Nobelist Stiglitz, economists from 20 countries back Argentina in debt showdown

BUENOS AIRES (Reuters) - A group of 138 economists from 20 countries, including Nobel laureates Joseph Stiglitz and Edmund S. Phelps, urged Argentina’s bondholders on Wednesday to take a “constructive approach” to the government’s debt restructuring proposal.

FILE PHOTO: Nobel Prize-winning economist Joseph Stiglitz (L) and Argentina's Economy Minister Martin Guzman arrive for a conference hosted by the Vatican on economic solidarity, at the Vatican, February 5, 2020. REUTERS/Remo Casilli

“The onus is on private creditors to act,” said the open letter signed by Nobel Prize winners Stiglitz and Phelps along with other well-known experts, including Jeffrey Sachs, Carmen Reinhart and Thomas Piketty.

The economists argue in the letter that Argentina’s top spending priority is to protect its citizens from the health and economic fallout caused by the coronavirus crisis rather than pay back creditors who knew they were taking a big risk by buying high-yielding Argentine paper. The government is out to revamp about $65 billion in “unsustainable” international bonds.

But some major holders have balked at Argentina’s proposal to impose big cuts in coupon payments, a three-year payment hiatus and a push back of maturities into the next decade. Bondholders have until Friday to respond.

It is part of a broad debt restructuring with creditors, including the International Monetary Fund and Paris Club of country-to-country lenders. The country was already in recession before going on lockdown against the pandemic on March 20.

Argentine Economy Minister Martin Guzman worked with Stiglitz at Columbia University in New York before returning to his native country to manage the restructuring of bonds issued by Argentina’s previous government.

“Argentina has presented a responsible offer to creditors that reflects the country’s capacity to pay,” the economists’ letter said. If the government fails to clinch a deal it could risk a painful default, with a grace period to pay around $500 million on three separate dollar bonds set to expire on May 22.

The prospect of securing an agreement by Friday darkened after a trio of major creditor groups rejected Argentina’s offer, and Guzman acknowledged that reaching a consensus had “proven difficult.”

The letter pointed out that creditors knew they were making a risky investment when they bought Argentine paper, which is why the country was paying higher than normal interest rates.

On the other hand, Ted Pincus, a managing director at Mangart Capital Advisors, said the rates that Argentina had been paying were not high for a country with its poor credit history.

A default this month would be the country’s ninth. The most recent non-payment stemmed from a 2002 financial meltdown that tossed millions of middle-class Argentines into poverty.

“The sustainability of debt depends on government policy and credibility,” Pincus said.

The economists’ letter says both Argentina and its creditors would benefit from negotiating a sustainable debt revamp deal as the coronavirus crisis pummels global economic activity and the ability of governments to pay their debts.

“Pressure on public finances has become enormous, particularly in developing countries that were already highly indebted,” the letter says.

Guzman tweeted that he appreciated the economists’ support.

“Argentina remains optimistic that we can reach an agreement with our creditors that can restore the sustainability of our debt and make economic recovery after Covid-19 possible,” the tweet said.

Reporting by Hugh Bronstein; Additional reporting by Marc Jones in London; Editing by David Gregorio, Jonathan Oatis and Bernadette Baum