Uruguay, a country with a population less than half of New York City’s and a GDP dwarfed by what Wall Street paid in bonuses last year, rarely makes it into the spotlight.
Nor has its director of public credit, Carlos Steneri, ever sought it. But after Uruguay’s liability management exercise last year, a two-part deal that closed the chapter on a five-year battle to prove to the IMF it could overcome its problems without defaulting, Steneri is well overdue for some public accolade. “I was doing my job. I was getting paid,” he says reservedly. “It was a matter of survival. That’s all.”
The 2006 liability management exercise was arguably the most successful and seamlessly executed by a Latin sovereign in a year that bulged with buybacks and exchanges. In the last week of October, Uruguay raised $800 million in a reopening of its dollar 2036s and its 2018 peso global bonds.
The proceeds were put to the cost of a $1.14 billion buyback of old bonds in an exchange offer it launched a fortnight later. While Brazil, to the detriment of some of its exchanges, obsessed over every basis point it gave up to investors, Uruguay paid generously to buy back the $1.14 billion of old bonds, which included some old restructured maturities that were part of its $5 billion debt restructuring in 2003.
To Steneri, it was important to price the transaction attractively, not just to get the bonds back, but also as a reward of sorts for investors who believed in the country when the IMF had been so reluctant to do so.
Also during 2006, Uruguay, under Steneri’s supervision, tapped its amortising 2022 dollar globals twice for a total of $1 billion, and its dollar 2036s in March for $500 million. It also launched its 2018 12-year Ps9.56 billion ($400 million) peso global in September. All deals were done without a hitch, and all offered investors fair to attractive pricing.
This year, Steneri is focusing on an overhaul of the country’s domestic debt profile, one which is predominantly dollar debt and peso inflation-linked bonds that go out to 2013.
The aim ultimately is to phase out all local dollar bonds, extend the peso inflation-linked curve, possibly issue its first nominal fixed-rate peso deal, extend its peso global maturities beyond 2018 to 20 or 30 years, and to continue to clean up its global dollar yield curve and build liquid benchmarks.
But Steneri was not about to look at its local debt profile until Uruguay had made its point and paid back every cent it owed the IMF, an achievement made possible by its deftly executed financing strategy in 2006. “We have now repaid fully all the money that was lent to us during the crisis we suffered in 2002, when Argentina’s own financial problems contaminated our banking system,” he says with pride.
And understandably so, considering his epic battle with the IMF in 2002, when the Fund, looking at the 40-50% loss of the country’s deposits and a plunge in its foreign reserves from $2.4 billion to just $500 million in a matter of months, recommended that Uruguay go ahead and default.
“It was a fight,” says Steneri. “They [the IMF] were trying to force us to ask our creditors for a haircut [on its debt] of 40%. To do that, you have to default. We refused to accept that.” To Steneri, going into default as a first step in a liquidity crisis was like amputating a leg before treating a wound with antibiotics. “We just wanted some relief from a liquidity problem so we could continue to pay interest on our debt,” recalls Steneri.
Uruguay was asking the IMF for another $1.5 billion on top of about $500 million it had already given. Uruguay needed one large lump sum to guarantee the country’s private- and public-sector sight and savings deposits to stop the run.
Desperate
“Sometimes we were in despair,” says Steneri. “A small country like Uruguay has an intangible asset, and that is the trust it has among its creditors to honour its debts. Bigger countries can default because of their size and are still able to return to the capital markets after restructuring. We don’t have that power. We knew that maintaining our word as a reliable debtor was a matter of survival.”
Steneri spent months banging on every door he could think of. He visited the IMF’s principal executive directors individually many times to convince them to give Uruguay a chance. “I said to them: ‘At least give me the benefit of the doubt, give me six, seven months and I can show you our proposal is the right way.’ That was the way I tried to melt down this opposition.”
The US Treasury ended up being the 800-pound gorilla that tipped the scales in Uruguay’s favour. In the summer of 2002, it essentially ended the impasse by giving Uruguay a one-lump sum of $1.5 billion as an emergency bridge loan to an IMF agreement the US ultimately pushed through the Fund a week later. Steneri then struggled for many months with the IMF in trying to convince it that it should attempt a voluntary debt restructuring, where it demanded no debt relief, continued to pay the same coupons on its external bonds, but extended their maturities.
Finally, in May 2003, its $5 billion re-profiling of its external bonds went down in history as the first market-friendly debt restructuring for a distressed sovereign. It has since been used as a model by other countries, such as the Dominican Republic.
Two months later, Uruguay became the first Latin sovereign to issue a local currency global bond – its Ps5.59 billion ($200 million), three-year, inflation-protected global, led by Citigroup.