of lending to private sector -% total assets of the financial system-
0
10
20
30
40
50
60
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Jan-1
2
Feb
-12
Mar-
12
Ap
r-1
2
May-
12
Source: BCRA
Credit to Public Sector Credit to Private Sector
9,3%
46,2%
Note: Credits to Public Sector includes public bonds in bank portfolio.
• Sovereign debt exchanges were key in the debt reduction process started in 2003. The burden of debt with "market risk" has fallen sharply and thus debt payments.
• The capacity of payment paradigm ensured the success of the restructuring proposal. Credibility of creditors was recovered.
• The enhancement of debt sustainability led to crowding-in private spending.
• The State policy space has rebounded. It has regained sovereignty over economic policies. No more conditionality of fiscal and monetary policy to the interests of creditors and international organizations.
• Less vulnerability to external shocks favored financial stability.
• Double causality between growth and debt sustainability.
Conclusions
Thank you!