The government decided to postpone the payment of a series of dollar bonds under Argentine law until next year for about 10 billion dollars, in a decision that will surely be considered a selective default by creditors.

It is basically the Bonar and Discount issued under Argentine law, after last week’s statements by the Minister of the Economy, Martín Guzmán, who had affirmed that the titles under Argentine law would have the same treatment as those under foreign law. With this brand-new decision, the Government prioritizes the possibility of an agreement with creditors who have bonds issued under New York law.

However, the water division is not so linear, since there are foreign funds that have titles under local law, especially Bonar 24. And there was already some interpretation by lawyers of foreign investment funds who considered that, if they failed to pay these securities, they could claim a cross default for their holding in bonds under foreign law.

The deferral of payments of interest services and principal repayments of the national public debt instrumented by securities denominated in United States dollars issued under the law of the Argentine Republic until December 31, 2020, or until the previous date that the Ministry of Economy determines, considering the degree of progress and execution of the process of restoration of the sustainability of the public debt ”, indicates the draft of the decree.

This is explained in the first article of the decree that the Government will publish in the next few hours to postpone the payment of a part of the dollar debt issued under local law until the end of the year.

It is not all debt as there are some exceptions. For example, non-transferable bills in dollars held by the Central Bank and others.

Among the recitals of the decision, the Government mentions that the coronavirus pandemic “has altered the deadlines set forth in the‘ Schedule of actions for the management of the Process of Restoring the Sustainability of External Public Debt ’” and that its dynamics and impact “on public health, added to the prevailing economic and social situation, make it impossible to follow the ordinary procedure for passing laws.”

A former official explained that “the bonds in dollars under Argentine law in the hands of private individuals are about 10 billion dollars, mainly Bonar 24 and Bonar 20, both with large payments this year, followed by Bonares 25 and 37; and the money laundering bond, which expires in 2023. In addition, it includes the Discount with local law, which is an additional 2,600 million dollars ”.

In particular, he detailed that the expected capital payments for these titles for this year was about 3,500 million dollars.

The DNU excludes from deferral:

-The letters not transferable to the Central Bank and those subscribed directly to the Anses Sustainability Guarantee Fund.

-The Letters issued in Decree No. 668/19 and those issued by resolutions 57/19 and 17/18 by the Ministry of Finance.

-The Natural Gas program bonds issued by Finance.

-The Treasury Bills in Guarantee issued by Resolution No. 147/17.

Martin Vauthier, economist at ECO GO, said that “we had been seeing that the maturities that fell within the schedule that the Ministry had proposed, which ended on March 31 with the Par. Going forward, it seems to me that it is very important that any decision be framed in negotiations with creditors. ”

The margin that the country has to mitigate the impacts of the coronavirus shock and to recover once it is overcome is not the same with a unilateral default as in a negotiated situation where progress is made on a voluntary basis.“He stressed.

From now on, he clarified, “you have to see what happens with foreign law; there it must be taken into account that there are 30 days of grace in the event of a default and the first maturity of interest is the global interest rate in the middle of this month ”.

In this regard, he indicated that “with local law there is scope to re-profile, as was done with the Letes, beyond the fact that it is important to achieve a voluntary renegotiation to rebuild a capital market.”

While, Fernando Baer, of Quantum, maintained that “it is a selective and unilateral default; but it is an important decision going forward; they rushed a little due to the May maturity of the Bonar, but they have to have talked to the creditors under foreign law since this clears several payments in the coming months ”.

Gabriel Caamano Ecoledesma added that “it was expected, but the measure is not correct; a default can never be successful. And less if you disdain yourself in full negotiation. But they are prioritizing the negotiation of foreign law debt. ”