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ECONOMY | 14-05-2021 13:58

Paris Club to spare Argentina from US$2.4-billion debt default

Group of major creditor nations willing to delay US$2.4-billion debt payment from Argentina due this month if the Fernández administration agrees to certain conditions.

The group of rich government creditors known as the Paris Club is willing to delay a US$2.4-billion debt payment from Argentina due this month if the nation meets certain conditions, potentially averting a damaging default, according to three people with direct knowledge of negotiations.

The club will spare Argentina from default if it misses the May 31 payment in the hope that the country can rework a US$45-billion credit with the International Monetary Fund, said one of the people, who asked not to be named because the talks are private. 

An agreement with the IMF may not come until after Argentina’s midterm elections in November later this year, the person said, declining to specify the conditions that the group is demanding.

The Paris Club secretariat declined to comment, citing its policy not to publicly discuss ongoing negotiations. The Economy Ministry press office didn’t immediately reply to a request of comment.

President Alberto Fernández extended his European tour to meet IMF Managing Director Kristalina Georgieva in Rome on Friday in a bid to drum up support for a delay and renegotiations with the IMF. Argentina has formally asked the Paris Club for more time to make the payment and is expecting to receive a response by the end of the month.

“The call is to reach an agreement as soon as possible, though we can’t think of an accord that demands greater efforts from the Argentine people,” Fernández said after the meeting, which lasted over an hour in a meeting room at the Sofitel Hotel in Rome.

The yield on Argentina’s January 2038 dollar-denominated bonds was little changed at 14.3 percent on Friday. The peso lost almost 11 percent this year in the second biggest depreciation among emerging market currencies.

The deadline comes at a difficult time for the national government, with the country in its third year of recession, annual inflation approaching 50 percent and unemployment over 10 percent. While analysts’ estimates of its cash reserves vary, some calculations have put them near zero since September of 2020, limiting Argentina’s capacity to meet its international obligations.

 

International pariah

The temporary waiver aims to ease the economic ravages wrought by the pandemic, but it needs to be tied to conditions so it doesn’t turn into a habit, said one of the sources. Argentina has defaulted on its overseas debt nine times in its history.

“Nobody wants Argentina to become an international pariah again,” said Rodrigo Olivares-Caminal, a professor in banking and finance law at Queen Mary University of London. “A default would be negative for Argentina and its creditors. But I’m concerned about Argentina’s endemic balance of payment problem.”

In May 2014, Argentina reached a deal with the Paris Club to repay a US$9.7-billion debt after 13 years in default. The debt was supposed to be repaid over a five-year period, but the country’s latest financial troubles delayed the final payments due this month. Creditors include the United Kingdom, Italy, Spain and Canada.

A Paris Club rule known as a “conditionality principle” states that the group only negotiates debt restructuring with debtors that have “a demonstrated track record of implementing reforms under an IMF programme,” according to the group’s website. 

Argentina ceased following guidelines from a programme with the IMF after the change of government in late 2019, when Mauricio Macri left office, and talks for a new plan have stalled.

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by Alonso Soto, Chiara Albanese & Jorgelina do Rosario, Bloomberg

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