Today $ 2.4 billion is due at the Paris Club: the government has 60 days to get a wink from the IMF and avoid default

This Monday, 2559 days after the Minister of the Economy at the time Axel Kicillof sign Argentina’s ninth payment agreement with the Paris Club, the government reaches the last date provided for in this agreement, with an outstanding debt of approximately $ 2,400 million that it will have to renegotiate again. The contract itself with this consortium of creditor countries provides for an additional 60 days to avoid default.

La Casa Rosada hopes that after weeks of support woven by European leaders, technical work with officials of the International Monetary Fund paves the way for the Club to make public for a minute – as it traditionally does, by consensus among its members – so that the non-cancellation of this $ 2,400 million is not considered by this forum as a default.

The government has reached the last date provided for in the 2014 agreement with an outstanding debt of more than $ 2.4 billion that it will have to renegotiate again.

This step will be, in any case, transitory: for a readjustment of the terms of the agreement signed in 2014, the Paris Club will ask, as practically since its foundation, that Argentina has an ongoing financial program with the IMF. Concretely, the Minister of the Economy Martin guzman seek to reduce the 9% interest rate in effect since 2019 and longer return periods.

Over the past seven years, the Argentine state has paid around $ 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 this year and the account was left with a red pending for an additional $ 1.9 billion. At that time, the executive argued that the reserve situation (the economy had already accumulated over a year of exchange rate pressures) did not allow it to cope with a higher payment, they therefore preferred to activate the interest rate of 9% rather than giving more currencies in this context.

With the change of government, the administration of Alberto Fernandez He openly called for restructuring much of the public debt, starting with private bondholders and, secondly, bilateral organizations such as the Paris Club and the Monetary Fund. In total, the amount to be renegotiated is approximately $ 115,000 million..

In May 2020, the Ministry of the Economy did not return the pending payment as expected. Even weeks before that date, Guzmán himself had sent letters to the Paris Club anticipating the move. On March 13 of that same year, Guzmán wrote to members of the Paris Club to express the decision to defer payment of $ 2.1 billion to May 5, 2021 (i.e. the $ 1.9 billion plus the interest rate) initially due on May 5, 2020.

For a readjustment of the terms of the agreement signed in 2014, the Paris Club will ask, as practically since its foundation, that Argentina have an ongoing financial program with the IMF.

And later Guzmán told them that he would look for a modification of the terms of the agreement. On April 7, the Palacio de Hacienda sent a second letter to the Paris Club with a proposed modification of the conditions, and anticipated that it intended above all to discuss a extension of maturity dates and “significant reduction” of the interest rate.

May 31, slated as the last stop on the payment path to the Club, arrived with no restructuring deal in sight, so government will have to buy time to get IMF support and a new financial program to replace the one still in effect for $ 45,000 million loaned by the agency during Macrista’s tenure, the largest loan in the institution’s history.

As he could know Infobae according to official sources, this Monday officially the state will not pay the $ 2.485 million pending -According to data from the Ministry of Finance-, the 60-day grace period will therefore begin before the default, although the government hopes to have the necessary nod before that date.

A default would not only be costly in terms of the reputation of the debt negotiation process that began last year – with the impact it could have on Argentinian assets – but also effectively more expensive. As recalled by a recent report from PxQ, the economist and former deputy minister of the economy Emmanuel Alvarez Agis: “If the default value is declared the “ final rate ” of 9% will be applied retroactively on balances due, basic interest and unpaid compensatory interest from May 2014 until the date of termination of the contract, ”he published.

According to Infobae, according to official sources, this Monday the state will not officially pay the outstanding $ 2.485 million, so the 60-day grace period before the default will begin.

“This would imply an increase in Argentina’s debt of around USD 2 billion. The total outstanding debt balance will be capitalized at 9% per annum until it is repaid. For this reason, it is so important that Argentina reaches an agreement with the Paris Club countries within the next 60 days, ”said the former manager of the Palacio de Hacienda during the last term of office. Cristina Kirchner.

In recent months, Argentina has gained the support of European leaders to reach this stage of the year with the possibility of avoiding paying to the Paris Club. In the first place it was Martín Guzmán with a tour of Europe and soon after by Alberto Fernández himself, who had a stint Spain, Portugal, Italy and France. 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%).

For the moment, from Washington and Olivos, they deny the possibility of a visit by Monetary Fund staff to Buenos Aires throughout that 60-day window before the Paris Club default.

Either way, the arrival of some kind of nod that the government needs is expected., for example, through a communiqué with the explicit support of Washington for the renegotiation which prepares the ground for a declaration of consensus between the members of the Paris Club which formalizes the change of conditions towards Argentina.

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

In the event that the government reached July 30 without this support, to avoid default, it would have no choice but to pay. In the event of payment of this sum, Central Bank reserves would take a hard hit. A few weeks ago, from one of the most important official offices of the economic team, they estimated that a demand of this magnitude would put the monetary cushion of the monetary entity in an “extreme” situation.

In addition, couldn’t wait until August to count on the additional $ 4.3 billion the IMF will send to the country as part of the distribution of Special Drawing Rights (SDRs) among its member countries.

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