Argentina avoids “default” with the Paris Club and continues negotiations with the IMF

RIO DE JANEIRO, BRAZIL – Argentina announced on Tuesday that it reached an understanding with the Paris Club that will allow it to avoid an imminent default with this forum of creditor countries to which it owes US$2.4 billion and to continue negotiating with the International Monetary Fund (IMF) the refinancing of debts for US$46 billion.

Argentina’s Minister of Economy, Martín Guzmán, said at a press conference that the Paris Club agreed to grant the South American country a “bridge of time” until March 31, 2022, to pay a part of the total amount owed to the group of 22 creditor countries.

Within this period, Argentina will pay US$430 million to the forum, probably in two installments.

Argentina was to settle last May 31 all its outstanding debt with the Paris Club for US$2.4 billion but did not make the payment and took advantage of the 60-day grace period to regularize its commitments.

Guzmán pointed out that the “bridge of time” until March 31, 2022, will prevent Argentina from facing a “default” next July 30, when the grace period would end.

The debt with the Paris Club dates back to a refinancing agreement signed with that forum in 2014, and Argentina’s main creditors in the forum are Germany, Japan, Holland, Spain, and Italy.

The understanding with the Paris Club was reached after intense negotiations in recent weeks by both Guzmán and the Argentine president himself, Alberto Fernández, in search of international support for the country, which is dragging behind it three years of severe recession and macroeconomic imbalances.

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According to Guzmán, paying the US$2.4 billion in May would have been a “blow” to international reserves and would have generated “more instability” in the exchange rate and macroeconomic situation.

“On the other hand, a default would also have been a blow to the economy, with destabilizing effects of uncertainty and unpredictability that in this context would have caused particular damage”, he pointed out.

NEGOTIATIONS WITH THE IMF

The agreement with the Paris Club also includes a commitment by Argentina to make the necessary “efforts” to reach an understanding with the International Monetary Fund (IMF) to refinance debts of US$46 billion incurred in a bailout pact signed in 2018.

“We will continue to work constructively with the IMF. This time horizon with the Paris Club gives us greater certainty. The March 31, 2022 date does not mean in any way that that is a date that has to do with a target agreement with the IMF. Our objective is to have a good agreement. The sooner, the better, but the priority is to have a good one,” he said.

According to what was agreed in 2018, the South American nation must begin to cancel the credits received from next September (when a capital payment for US$1.9 billion is due) and until 2024. Still, the Argentine government assures that the country does not have the capacity to pay.

The Argentine Executive intends to reach an extended facilities agreement with the IMF, with lower interest rates and payment terms of at least 10 years.

Guzman said that he plans to meet with representatives of the Fund next July, within the framework of the G20 meetings in Italy.

Once a new financial program with the IMF is signed, the minister indicated that talks with the Paris Club would be resumed to agree on restructuring the outstanding debt balance with the forum.

HEAVY DEBT

Argentina is dragging heavy levels of indebtedness, with maturity horizons that the Government seeks to clear.

“Higher debt burden in dollars means lower possibilities of production growth and higher pressures on inflation. So being able to resolve unsustainable dollar debt commitments will help the country to be able to solve all its economic and social problems,” said Guzman.

As reported on Tuesday by the National Institute of Statistics and Census, Argentina’s gross external debt at nominal value fell to US$269 billion in the first quarter of the year, while the “stock” of debt measured at market value stood at US$216.7 billion at the end of the same period.