Argentine peso dips, country risk rises as anticipation builds for debt proposal

BUENOS AIRES, April 16 (Reuters) – Argentina’s peso dipped to a new historic low on Thursday as markets braced for the South American nation’s long-anticipated offer to creditors for the restructuring of about $70 billion in debt.

Latin America’s No. 3 economy is set to unveil its proposal to international creditors later on Thursday in order to push back payments on its bonds issued under foreign law.

With the proposal already delayed from Argentina’s target date of March 31 due to the coronavirus pandemic, bondholders said they are bracing for steep losses amid a lack of information from the government.

The peso opened 0.18% weaker at 65.74 per U.S. dollar, hitting a new historic low, traders said. Country risk rose by 37 basis points to 4,031, according to the JP Morgan Emerging Markets Bond Index Plus.

Argentina has told its creditors the country will need substantial debt relief and that any offer will have to be sustainable, even as the pandemic underscores the prospect of a deep recession for the country this year.

Investors have said they expect hair cuts and coupon reductions in Argentina’s initial offer, though the proposal could be just a first step in a lengthy negotiation process.

Nikhil Sanghani, a London-based economist at Capital Economics, said analysts will be watching the offer closely for signs of debt sustainability.

“We think that Argentina needs debt relief of around $85 billion to $100 billion, as opposed to the International Monetary Fund’s estimate of $50 billion to $85 billion, to return its public debt to a sustainable level, so we’ll be checking to see if this is reflected in the terms of restructuring,” Sanghani said. (Reporting by Cassandra Garrison and Walter Bianchi; Editing by Will Dunham)

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