In all countries, people run for office for a wide variety of reasons, but it helps to have a background in the finance portfolio before taking that job. Giving the financial report to the country is exciting, but it is only good if the country can pay its bills. For a wide variety of reasons, the country of Argentina debt increased, then it increased more and the feeling with a government is they can always raise taxes. At some point it is hard to get money from a rock or stone, the country says to its bondholders we need to restructure the debt.
In early August, according to an article by Tom Arnold and Adam Jourdan of Reuters, President Alberto Fernandez announced the relaunching of the Argentine Credit Program.
The Economic Ministry said an agreement had been reached to restructure about $65 billion in sovereign debt. The deal ensures the ghost of the last time Argentina had to restructure does not happen again. The last time, the country said essentially we are broke, you debt will only be paid out in pennies on the dollar. The creditors went to the courts, the time dragged on, the politicians were hoping the economy would improve. Unfortunately, Argentina is in a recession and it is estimated a 12% economic decline will happen. This plus all the COVID costs.
Bondholders were grouped into 3 groups, the Ad Hoc Group, Argentina Creditor Committee and Exchange Bondholder Group. Some of the normal large funds were and are involved: Blackrock, Ashmore, BlueBay Asset Management.
The deal is for 54.8 cents on the dollar. In addition payment dates on the new bonds were changed from March 4 and September 4 to January 9 and July 9. The new bonds mature in July 2029 and changes were made which ensure creditors have a say if Argentina wants to make changes.
In 2018, Argentina borrowed $57 billion from the International Monetary Fund and will try again.
Linking to dividend paying stocks, sometimes when companies are successful for a long period of time we begin to think they are automatically going to make profits, they are almost institutionalized similar to countries. The reality is all companies have to be managed well and management counts. Is there adaptability to change? does management want change? how does management continue to make profits? As you do your homework, you can determine if you need to look at alternatives.
There are more questions than answers, till the next time – to raising questions.
I was reading the book London by Edward Rutherfurd, and on page 177 there is an interesting passage about debt.
Two people are talking:
Who, generally is stronger, a man with cash or a man with debts?
Answer a man with cash.
Suppose that man owes you a debt and can not pay?
Answer He will be ruined.
But then you lose what you lent him.
Unless I seize all he is payment, but if that is worth nothing, then I lose.
So as long as he owes you money, you fear him?
I agree, consider this what if this man can in fact pay you what he owes, but chooses not to?
Now you fear him because he has your money, but since he can pay, he does not fear you.
Suppose you need that money badly. He offers to settle for less than he owes. Do you take it?
I might have to.
Indeed, you might have to. And now, do you agree, he has made money out of you? Because of the debt owed, he was stronger.
It will depend on whether he wants to do business with me again.
No it will depend on many things. On timing, on whether you need each other, on other opportunities, on who has the more powerful friends. It is a question of hidden balances. Remember this: Men trade for profit. They are driven by greed. But debt is about fear, and fear is stronger than greed. The true power, the weapon that defeats all others is debt.
Fools search for gold. The wise man studies debt. That is the key to all business.