Argentina default: Fernández travels to Europe in a race against the clock to reach agreement with the Paris Club

RIO DE JANEIRO, BRAZIL – The President of Argentina, Alberto Fernandez, will start this Sunday a tour of Europe in a race against the clock to negotiate with the Paris Club, a group with which the South American country could enter into default if it does not reach before the end of May a debt refinancing agreement for US2.4 billion.

The tour of Fernández, who is traveling together with the Argentine Minister of Economy, Martín Guzmán, and the Chancellor, Felipe Solá, includes stops in Portugal, France, Italy and Spain, the latter three countries being part of the 22 permanent members of the Paris Club.

In addition, in the case of France, that nation has its own seat on the executive board of the International Monetary Fund (IMF), an organization with which Argentina has been negotiating since last year to refinance debts for some US$45.2 billion -on original loans for US$44.1 billion-.

Fernández will meet on Sunday with the Portuguese President, Marcelo Rebelo de Sousa, and on Monday with the Prime Minister, Antonio Costa, before flying to Spain. On Tuesday, he will hold meetings with King Felipe VI and the President of the Government, Pedro Sánchez.

In France, Fernandez will meet on Wednesday with President Emmanuel Macron. On Thursday, already in Italy, he will hold an audience with Pope Francis and meetings with President Sergio Mattarella and Prime Minister Mario Draghi.

COUNTDOWN

Argentina’s current debt with the Paris Club stems from a payment agreement sealed with that group in 2014, during Cristina Kirchner’s (2007-2015) government when its outstanding maturities were renegotiated after it fell into default at the end of 2001.

The 2014 agreement established a payment period of five years until May 2019, which could be extended for two more years, with no grace period and no capital or interest reduction.

In May 2019, during the Government of Mauricio Macri (2015-2019), a balance of about US$1.9 billion of the total debt remained outstanding.

Under the possibility of a two-year extension of the payment term of the balance due, although with a much higher interest rate, Argentina was to pay in May 2020 about US$2.1 billion, the Government of Alberto Fernández, amid financial tensions, decided not to face the maturity and to request the Paris Club to negotiate an extension of the maturity dates and a “significant” reduction of the interest rate.

Now, the debt Argentina must face amounts to about US$2.4 billion, between principal and interest, but the country, in severe recession since 2018 and with minimal monetary reserves, assures that it does not have the resources to pay it.

The 2014 agreement establishes that if Argentina does not settle all its debt with the Paris Club before the next 30th, the group can declare from 60 days after that date that the country is in “default” with its creditor’s members of the forum.

AN AGREEMENT WITH THE IMF AS A CONDITION

Guzman himself has recognized that it is “usual” that, to grant a rescheduling of payments, the Paris Club requires that there be a program in force with the IMF.

In fact, according to the “principles” of the Paris Club, this is one of its conditions for restructuring debts since the treatment given to the debt is based on the financial parameters included in the country’s current program with the IMF.

A month ago, the Argentine Minister made a Europe tour, including high-level conversations with authorities from Germany, France, Italy, and Spain. With the President of the Paris Club and Director General of the French Treasury, Emmanuel Moulin.

No details of the results of these talks were made public, nor if an agreement with the IMF will be possible before the end of May or even before the end of July to avoid a “default” with the Paris Club, or if the forum is willing to grant an exit to Argentina without having a closed program with the Fund.

But Guzmán did stress that a “redefinition of the commitments” with the group of creditor countries is needed so that Argentina does not have to face “a shock that damages the economy” at a time when it is seeking to recover from the 9.9% slump in 2020.