Hernán Lacunza: Government’s debt plan needs approval from opposition

The government can’t resolve growing investor concern over the ability to repay its debt alone and will require consensus with the opposition to reach an orderly reprofiling of its obligations, Finance Minister Hernán Lacunza said yesterday.

A bill to address government debt may not pass through Congress before President Mauricio Macri finishes his term but signals to the market that the issue will be debated and is a priority, Lacunza said in an interview with Bloomberg.

“Neither this nor the next government can face a negotiation without political consensus,” said Lacunza, who’s been in the post for a month. “Argentina must recover credibility and credit in the medium and long-term, both in this mandate and the next one.”

Macri’s government sent a bill to Congress late Thursday to kickstart talks around extending maturities on local law bonds to alleviate fears of a looming default.

Argentina’s financial markets have collapsed since the August 11 PASO primaries showed the opposition ahead by more than 15 percentage points.

A debt reprofiling announcement and postponing US$7 billion in short-term payments in August 28 wasn’t enough to stop the reserves bleeding. Four days later on a Sunday afternoon, Argentina’s government imposed capital controls to halt the slump, with limits for exporters to repatriate foreign currency and dollar purchases for individuals. Foreign reserves have fallen from US$66.3 billion to US$49.7 billion since the primary vote.

The government had previously said it wouldn’t submit the bill until it had reached agreement with the opposition. Lacunza said they had the opposition’s support to submit the bill, but still need agreement on its contents.

Separately, the government has received 13 proposals from banks on how to approach the foreignlaw debt reprofiling, added Finance Secretary Santiago Bausili at the same interview. Technically speaking, the process would be “doable” before end-of-year. That’s because it would take two to three weeks to prepare the documentation for a reprofiling plan, and then call for a bondholder assembly to happen 30 days later.

Still, whether it can be resolved in that time period will depend on politics. Lacunza said it will be difficult to begin those talks before the October 27 presidential election.

“Any negotiation during an election period must have political legitimacy, beyond its legality,” he said, in his first interview with a foreign media outlet. “It wouldn’t be prudent or efficient to face this on our own.”