Argentina's Macri Asks Congress to Support Holdout Deal

  • Macri agreed terms with holdouts from 2001 default on Sunday
  • President's supporters hold a minority in both chambers

Argentina’s President Mauricio Macri called for cross-party support Tuesday to end a dispute with disgruntled creditors that has been a drag on the economy for almost 15 years.

In a speech at the opening of Congress, Macri criticized the state of the economy he inherited from predecessor Cristina Fernandez de Kirchner and outlined plans for legislation including the removal of value added tax from basic goods and higher income tax brackets. He accused the Kirchner administration of lying about inflation and job creation, prompting heckles from the opposition who held up signs reprimanding his dismissal of state workers and plans to increase the country’s debt ratio.

“We’ve been in default since 2002 and in these months we’ve made the necessary steps to close this stage,” Macri said. “Now it’s up to this Congress to decide if we end this 15-year conflict. I’m confident that responsibility will prevail over rhetoric and that together we’ll build the necessary consensus.”

Macri, who won a tight runoff vote in November to end 12 years of government by Fernandez and her late husband Nestor Kirchner, is attempting to open up Argentina’s economy by reversing many of the Kirchners’ policies, even as his government holds a minority in both houses of Congress.

Economic Challenges

The president is seeking to close a fiscal deficit of 7 percent of gross domestic product and slow inflation of about 30 percent. So far, he has lifted currency controls and allowed the peso to float, while eliminating export tariffs and energy subsidies.

Top of Macri’s priorities in Congress will be to push through legislation to seal the accord with hold-out bondholders. Congress must repeal the so-called Lock Law, which prevents the nation from offering better conditions than those offered in the 2005 debt restructuring, and the Sovereign Payment law, introduced by Fernandez in 2014 to change the domicile of payment to Argentina from the U.S.

Argentina on Sunday agreed to terms with bondholders led by hedge fund billionaire Paul Singer over unpaid debts from its record $95 billion default in 2001. The deal calls for Argentina to pay $4.65 billion in cash to Singer’s Elliott Management and fellow hedge funds Aurelius Capital Management, Davidson Kempner and Bracebridge Capital, according to court-appointed mediator Daniel Pollack. Accords with other creditors will bring the total bill to about $15 billion, according to the government.

“This is a giant step forward in this long-running litigation, but not the final step,” Pollack said in a statement. Argentina must repeal the laws and pay the litigants by mid-April, although that deadline can be extended, Finance Minister Alfonso Prat-Gay said on Tuesday.

Temporary alliances

Macri has been bolstered by the splintering of the opposition Peronist party. A group of at least 18 lawmakers left the Peronist Victory front alliance this month, saying they wanted to form a “responsible” opposition bloc.

He has also sought to build temporary alliances with the more centrist members of the Peronist movement. Last month, he successfully negotiated with opposition lawmaker Sergio Massa, a former presidential candidate and leader of the dissident Peronist Renovation Front, a gradual repayment of federal taxes to the provinces that had been diverted to a state pension fund.

Macri has also extended olive branches to Juan Manuel Urtubey, governor of Salta province, and Rosana Bertone, governor of Tierra del Fuego province, by inviting them to accompany him to visit Pope Francis in Rome last weekend. The opposition Victory Front alliance has 42 out of 72 seats in the Senate, though only 12 of them are loyal to Fernandez, while the remaining 30 answer to Peronist governors who are reliant on Macri for funds, Pinedo said.

The legislation on debt repayments, which will be presented to Congress this week, should take four weeks to pass through both houses and be approved by late March or early April, Pinedo said.

The government has been in talks with opposition lawmakers and expects to
obtain a minimum of 45 votes in the Senate and between 130 and 140 votes in the lower house, Pinedo said.

“We believe we are in a position for this to be approved,” said senator Federico Pinedo, the provisional president of the Senate.

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