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Wed Jul 8, 2020, 11:09 PM

Mohamed El-Erian: Argentina's debt proposal deserves support

After months of often difficult negotiations, Argentina made a new offer to creditors Sunday that stands a solid chance of anchoring one of the largest sovereign debt restructurings in the history of emerging markets.

Inheriting a troublesome situation in December, the newly elected government of President Alberto Fernández embarked on negotiations with creditors.

Argentina is seeking to restructure $66 billion of $250 billion in foreign currency-denominated public debt.

By potentially lifting a big cloud hanging over the country’s ability to grow solidly and inclusively — directly for the government’s finances and indirectly by improving prospects for private sector activity — such an orderly and collaborative resolution could help overcome long-standing economic challenges that have recently been worsened by Covid-19.

Indeed, creditors need only compare the potential net present value of the Argentine offer (around 53.5 cents on the dollar at a 10% exit yield) to the outcome of the messy 2005 restructuring.

According to calculations by Gramercy Fund Management LLC, Argentina would secure around $40 billion of cash flow relief over the first 10 years, equivalent to some 9% of gross domestic product.

At: https://www.bloomberg.com/opinion/articles/2020-07-06/argentina-debt-offer-could-mean-breakthrough-with-creditors-imf

Mohamed El-Erian, chief economic adviser at Allianz and former chair of President Obama's Global Development Council (2012–17).

El-Erian notes in regards to Argentina's effort to restructure $66 billion of its foreign debt that "it would be in neither side's long-term interest to allow the theoretical best to be the enemy of the attainable good – what is now on the table warrants support by both Argentina and its creditors."

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