Argentina Avoids Default for Now

Argentina announced it would pay $430 million US of the $2.4 billion it owes to the Paris Club within the next 8 months. The country avoids defaulting payment, for now.

On June 22, the Argentine government announced it would pay $430 million to pay off a part of its debt to the 22 countries of the Paris Club – mainly Germany (37%) and Japan (22%). The sum will be paid in several traits until March 31, 2022.

The country has then been able to reschedule its payment terms and avoid defaulting payment. The Minister of Economy Martín Guzmán estimated that paying in May the $2.4 billion that the country owed would have hit the country’s international reserves, spurred depreciation and sparked even more economic instability as it already suffers from rampant inflation.

Alberto Fernández with Angela Merkel on a video call on May 26, 2021
Alberto Fernández with Angela Merkel on a video call to discuss and pandemic and the debt negotiations with the IMF and the Paris Club, on May 26, 2021

Payment to the Paris Club delayed several times

Argentina had until May 31 to pay the debt it contracted. It was not able to honor it. The country had a 60-day grace period, until the end of July, before being considered in default.

Moreover, Argentina would have been imposed a retroactive penalty interest rate amounting to another $2 billion, as it had already postponed the payment in the last two years. In May 2019, Argentina, under Mauricio Macri’s presidency, reimbursed only $1.9 billion of the $3.8 billion it was supposed to pay. It resulted in a 9% penalty rate on the remaining $1.9 billion. But on May 2020, president Alberto Fernández negotiated to pay only in May 2021. Which he didn’t.

However, the agreement still means that $2 billion will remain to be paid to the Paris Club after April 2022. But the schedule gives time for Argentina to negotiate a more permanent restructuring of the debt. In fact, Argentina is now going to renegotiate a restructure of the $45 billion debt it contracted with the IMF.

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