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 ID: 309538
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Slide1
“The Argentinean experience on Debt restructuring”
Dr. Sergio ChodosSlide2
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.Slide3
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 consensus
Market 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 driverSlide4
(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 Securities
8 Governing Laws6 Currencies
11 New Securities4 Governing Laws4 Currencies
Argentina's Sovereign Debt Restructuring Key featuresSlide5
Recognition of interest in cash at settlement
Benefits from better than expected growthGDP-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 IncentivesSlide6
Debt Sustainability
Minimizing debt burdenAchieve 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 GoalsSlide7
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%Slide8
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-12e
Source: MECON and BCRA
Public debt with privates in
foreign 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
2011
Source: MECON
Interests
CapitalSlide9
Public debt sustainability favored financial system stability
It 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 spending
Public 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 Slide10
Crowding-in
private spending
The financial system and the public sector
-deposits of the public sector/ bond and credits to the public sector-
0,1
0,2
0,4
0,5
0,7
1,1
1,5
1,3
2,0
2,0
1,9
2,1
2,2
2,1
2,1
0,0
0,5
1,0
1,5
2,0
2,5
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Jan 12
Feb 12
Mar 12
Apr 12
May 12
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
timesSlide11
Crowding-in
private spending
The growth of lending
to
private sector
-% total assets of the financial system-
0
10
20
30
40
50
60
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Jan-12
Feb-12
Mar-12
Apr-12
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.Slide12
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.
ConclusionsSlide13
Thank you!