The gloom in which many businessmen found themselves was understandable. Some wanted to sell their companies and get paid abroad, others left the country. They were tired of so much recession. “Take her outside”, it was only for “the 4 always alive” (Cristina Kirchner) who looked imperturbable. But of course, when it came to valuing the companies, the luckiest found out that even having earned money-on their balance sheets in pesos-during the four years, their companies in dollars were worth less than in 2015, at the parallel exchange rate, versus CCL (Cash With Settlement). They did not know what to do. At the other extreme were those who were bordering on bankruptcy.. With the devaluation, there were cases of companies whose receivables were in pesos, and their debts with suppliers and services in dollars. They went from positive net worth to negative net worth. Outside it was impossible to explainthe managers of multinationals were on the tightrope.
A “pro-market” government arrived, opened up the economy, deregulated, reduced controls, allowed free imports, and stopped analyzing prices at the Secretary of Commerce. They had woken up from the dream, from the promises: single-digit inflation 2019, fiscal balance, and monetary and exchange rate stability. None of that happened.
Debt + recession:
When borrowed dollars began to come in, producers were encouraged to grow. The industrial and commercial entrepreneurs who trusted, were disappointed. Most of the companies, but particularly the Argentine ones, were having a hard time. “It wasn’t fair,” they said convincingly.
Seven out of ten businessmen surveyed by the business school of the Austral University in 2019 attributed the economic crisis to the mismanagement of the Government of Mauricio Macri, rather than to the “inheritance received”.. There was no possibility of attributing a tendentious ideology to the Austral University. We were talking about one of the most prestigious business schools in the private sector in Latin America.
The unfathomable recession that began in the second quarter of 2018 was deadly. Economic activity continued to slide on an inclined plane, at times, believing that it had reached the bottom. But one record after another of progressive paralysis was recorded. In October 2019, a drop of (-3.5%) year-on-year was provisionally projected for the third quarter. The economy would exhibit an average fall of the order in 2019 (-2.7%), after collapsing (-2.5%) in 2018. In addition, 2019 would leave a negative statistical drag for 2020 of (-2.5%).
Public and private reprofiling:
– Was the compulsive reprofiling of Letes in dollars and Lecaps understandable? – No. There were other urbanities that surely had been analyzed, but that was the path chosen. Now the question was: – Would the remaining amortize be paid? – We thought that, in pesos, yes. Issue in December to pay was a way out, a tool, regardless of the side effects, all evils were less than “not paying.”
Companies do not have the option of issuing pesos when they do not have to pay the State. On the other hand, if the Government does not have a way to cover the debt maturities in pesos to private companies, it can issue. And, what it owed in dollars, which had already been relentlessly spent by the first half of 2020, could be reshaped (selective default) again in dollars, or not…
A country is not a company (Paul Krugman). A country is not a familyas some media economists tried to clarify, so that the viewer considered himself satisfied, believing that he understood. A company cannot “compulsively refinance”. A family cannot reshape the rent, nor issue pesos to pay it.
The public debt had to be reshaped, with or without a discount. Of which there was no doubt that the next Government would receive a business community exhausted by extreme illiquidity, falling sales and collections, in the midst of the Christmas bonus. They would be charging huge debt maturities in pesos at confiscatory rates. Debts contracted in dollars at $16 had to be repaid at $60 per dollar, selling in pesos in the domestic market.
In many items there were unpaid debts due to arrears, disguised as “performing” (principal amortizations and interest per day). Capital and interest refinancing had been carried out improvised, plagued with anatocisms, so that the banks kept the debt in active portfolio and did not have to punish their balance sheets, ordering “provisions”, using funds destined for these vicissitudes.
Private Bank Debt Restructuring
The reprofiling of the debt of companies with local and foreign banks began.In the private sector, debtors could not coercively kick off payments without asking the creditor bank. A company has to negotiate side by side with the banks, and if the financial institution becomes rigid there is a risk that the company will fall into default before achieving the restructuring. The alternative to asking for bankruptcy was for the company to file for Preventive Bankruptcy. That was what Banco Macro did with Molino Cañuelas. The months ahead were difficult. No one talked about vacation.
Regarding large companies, corporate bonds were not subject to voluntary reprofiling, nor could coercive reductions be applied to their titles. – How would the maturity profile of each company be? – With what sales projection was going to generate the flow of funds to pay?
Initiating a negotiation with the banks to postpone the payment of corporate debt maturities was much more complicated than reshaping the public debt of the State in a mandatory manner.
The debt of the companies, and the extravagant interest rates paid or accrued that would end up taking Argentina to new chapters of default, at some point in the future. This could mean defaulting on companies that failed to close restructuring proposals with the banks.
The next Finance Minister and the BCRA would have the challenge of helping to find solutions to restructure private debt and generate a rebound in economic activity at the same time, in order to avoid the massive bankruptcy of companies and financial entities.
There were already companies that were facing debt restructuring voluntarily and preventively. They were making a great effort to avoid the Preventive Contest. It was necessary to make the management of public and private banks that were still in the hands of those who supported the government more flexible. Precise instructions were needed, in the form of circulars. There were not many bank credit officers trained for these issues, because there have been no financial crises of this magnitude since 2001.
The restructuring of private companies are not as easy as those of the public sector, they are done without the support of the IMF or the US that Macri had.
All this happened amid overwhelming pressure from the account officers of the creditor banks, pressured by credit management and/or commercial management, knowing that they were risking their job stability. Very stressful. The companies that were not complying with their commitments patched up and stretched the amortizations -including leonine interests- by mutual agreement, without resolving the underlying problem. The macroeconomic situation acted as a trigger for the financial distress of the companies, due to the devaluation, volatility of the peso, price increases and price readjustments. All this undermined the turnover of the companies, not only in units but also in dollars had fallen sharply, while the debt remained in dollars.
“We have to learn from what happened to us and try not to let it happen to us again,” said Gustavo Grobocopatel, CEO of the cereal group. The sentence extracted the disappointment of the big businessmen with Mauricio Macri in the Casa Rosada. Like other benchmarks in concentrated sectors, Grobocopatel had been one of the main promoters of the Cambiemos government.
Director of the Hope Foundation. https://fundacionesperanza.com.ar/ Graduate Professor UBA and Masters in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books.
Source: Ambito
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