Argentina agrees pact with creditor nations

Argentina has reached a deal with the Paris Club of creditor nations to pay a longstanding $9.7bn debt in its latest move to win back confidence from international capital markets.

After marathon negotiations in Paris, ending after midnight on Wednesday, Argentina agreed to pay the debt that remained from its 2001 default over five to seven years. The government will pay $650m in July, and a further $500m by May 2015.

The government wants to ease pressures on the currency and foreign exchange reserves that some analysts fear could lead to a balance of payment crisis. So far this year, the government devalued the peso by 20 per cent in January, compensated Spain’s Repsol with $5bn after expropriating its Argentine assets in 2012, and started to cut expensive utilities subsidies to reduce a yawning fiscal deficit.

“While the government has made strides towards policy normalisation since the start of the year, there is still a significant risk that events take a turn for the worse over the coming months,” said David Rees, an economist at Capital Economics in London.

Rees pointed out that the only significant immediate consequence from the deal was that Argentine exporters would be able to seek financing from export credit agencies of the nations belonging to the 19-member Paris Club, which includes the US, Japan, Germany and the UK.

“It’s a very positive step in the delayed process of normalising Argentina’s credit status,” said Luis Secco, an economist.

But he warned: “The possibility that the agreement rapidly leads to an influx of dollars . . . is no more than that, a possibility.”

Argentina’s main impediment to returning to the international capital markets remains its legal dispute with so-called “holdout” creditors, who rejected debt restructurings in 2005 and 2010. The US Supreme Court is due to decide whether to consider or reject the case on June 12.

Axel Kicillof, economy minister, highlighted that the International Monetary Fund played no role in the negotiation, nor would it be involved in auditing the payment, despite Paris Club rules normally requiring its involvement in restructurings.

“None of that has happened here. There are no conditions for our economic policy,” Kicillof said in Paris as he accused the IMF of forcing policies on Argentina for decades in return for loans.

President Cristina Fernández had proposed in 2008 to pay the Paris Club debt, then estimated at around $6bn, with central bank reserves.

Wires