The NY Times on Argentina's debt

on the brink

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If "your understanding" is based on local newspapers it is a wrong one. Blackrock manages multiple investment funds, in particular they run iShares ETF family. They buy things at market price, they sell things at market price and collect a management fee. Ultimate investors are people (or companies) who buy stakes in these funds. This is not really relevant, but they bought Arg bonds during Macri government at higher prices and now are taking a loss.

And there is nothing wrong with buying bonds on a secondary market, by the way.
Thanks for the clarification. Of course there's nothing wrong with buying bonds in a secondary market - it is just more risky.

Many Argentines I know got burnt with these bonds, and are now willing to settle for whatever they can get. They believed in Macri, as many of us did - what a sad disappointment that turned out to be.
 

TheDonald

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Let me first say that I agree with you on Macri. Argentina should have gone straight into default in 2018.

Now to your main point: if you (and for that matter: Argentina in general on this) are so critical of the IMF: why on earth would you ask them gor money then again and again if you do not agree with the conditions? Don’t you see this as inconsequent? And in your view: what conditions should be made by the IMF? None at all? To finance a good old Keynesian spending spree, of which half of it will certainly disappear in Santa Cruz?

I also don't really understand why the IMF would still lend money to Argentina. It is the world’s biggest serial defaulter (i wouldn’t say cheater). It is like sending a truck load of booze and crack every couple of years to a drug addict with a long history of mental issues. And every time the boozer of course tells you that he will give it up soon.

And also why private creditors are again and again falling into this trap is beyond me. If you really want to have the risk covered, then the interest rate would be that high that it is impossible to stem it for any country. I am seriously wondering why investors are not suing Blackrock and Co for malpractice.

A question that someone might answer here: i understand that IMF debts are somehow “privileged” in relation to normal creditors. Do they receive some of securities (i doubt that)? Right now the fiscal deficit in Argentina is so big (i believe only in the first half of 2020 around 14bn usd) that surely also the IMF has to accept some kind of cut. Even more as the current government has not even shown a hint of limiting the public spending.
Your question on the IMF is a good one. Many people on this page have hinted around this question, but none have asked it.

The IMF does not accept "haircuts" on its debts ("haircuts" translates into reductions in Net Present Value of obligations). The IMF is a political organization that is funded by its members, which consist of the world's wealthier countries. The IMF's lending decisions are often more political than economic. For example, Venezuela recently asked the IMF for financial assistance, but was turned down. On an economic basis, Venezuela checks all the boxes for an IMF lending facility. Politically, especially from the perspective of the majority of nations that fund the IMF, Venezuela is an untouchable rogue.

When countries borrow from the IMF, it is known that there won't be a restructuring that reduces NPV. When private creditors buy sovereign bonds, all the protective covenants are designed with potential restructuring/default in mind. When private creditors/investors buy sovereign bonds in a country like Argentina, their calculations include the lending position of the IMF. As Guzman and creditors negotiate today, the sanctity of the IMF debt to Argentina is a given. Blackrock et al's calculation of what Argentina can afford to pay is based on the IMF coming out whole, at 100 cents on the dollar.

Debtor nations and private creditors go along with the IMF as an untouchable lender for several reasons. The most persuasive reason is that the IMF is the world's lender of last resort. When a country desperately needs lots of cash with few strings attached, there is only one source: the IMF. The IMF was active during the "Tequila Crisis," which originated in Mexico years ago - before my time. It was also uber-active when Southeast Asian economies were near collapse in 1997. Since then, the IMF has come to the rescue of numerous countries on an ad hoc basis - think Greece in 2010 and beyond.

No country wants the political fallout of stiffing the IMF. And no country wants to be on the grudge list of the international lender of last resort. You never know when a black swan event will occur - like a chinavirus pandemic, for example.
 

jeff1234

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Your question on the IMF is a good one. Many people on this page have hinted around this question, but none have asked it.

The IMF does not accept "haircuts" on its debts ("haircuts" translates into reductions in Net Present Value of obligations). The IMF is a political organization that is funded by its members, which consist of the world's wealthier countries. The IMF's lending decisions are often more political than economic. For example, Venezuela recently asked the IMF for financial assistance, but was turned down. On an economic basis, Venezuela checks all the boxes for an IMF lending facility. Politically, especially from the perspective of the majority of nations that fund the IMF, Venezuela is an untouchable rogue.

When countries borrow from the IMF, it is known that there won't be a restructuring that reduces NPV. When private creditors buy sovereign bonds, all the protective covenants are designed with potential restructuring/default in mind. When private creditors/investors buy sovereign bonds in a country like Argentina, their calculations include the lending position of the IMF. As Guzman and creditors negotiate today, the sanctity of the IMF debt to Argentina is a given. Blackrock et al's calculation of what Argentina can afford to pay is based on the IMF coming out whole, at 100 cents on the dollar.

Debtor nations and private creditors go along with the IMF as an untouchable lender for several reasons. The most persuasive reason is that the IMF is the world's lender of last resort. When a country desperately needs lots of cash with few strings attached, there is only one source: the IMF. The IMF was active during the "Tequila Crisis," which originated in Mexico years ago - before my time. It was also uber-active when Southeast Asian economies were near collapse in 1997. Since then, the IMF has come to the rescue of numerous countries on an ad hoc basis - think Greece in 2010 and beyond.

No country wants the political fallout of stiffing the IMF. And no country wants to be on the grudge list of the international lender of last resort. You never know when a black swan event will occur - like a chinavirus pandemic, for example.

I'm confused. If the IMF must receive a NPV equal to the loan they made, then what is being negotiated? How does Black Rock make a profit by purchasing the loan at full price?
 

Alpinista

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I'm confused. If the IMF must receive a NPV equal to the loan they made, then what is being negotiated? How does Black Rock make a profit by purchasing the loan at full price?
The IMF debt is not part of this renegotiation, only the “private”/non-IMF debts. And the private creditors such as Blackrock wont surely make a profit, they are trying to minimize the losses.
 

on the brink

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As I understand it, there are two separate debts:
1 - Debt with the IMF for a US$56.3 billion loan, the largest ever granted. It is technically a line of credit, of which US$44.3 billion has been disbursed to date. It was halted after Macri's PASO defeat.
2 - Debt with private companies holding Argentine bonds, which are not being repaid, or whatever the term is. That is the one being negotiated now, but I don't know the amount. Anyone does?
 
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gracielle

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Do not forget that in 2005 Néstor Kirchner paid the total of Argentina´s debt to the IMF.
In my opinion, it was a decision worthy of a megalomaniac. ARG could have continued with the original payment structure.

7 June 2018
In 2003 and with Nestor Kirchner President: How Was the IMF's Last Stand by Agreement for the Country
Argentina's stand-by agreement with the IMF is number 27 in the history of the agency's relationship....
Kirchner's big fight with the IMF began in March 2004 with the first revision of the stand-by agreement signed in September 2003, when Argentina announced the debt swap in Dubai that gave the country about $12.5 billion. "This agreement had a particularity with respect to the previous ones: Argentina met all the objectives that the IMF requested in each review of it," Infobae was told by former Deputy Economy Minister Guillermo Nielsen who in those years was participating with then-Economy Minister Roberto Lavagna in all negotiations. Nielsen explained that "Argentina needed to restructure its default debt and the IMF wanted to become a protagonist of that process and always ran the arc on us."...
 

on the brink

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Gracielle, I remember reading something to the effect that in order to repay that debt Argentina borrowed from Venezuela, at a higher rate. But don't know much about it. Can you please expand?
 
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