Argentina set for private investment growth with Paris Club deal
Agreement with group of creditor countries over $9.7bn of arrears clears path for finance to the real economy
Argentina’s historic agreement to clear its $9.7bn
in debt with the Paris Club of creditor nations opens the way
to greater private sector investment, economists said on
|| Source: Telping
Under the deal announced on Thursday morning, Argentina will
clear the arrears over the next five years. It starts with a
$650m payment in July, plus interest, followed by a further
$500m in May next year.
Economists hailed the announcement as positive, saying it
showed the country was serious about resolving the debt
restructuring following its 2001/2002 default.
"It’s great news," said Alberto Bernal, head of
research at Bulltick Capital. "The most important part is that
it will open the door to real sector investment."
Companies from Paris Club countries will now find it easier
to extend credit to Argentina, and the energy sector could
particularly benefit, said Bernal.
"It was very difficult to get official financing from Europe
having Paris Club negotiations pending," said Gustavo Canonero,
chief emerging markets economist at Deutsche Bank.
The Argentine finance ministry said the plan cut the cost of
the debt, which was previously around 7% a year. The plan gives
Argentina the option to extend the repayment schedule by a
further two years.
Unlike other Paris Club negotiations, Argentina has
essentially agreed to pay the debt in full, said Canonero.
"Argentina is not demanding anything in exchange," he said.
"It’s not a typical Paris Club resolution."
Argentina is still at risk of technical default, depending
on the outcome of a US Supreme Court case with bondholders who
rejected the country’s offers to restructure bonds
on which it defaulted in 2002. Markets are not paying enough
attention to these risks, says Siobhan Morden, head of LatAm
strategy at Jefferies.
"There has been goodwill to normalize official creditor
relations, but this has not translated to the holdouts of the
defaulted bonds," Morden said in a research note published on
Wednesday. "The markets have ignored the legal risks on the
strategy of administrative delays to overturn the pari passu
case at the Supreme Court."
That risk remains factored into Fitch’s CC
rating on Argentina’s foreign currency
obligations. The agency’s B- rating, with negative
outlook, on Argentina’s local currency debt is
"perhaps a better reflection of the country’s
fundamental risk, absent the US court risk" Shelly Shetty, head
of LatAm sovereigns at Fitch Ratings, told LatinFinance.
"While the Paris Club announcement is a step in the right
direction, we would look to see evidence of improvements in the
country’s fiscal and external financing
constraints, and improvements in policymaking," she said. "And
we still remain focused on the trajectory of the