Key week with the Paris Club: maturity is approaching and the government is waiting for a wink from the IMF to avoid default

In a week, he will have the last payment deadline for the agreement Argentina signed in 2014 with the Paris Club and will open a two-month window until this body decides whether or not the country is in default by not paying the pending USD 2,400 million. There is, however, a way out that Casa Rosada expects to avoid the default. For that it will need final European support and a nod from the International Monetary Fund (IMF).

The debt countdown with the Paris Club, an array of fifteen creditor nations, will end on Monday 31. The contracts that the Argentine state signed with each country in 2014 establish a 60-day grace period before a possible default. The Ministry of the Economy ruled out for months the possibility of settling this 2400 million dollars and undertook – in parallel with negotiations with the IMF and private bonsai in 2020 – on the path of postponing this last payment.

Obtaining this approval from the Paris Club is not easy for the Minister of the Economy Martin guzman. The member countries of this consortium of creditors request, for typical operational reasons, that initially Argentina reached an agreement – or a preliminary consensus – with the Monetary Fund. This is not strange because the members of the Paris Club are also some of the main shareholders of the IMF, so they are present at both offices.

The debt countdown with the Paris Club, an array of fifteen creditor nations, will end next Monday 31. The contracts that the Argentine state signed with each country in 2014 provide for 60 days as a grace period before a possible default.

Beyond the contracts, the Palacio de Hacienda considers that “The Paris Club is not a typical multilateral body” and that it is governed more by geopolitical issues than by the fine print of agreements and that these contracts “are not a letter set in stone.”

The government faces last week before the last deadline with the Paris Club a negotiation which is now opening in two ways: diplomatic and with the IMF. The first will have a stop that could be decisive this Wednesday. President Alberto Fernandez will hold a virtual meeting with the German Chancellor Angela Merkel, a president who was unable to visit him in person during his last tour of Europe.

German support for Argentina’s proposal to defer payments with the IMF could be essential. This happens because, strictly speaking, more than half of Argentina’s debt to the Paris Club is concentrated in two countries: Germany (37%) and Japan (22%). Further back they follow Holland (almost 8%), Spain (6.68%), Italy (6.29%) and United States (6.28%).

The Paris Club is also made up of Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan , South Korea, Holland, Norway, Russia, Spain, Sweden, Switzerland, United States United Kingdom and United States, which represent around 60% of global GDP.

If Alberto Fernández and Martín Guzmán have succeeded in this management before the German authorities and the renegotiation with the Paris Club, there is only one gesture left by the Fund, This body of creditor countries would thus agree not to increase the default on July 30 and to waive the annual interest rate of 9% with which the amounts have been updated since 2019..

The government faces last week before the last deadline with the Paris Club a negotiation which is now opening in two ways: diplomatic and with the IMF.

The second route through which the negotiation of this debt passes is through the IMF. Although sources in Washington and at the Palacio de Hacienda assured that this was not confirmed and that it was a possibility, there could be a visit by Monetary Fund staff to Buenos Aires throughout that 60-day window before the Paris Club default. From this mission would therefore come the nod that the government needs. on a preliminary advance of a new financial program which opens the postponement of 2,400 million USD.

The Paris Club, however, has its own claims. This was announced in recent days by a diplomatic representative of Japan, the second largest creditor country. The Japanese Ambassador in Buenos Aires Tahakiro Nakamae, said: “First of all, we want Argentina to maintain good communication with the Fund and We consider it very important that Argentina reach an agreement as soon as possible possible on the new program that contributes to the future growth of this country. And, therefore, we have the hope that Argentina will meet its payment obligations, “he said in statements to elDiarioAR.

“The Paris Club is a consensus group. I don’t think it’s appropriate for me to propose a position bilaterally, but what I’m learning from the discussion within the Paris Club is that A change in debt repayment terms should be based on the assumption that Argentina agrees with the Monetary Fund on a program“He continued.

But he also raised a particular point concerning the relations between Argentina and other states. “Another point concerns the so-called comparability of treatments. This means that for Paris Club members It would not be fair for Argentina to offer to extend the payment of its debts, while continuing to pay other creditors outside the club. In this sense, we want balanced treatment, ”said Nakamae. Although he did not mention any country, could refer to china, which is not part of the Paris Club.

Both Japan and China are said to be part of a third chapter of Guzmán’s international tours to renegotiate the debt, as outlined in the official itinerary of the head of the Palacio de Hacienda. At this Guzmán scale would seek the support of the two countries, the second and third largest shareholders of the Fund, with a strong presence in the decision-making body. The trip to Asia, however, will depend on whether the president Alberto Fernandez You can specify this tour, something that is not confirmed or has a scheduled date at the moment.

Although sources from Washington and the Palacio de Hacienda have assured that this is not confirmed and that it is a possibility, there could be a visit by Monetary Fund staff to Buenos Aires throughout this 60 window. days before the default with the Club. from Paris.

The agreement signed by Kicillof and Argentina’s creditor countries involved the repayment of $ 9,690 million over five years, until May 2019. In total, nearly $ 5,000 million was the principal owed while the remainder (approximately $ 4,700 million) consisted of interest on these liabilities and penalties accumulated over the years.

In 2014, when the agreement was signed, he made a first payment of 640 million USD. The following year it was 682 million USD. Already under the Macrista mandate, the Treasury turned 1680 million USD in 2016, 1380 million USD in 2017, 1891 million USD in 2018 and $ 1,868 million in 2019. It was the last payment made by the state. At the end of the planned first five years of the agreement, Argentina still had to 1.9 billion USD. As of 2019, the remaining $ 1.9 billion has started to be adjusted at 9% interest per annum, which the Minister of the Economy considers it too high.

During negotiations with bondholders, the Minister of the Economy had already initiated the first contacts with the Paris Club to present his position. In a document sent by Guzmán to this consortium of nations in April 2020, the official announced that he would seek a change in the terms of the agreement, and even broached a proposal to change the terms, and anticipated that he intended to discuss primarily an extension of the maturity dates and a “significant reduction” in the interest rate.

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