A final accord on Argentina’s debt with the Paris Club group of creditors could take months to negotiate and wouldn’t place the country’s economic growth and social programs at risk, Economy Minister Axel Kicillof said.
Kicillof, presented a proposal to Paris Club Chairman Ramon Fernandez in the French capital yesterday. Officials from the group’s 19 countries will discuss the offer tomorrow, Kicillof said at a press conference in Buenos Aires today. He declined to give details of the plan.
“We took this step and now we’ll have to see what the response is,” Kicillof, who was named Economy Minister in November, said. “This is still provisional and it wouldn’t be very productive to give more details.”
Argentina, which defaulted on a record $95 billion of debt in 2001, is working on several fronts to resolve disputes with creditors as it seeks a return to capital markets to reverse a drop in foreign reserves and avoid a balance of payments crisis. President Cristina Fernandez de Kirchner, who last year created a debt restructuring unit headed by former Economy Minister Hernan Lorenzino, is battling holders of defaulted bonds in U.S. courts while trying to satisfy International Monetary Fund demands to improve the accuracy of official economic data.
Kicillof said an eventual agreement could help companies that are currently blocked from obtaining credit from lenders in Paris Club member countries. Argentina will honor the debt and work out a payments schedule that is within its means, he said. The debt and accumulated interest with the group is about $11 billion, according to BancTrust & Co.
Foreign reserves have tumbled at a rate of $1.3 billion a month over the past 12 months to a seven-year low of $29.7 billion. In the first three quarters of 2013, the nation posted its largest current account deficit since the 2001 economic crisis. At the same time, currency restrictions have spawned a myriad of foreign exchange rates with Argentines willing to pay 11.86 pesos per dollar in a black market compared with an official rate of 6.8842.
“It could help stem the weakening of the parallel exchange rates and the decline in reserves by boosting confidence that the government would eventually be able to borrow from international capital markets,” Credit Suisse Group AG economist Casey Reckman wrote in a report today. “Nevertheless, we remain cautious about how quickly and easily an agreement may be reached.”
Argentina settled $677 million of arbitration claims last year and held talks with the IMF on overhauling its statistics. The South American nation will publish a new consumer price index next month. The government is also appealing U.S court orders to pay holders of defaulted bonds, including hedge fund manager Paul Singer, about $1.5 billion.
“They have to take some policy action sooner or later. The Paris Club is cute -- it’s a sign in that direction but doesn’t solve the problem,” Diego Ferro, co-chief investment officer at Greylock Capital Management, said in a telephone interview from New York. “They have to fix the problem with the holdouts. It’s kind of the low hanging fruit.”
Argentina is willing to resolve “inherited debt” from previous governments and was about to pay the Paris Club in 2008 before the collapse of Lehman Brothers Holdings Inc., Kicillof said.
The origin of the Paris Club dates back to 1956 when Argentina first met its public creditors in Paris. Since then, the Paris Club has reached 429 agreements with 90 different debtor countries. Since 1956, the total debt of Paris Club agreements amounts to $573 billion.
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