The Government formalized the agreement with the Paris Club: how is the postponement of payments going to avoid default

The national government has reached an agreement with the parisian club this will prevent the fault. Through the Decree 412/2021 published today at dawn in the Official Bulletin, the executive branch confirmed the agreement which involves a payment of 430 million dollars, out of the 2,500 million dollars that Argentina owes in full. The agreement will be valid until March 31, 2022.

“We have reached an agreement with the Paris Club to obtain a time bridge that allows us not to have to face a situation of default or default on July 31 of this year,” announced earlier this week the Economy Minister. Martin guzman. Y agregó that “en el período de 8 meses” is hará frente “to a set of pagos that sumarán alrededor of 430 million dólares”, lo cual “implica un alivio financiero para la Argentina of 2,000 million dólares between ahora y el 31 March. “The first payment will be made on July 31 and the second for 2022, the minister said.

The annex to the decree, with the list of public creditors, specifies that the second installment will be paid on February 28, 2022, i.e. one month before the deadline set to reach a final agreement on the form and terms of payment of the balance. of.

Alberto Fernández, Guzmán and the other ministers signed the decree which provides, “within the framework of the agreement concluded with the Paris Club, deferral of payment of debts contracted under bilateral agreements signed with Paris Club member countries, with the exception of those reached by article 2 of this decree, until the Ministry of the Economy determines its resumption by virtue of the progress of negotiations with the said countries, or thus define the new framework agreement concluded, or until March 31, 2022, whichever comes first “. The countries mentioned in Article 2, which were authorized to make partial debt service payments are: Germany, Spain, France, United States, Belgium, Denmark, Austria, Canada, Israel, Italy, Japan, Sweden, Switzerland, United Kingdom and Netherlands.

Argentina adopted May 31 as the last payment date to this consortium of nations and a 60-day window has been opened until the end of July. After this grace period, member countries could declare the Argentine state in default of payment of their debt.

More than half of Argentina’s debt to the Paris Club is concentrated in two countries: Germany (37%) and Japan (22%). Further on, they follow Holland (almost 8%), Spain (6.68%), Italy (6.29%) and United States (6.28%).

The appendix provides a better understanding of what types of debt are traded under the Paris Club. The list includes debts with government agencies, such as Delcredere Ducroire, an official credit institution of Belgium, or the Export Development Bank of Canada, the Export Credit Fund (Eksport Kredit Fonden) of Denmark, the Banque de France, the French foreign trade insurance company (Compagnie Française D’Assurance pour le Commerce Exterior, Coface), the German insurance company Euler Hermes, which is, by country, the main Argentinian creditor within the Club. There are also four unpaid credits with Italian agencies (two in euros and two in dollars), with the ExImbank of Japan and the United States and debts of which the creditors are directly – as it is written in annex – the “governments” of Spain and Israel. .

In total, there are 40 credits granted by agencies in 16 countries. The age of the original credits means that many of them are denominated in currencies that no longer exist, such as the French franc and the Swedish and Danish kroner, which have since been replaced by the euro. The annex details the debt and the value of installments payable in the original currency and does not include a conversion of the total to a currency, such as the dollar or the euro, but Guzmán said the deal involves payments for the equivalent of $ 430 million.

Details of partial payments to creditor countries

Over the past seven years, the State of Argentina has contributed approximately $ 8,100 million to this consortium of bilateral creditors. The payment flow was however interrupted in 2019: the government of Mauricio Macri made a final payment of $ 1.9 billion in May of that year and the account ended up with a red hold for another $ 1.9 billion. At that time, the executive argued that the reserve situation (the economy had already accumulated more than a year of exchange rate pressures) did not allow it to cope with a higher payment, they have therefore preferred to activate the interest rate of 9% rather than having to resign more currencies in this context.

Indeed, article 3 of the decree instructs the Ministry of the Economy to renegotiate the “Joint Declaration on the Arrears Settlement Agreement of the Argentine Republic” and the bilateral agreements which, as the same article recalls, had been signed on May 29, 2014, during the administration of the then minister, Axel Kicillof. The renegotiation, says the decree, will aim “to adapt the debt services to the payment possibilities of the national State, under conditions which ensure the sustainability of the Argentinian public debt and which are compatible with the resumption of the debt. ‘productive economy and with the improvement of basic social indicators’.

The payments that will be made in July this year and February 2022 will give Argentina time until March 31 next year to renegotiate this debt with the agency, while continues the talks he has with the IMF To refinance the 44,000 million US dollars contracted under the Macri administration.

“Paying that amount would have hit international reserves and generated more exchange rates and macroeconomic instability in general. A default situation would also have generated destabilizing effects and uncertainty and unpredictability which, in this context, would do particular damage, ”said Guzmán.

“An agreement has been reached with the Paris Club in the belief that our country will do its best to agree on a new program with the IMF that is sustainable and inclusive for the well-being of all Argentines and Argentines , a process that should not extend beyond March 31, 2022; In this context, the objective of reaching a new framework agreement with the member countries of the Paris Club is proposed to replace the aforementioned “Joint Declaration”, respecting the payment possibilities of the national State, and that by the principle of reciprocity of partially treating the debt service with these nations, for an amount equivalent to that of other bilateral commitments with third countries, ”explained the government in the decree published on Saturday.

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