Argentina has been trying to postpone a US $2.4 billion payment due at the end of May. Two months after the deadline, the country would be defaulting. A race against time has started.
Argentina was supposed to pay a credit of $2.4 billion dollars on May 31st to the Paris Club. If it doesn’t pay, it is granted a 2‑month delay with a 9% annual interest rate to comply with its obligations. After the delay, the country would default on its creditors again.
President Alberto Fernández says he eventually wants to pay but he asked Martín Guzmán, Argentine Finance Minister, to negotiate a truce with the Paris Club. The Paris Club is a financial group that gathers all the major state creditors in the world. It was created in 1956 as a wish for Argentina to speak directly with the main public financiers at once rather than going to each and every one of the states.
Germany and Japan have more than half of the bonds Argentina owes to the Paris Club. As the agreement with the Paris Club is a consensus, all 22 members need to agree on the solutions. As such, Alberto Fernández has been in Europe meeting with Portuguese, Spanish, Italian and French executives. He also talked with Angela Merkel, the German chancellor on a video call. Trust in Argentina’s willingness to meet its obligation is in fact a key element of the agreement.
Payment to the Paris Club delayed several times
This payment is the last deadline for the debt restructure negotiated in 2014 when Cristina Kirchner was President. In May 2019, under President Mauricio Macri, Argentina defaulted by providing half of the $3.8 billion to reimburse and was submitted to the negotiated 9% penalty interest rate. Since he took office, Alberto Fernández has been trying to revisit the $115 billion the country owes. In May 2020, he succeeded in delaying payment to the Paris Club for a year, while he was negotiating with the private creditors, and avoided the interest rate. But now comes the time to pay the debt, and Argentina enters into the 2‑month respite before defaulting and having the interest rate retroactively applied.
Mr. Guzmàn asked the board of the Paris Club for the due date to be postponed, which would, as a consequence, at least avoid the increased interest rate for the next two months. But according to the President, the Paris Club wants Argentina to seal a deal with the International Monetary Fund first.
And negotiations with the IMF are slow. The agency borrowed $45 billion under the previous presidency, the largest bond in the history of the IMF. To restructure the debt, the IMF usually requires some economic reforms. Envoys were supposed to come to Argentina in June, which is unlikely, per the President. He thinks there can’t be an agreement before the Argentine mid-term legislative elections, due to be held in October after being postponed from August because of COVID-19. After the election, half of the seats in the Chamber of Deputies and a third of the Senate seats will be renewed. The current government is expected to lose some of them.
