Orocobre is halting operations at its Argentine operations as the country grapples with COVID-19. The government of Argentina enacted the Decree of Necessity and Urgency (DNU) #297/20 on March 19, 2020 requiring a national mandatory quarantine including prohibition of circulation of citizens and movement of personnel and supplies within the country. Consequently, the Olaroz Lithium Facility (Olaroz) has moved operations to care and maintenance, and currently holds sufficient stock to meet customer orders until the end of April.
Argentina’s country risk rose 4.30% on Monday to 4,238 basis points, according to the index prepared by J.P. Morgan, and most Argentine bonds trading on the New York Stock Exchange were down, in another day marked by the advance of the coronavirus pandemic.
The government announced that there is no more room for a fiscal adjustment due to critical social needs and that the maturities are unpayable, taking into account that Argentina has a financing need for 2020 equivalent to 22% of its GDP. The International Monetary Fund (IMF) stated that Argentina needs debt relief over the next decade and should reduce financing needs to 3% of GDP. The imminent negotiation poses a “take away” of between $55 billion and $85 billion, with rates between 5% and 9%, and terms ranging from 7 years to 3 years. The recession in Argentina for 2020 expected to be around 1.5%, is likely to worsen, the government has set up a battery of measures for the most vulnerable segments of the population, although there are still unmet demands. The money injection will be approximately 2.2% of GDP.
The Argentine government announced this Monday, that is considering granting a fixed amount for single payers and self-employed workers in the lower categories, defining that there will be no obligation to pay the mono-tax, a postponement for pensioners of the payment of services and a ban on cutting off essential services such as electricity, gas, water and internet. Argentina has an informal economy of the order of 35%-40%, made up of sectors for which the situation could become critical in the face of the emergency. According to INDEC data, 22% of households are headed by unregistered workers and 43% are poor. 23% of homes depend on a self-employed person, and 35% are poor. Calculations indicate that the fall in GDP for this year could be between 2.5% and 5%.
The coronavirus is wreaking havoc on the various economies, and Argentina is particularly vulnerable to this black swan. Private analysts have begun to modify their forecasts for the primary fiscal deficit, and some estimate the difference between what the state spends and what it collects at 2.5% of GDP. If these projections are confirmed, the capacity to face the foreign debt would be strongly affected. The three levels of government must guarantee the elimination of unnecessary expenditures and an orderly and transparent process for the use of peso issuance.