BlackRock, the world’s largest asset management company, is opposing a debt settlement deal with Argentina as the country grapples with soaring poverty and the pandemic.
Laurence D. Fink
, Chief Executive of BlackRock, (who oversees over $7 trillion) has steered some of the firm’s fortune to the crisis-wracked nation of Argentina, purchasing government bonds.
Argentina — a national that has been in default since May — seeks forgiveness on $66 billion worth of bonds. But according to The New York Times,
Mr. Fink’s faith in “stakeholder capitalism” is clashing with traditional bottom line imperatives. Despite the soaring poverty in Argentina as the pandemic worsens an economic downturn, BlackRock is opposing a settlement proposed by the government and rallying other creditors to reject it, while holding out for a marginally improved deal.
The New York Times
reports that Mr. Fink has inserted himself into the negotiations, speaking twice with Argentina’s economy minister. The government and its creditors are only three pennies on the dollar apart on their proposed terms.
“The BlackRock guys have gotten on the phone with a number of significant creditors. They convinced a lot of people that if we all stepped up behind their deal, the Argentines would take it. It’s turned into a brutal standoff,” said Hans Humes
, president of Greylock Capital Management
, another creditor at the table.
BlackRock’s stance has put it at odds with the International Monetary Fund, which gave Argentina a rescue package
worth more than $50 billion two years ago, and has supported Argentina’s proposal as an Aug. 4 deadline approaches.
The IMF’s Managing Director, Kristalina Georgieva
, has praised Argentina’s approach
and emphasized that “bondholders must agree to substantial debt forgiveness so Argentina can manage future payments. Fund officials have assured the government that they will forge a new bailout if Argentina cannot complete a deal” (The New York Times
BlackRock’s stance has also put it crosswise with a group of prominent economists, including a pair of Nobel laureates, Joseph Stiglitz and Edmund Phelps. In May, they issued a public letter
urging bondholders to come to terms with the government.
“Argentina has presented a responsible offer to creditors that reflects the country’s capacity to pay,” declared the letter, which was signed by 138 economists, among them Carmen Reinhart, now the Chief Economist at the World Bank.
In a statement, BlackRock explained it has been working diligently to achieve a settlement, while recouping as much as possible for its clients. Roughly two-thirds of the investments it manages comprise the retirement savings of workers around the world.
“In this restructuring process, our fund managers are balancing a fiduciary obligation to make decisions in the best interest of these savers, while at the same time recognizing the difficult circumstances facing the Argentine government, including the challenges posed by COVID-19,” the statement said.
The standoff in Argentina reflects the complexity of debt negotiations in an era in which regular people are effectively at the table. In decades past, bonds issued by developing countries were overwhelmingly controlled by major banks. When governments could not pay, bank chiefs hammered out a deal. Today, investors holding emerging market bonds run the gamut from specialized funds with high tolerance for risk to conservative pension funds.
“The I.M.F. had long been accused of wielding a single blunt instrument in the face of crisis — austerity. It’s rescue package in Argentina two decades ago imposed crippling cuts to government programs, sowing enduring bitterness. Ms. Georgieva, the fund’s managing director, has sharpened a focus on protecting countries from impossible debt burdens.”
BlackRock is part of a consortium called the Ad Hoc Argentine Bondholder Group, which controls about one-fourth of the bonds. The Ad Hoc group has maintained a unified front in rejecting the government’s latest offer, which would pay out 53 cents on the dollar value of the bonds. Last week, it presented its own proposal seeking improved terms — more than 56 cents on the dollar.
In a letter sent Monday to Argentina’s economy minister, Martín Guzmán, the group said it had gained the support of a majority of all bondholders, giving it the power to block the deal. Under the bond covenants, an agreement to write down their value must win the support of the holders of two-thirds of their value.
In a statement, the Ad Hoc group said it was operating in the interest of the Argentine public by seeking a deal that would “allow re-access to capital markets and encourage further investment.”
In private consultations with BlackRock, the government offered 50 cents, but BlackRock and its Ad Hoc group held out for more.
Mr. Fink complained that it was unfair that private creditors were swallowing all the losses, arguing that the I.M.F. should forgive some of its loans — a non-starter.
In early July, Mr. Guzmán sweetened the terms
, offering 53 cents on the dollar. At this point, the pandemic was deepening Argentina’s recession while the government required extra funds for the public health emergency. BlackRock began a behind-the-scenes campaign to block the deal.
“The government has insisted that its offer is final. With child poverty exceeding 50 percent, officials say, paying more to creditors would amount to transferring wealth from people who have almost nothing to international investors” (The New York Times