AT A rare talk, held on May 28th in the ornate Alvear Palace Hotel in Buenos Aires, the head of the Argentine Central Bank, Juan Carlos Fábrega, repeatedly mentioned his country’s need to regain access to capital markets, something it has not enjoyed since defaulting on its debts in 2001. He awoke the next day to some welcome news. After a 16-hour negotiating session, Axel Kicillof, the economy minister, successfully reached an accord with the Paris Club, an informal creditor group comprised of rich countries.
Based on this agreement, Argentina will pay off the totality of its $9.7 billion in debt to the Paris Club over the next five years, starting with $1.15 billion before May 2015. The brunt of the payment will be conveniently left for President Cristina Fernández de Kirchner’s successor, who will take office in December 2015. Unusually, the deal was brokered without the oversight of the International Monetary Fund (IMF). Fernanda Vallejos, an advisor in the economy ministry, says this is because Argentina no longer has any debt with the IMF. Argentina’s willingness to negotiate doubtless helped. “The Paris Club saw that, for the first time, Argentina really wanted to pay,” says Luis Secco of Perspectiv@s, a consultancy, “and they weren’t going to say no to such a complicated and uncooperative debtor.”
Settling with the Paris Club is one of three measures investors and economists have prescribed in order for Argentina to regain access to markets. Another—compensating Spanish oil company Repsol for its appropriated stake in YPF, the state oil firm—was achieved in February. But Argentina’s most formidable obstacle to tapping foreign bond investors again—colloquially referred to as the “holdout saga”—still looms large.
The holdouts are those bondholders who refused Argentina’s 2005 and 2010 debt restructurings, in which 93% of debtors exchanged their debt at a 65% loss. Spearheaded by NML Capital, a fund which bought its Argentine bonds on the secondary market, the holdouts argue that either they be repaid in full (principal plus interest) or that no one should get paid at all. That argument has prevailed in New York district and appeals courts, but Argentina has appealed all the way up to the United States Supreme Court, which may decide whether or not to accept the case on June 12th.
If it does so, Argentina will have a bit more time to decide what to do. But if the Supreme Court rejects the case, Argentina will be expected to comply with the original court decision and pay $1.3 billion to the holdouts. Stump up and Argentina opens the door to litigation from those investors who exchanged their bonds, who will look for the same deal as the holdouts. Refuse to obey the courts and Argentina will undo its recent progress toward international capital markets.
Based on this agreement, Argentina will pay off the totality of its $9.7 billion in debt to the Paris Club over the next five years, starting with $1.15 billion before May 2015. The brunt of the payment will be conveniently left for President Cristina Fernández de Kirchner’s successor, who will take office in December 2015. Unusually, the deal was brokered without the oversight of the International Monetary Fund (IMF). Fernanda Vallejos, an advisor in the economy ministry, says this is because Argentina no longer has any debt with the IMF. Argentina’s willingness to negotiate doubtless helped. “The Paris Club saw that, for the first time, Argentina really wanted to pay,” says Luis Secco of Perspectiv@s, a consultancy, “and they weren’t going to say no to such a complicated and uncooperative debtor.”
Settling with the Paris Club is one of three measures investors and economists have prescribed in order for Argentina to regain access to markets. Another—compensating Spanish oil company Repsol for its appropriated stake in YPF, the state oil firm—was achieved in February. But Argentina’s most formidable obstacle to tapping foreign bond investors again—colloquially referred to as the “holdout saga”—still looms large.
The holdouts are those bondholders who refused Argentina’s 2005 and 2010 debt restructurings, in which 93% of debtors exchanged their debt at a 65% loss. Spearheaded by NML Capital, a fund which bought its Argentine bonds on the secondary market, the holdouts argue that either they be repaid in full (principal plus interest) or that no one should get paid at all. That argument has prevailed in New York district and appeals courts, but Argentina has appealed all the way up to the United States Supreme Court, which may decide whether or not to accept the case on June 12th.
If it does so, Argentina will have a bit more time to decide what to do. But if the Supreme Court rejects the case, Argentina will be expected to comply with the original court decision and pay $1.3 billion to the holdouts. Stump up and Argentina opens the door to litigation from those investors who exchanged their bonds, who will look for the same deal as the holdouts. Refuse to obey the courts and Argentina will undo its recent progress toward international capital markets.
