Wed | Sep 26, 2018

Argentina and US creditors reach deal in long-standing debt spat

Published:Wednesday | March 2, 2016 | 12:00 AM
President of Argentina, Mauricio Macri.
New president of Argentina, Mauricio Macri.

Argentina and a group of United States creditors reached a deal Monday in a long-standing debt stand-off, potentially breaking an impasse that has kept the country on the margins of international credit markets and led to a rewriting of the terms of debt issuance and negotiations worldwide.

The deal is a boost for President Mauricio Macri, who assumed power in December after campaigning on promises to modernise South America's second-largest economy by solving the dispute and attracting foreign investment.

"It gives me greatest pleasure to announce that the 15-year pitched battle between the Republic of Argentina and Elliott Management, led by Paul E. Singer, is now well on its way to being resolved," arbiter Daniel A. Pollack said in a statement.

The agreement still must be approved by Argentina's Congress, which would also need to revoke or sharply modify two laws that in practical terms would make the deal difficult to implement.

The 'lock law' prevents Argentina from offering one group of creditors a better deal than others and the 'sovereign payment law' , passed in 2014, allowed Argentina to pay creditors with renegotiated debt in the face of a New York court order not to do so.

The 2014 law was passed at the behest of then President Cristina Fern·ndez, who refused to negotiate with bondholder groups that she called "vultures," casting the fight as a US court trying to bully a sovereign nation.

Under the deal, Argentina would pay US$4.653 billion to resolve all related claims, including those from Singer's group in New York and other creditors around the world. The agreement would pay the funds managed by Elliot, Aurelius Capital, Davidson Kempner and Bracebridge Capital about 75 percent of their full judgments, according to the statement.

Speaking to reporters in New York, Pollack declined to provide more details. He said April 14 was the deadline to finish the deal, but added that it could be extended if both sides agreed. He described gruelling negotiations in recent months, joking that it "felt like a thousand years to me".

The deal "closes a chapter by putting an end to the debt default saga which limited Argentina's access to international capital markets", said Alberto Ramos, chief Latin America economist for Goldman Sachs, predicting that it would also lead to an influx of investment in Argentina.

stock rise

Hours after the announcement, the stock exchange in Buenos Aires closed with a 1.5 per cent rise, which analysts said was a sign that investors were cautiously optimistic that the dispute is on its way to being solved.

The debt conflict goes back to Argentina's 2001-2002 financial collapse, when it defaulted on US$100 billion in bonds. Most creditors renegotiated in 2005 and 2010 bond swaps. But a group of creditors led by Singer, a billionaire hedge fund manager, refused and took Argentina to court in New York, under whose laws the debt was issued, and won.

US District Court Judge Thomas Griesa in New York has repeatedly ruled against Argentina, saying the country had to pay the holdouts before it could pay other creditors holding renegotiated debt. Those rulings have kept Argentina from accessing international credit markets, forcing it to issue domestic bonds to raise funds and search for backdoor financing from countries like China.

The long, costly fight led to changes in how debt is issued worldwide. Many countries have restructured contracts in attempts to avoid getting into similar situation.

While Macri has good relations with many members of Congress, passage of the deal is not a given.

Fern·ndez's Peronist Party has a majority in the Senate and the largest bloc in the lower house.

However, the Peronists have been fractured since Fern·ndez's chosen candidate, Daniel Scioli, lost the presidential election to Macri in November. And business leaders and governors in Argentina's provinces have joined the Macri administration in arguing that the country desperately needs foreign investment.

"We want to return Argentina to normality" in the economy, Finance Minister Alfonso Prat-Gay told reporters in Buenos Aires late Monday. "And these discussions in New York were a first step to that."