July 24, 2014
Paris Club invites gov’t to negotiate
Talks will start in the week of May 26 to settle the roughly US$9.5 billion debt dispute
PARIS — The Paris Club invited the government yesterday to negotiate paying off its overdue debt, with talks starting in the week of May 26 to take an important step towards settling the long-running debt dispute.
Eager to settle disputes with its creditors, the government outlined its conditions in January to repay the roughly US$9.5 billion it owes Paris Club members.
“They discussed this proposal in January and February, asked for clarification and, based on a revised proposal, have invited the government of Argentina to come negotiate an arrears clearance agreement with the Paris Club creditors in May in Paris,” secretary general Clotilde L’Angevin said.
In Buenos Aires, Cabinet Chief Jorge Capitanich said early in the day that Argentina had not yet received formal notification about the beginning of negotiations.
Nonetheless, Argentine over-the-counter bond prices rose as much as 2.7 percent on the news of the invitation.
The Economy Ministry formally confirmed the invitation later in the day.
The news came on the same day the International Monetary Fund (IMF) named Argentina as one of the countries that has not agreed to the monitoring of its economy.
An arrears clearance agreement is not the usual debt rescheduling based on an IMF programme. It would cover principal, interest and late arrears. In the absence of an IMF programme, which Argentina has ruled out, Paris Club rules forbid any reduction in the value of the country’s debt.
“Argentina presented a set of guidelines to the Paris Club on January. After an exchange period, members of the Paris Club invited the government to start formal negotiations at the end of May,” a press release of the Economy Ministry said. “The government’s proposal looks to encourage investment flows the country receives with the objective of facing new challenges.”
Economy Minister Axel Kicillof travelled to Paris in January alongside Finance Secretary Pablo López and former economy minister Hernán Lorenzino, who is now in charge of the country’s debt repayment efforts, and met with the president of the Paris Club and head of the French Treasury Ramón Fernández.
After the meeting, Kicillof threw cold water on speculation that one of the last vestiges of the country’s 2001 default could soon be resolved by saying the process could take “several months,” refusing to give any details of the general guidelines presented by the government since it could “hurt the negotiations.”
The Paris Club members met at the end of January at their regular monthly meeting and discussed the general guidelines for repaying the debt, promising to “study the government’s proposal.” After the meeting, the Paris Club sent the government questions over Kicillof’s proposal.
A long-term negotiation
The government’s debt to the Paris Club is a legacy of its 2001-02 economic crisis, which culminated in a roughly US$100-billion debt default. The country’s history with the informal group of mostly Western nations goes back to the Paris Club’s origins in 1956, when Argentina agreed to meet its public creditors in Paris.
Created by an initiative of France, the Paris Club brings together 19 countries — Germany, Austria, Belgium, Canada, Denmark, United Stated, Spain, Finland, France, Ireland, Italy, Japan, Norway, United Kingdom, Sweden and Switzerland — to negotiate the external debts of creditor nations.
Argentina holds debt with 16 of the 19 countries in the group and most of the debt was taken on by the last military government, according to Kicillof. Germany is Argentina’s biggest Paris Club creditor with about 30 percent of the debt, followed by Japan with about 25 percent. Smaller holders include the Netherlands, Spain, Italy, the United States and Switzerland.
In September 2, 2008, President Cristina Fernández de Kirchner revealed the government would pay the Paris Club with cash using Central Bank reserves. A decree was published in the Official Gazette in which the President ordered former economy minister Carlos Fernández to “cancel the total debt with the Paris Club” . Nevertheless, the world economic crisis after Lehman Brothers bankruptcy meant that the order was never fulfilled.
Argentina is largely locked out of international bond markets as the country awaits a final ruling in a case against a number of hedge funds that are suing the government in US courts for full repayment on defaulted sovereign bonds.
Last month, the CFK’s administration filed a petition seeking the US Supreme Court’s review of a court order requiring it to pay US$1.33 billion to bondholders who refused to take part in two previous debt restructurings. Judge Thomas Griesa of the New York Courts, followed by the city’s Second Circuit of Appeals Courts, ruled that the plaintiffs who had refused to agree to debt swaps should be paid in full.
The Fernández de Kirchner administration has recently taken steps to mend ties with international creditors. Months ago, the country paid about US$500 million to settle disputes with five investors and agreed a settlement with Spanish oil firm Repsol to compensate it for the expropriation of its majority stake in YPF, the country’s largest oil company.
With foreign-currency reserves of the Central Bank (BCRA) at their lowest since 2006 and falling quickly, the country wants a deal with the Paris Club that does not put too much strain on its balance of payments.
Herald with Reuters