Argentina Reaches Paris Club Debt Deal without IMF Intervention; Creditors Come Under Fire

May 30, 2014

Locked out of international capital markets since its 2001 default, Argentina cleared a major hurdle on Thursday when it reached an agreement with the Paris Club, a grouping of 19 major economies, to resume debt payments and clear outstanding arrears. The Paris Club issued a statement, noting that:

The scheme offers a framework for a sustainable and definitive solution to the question of arrears due by the Argentine Republic to Paris Club creditors, covering a total stock of arrears of USD 9.7 billion, as of 30 April 2014. It provides a flexible structure for clearance of arrears within five years including a minimum of USD 1150 million to be paid by May 2015, the following payment being due in May 2016.

Economy Minister Axel Kicillof, who led the negotiations for the Government of Argentina, told a local radio station that, “Argentina is continuing its path of regularizing and paying off the debt that 40 years of neoliberalism left us,” Reuters reported.

Long thought to be a lynchpin of any possible deal, Argentina secured the settlement without the involvement of the IMF. President Fernández told the press, “It is the first time that a country negotiates without the intervention of the International Monetary Fund (FMI), and without ceding our independence.”

Argentina’s 2001 default followed years of following IMF prescriptions, which only exacerbated the crisis. Argentina broke off relations with the IMF in early 2006, paying back all of its outstanding debt to the Fund in one move. In a statement following the current deal, Eric LeCompte, Executive Director of Jubilee USA, praised the lack of IMF involvement:

“Argentina negotiated an agreement that keeps the IMF out of Argentina… IMF austerity programs have wreaked havoc in both poor and wealthy countries.”

Business News Americas reported that the creditors agreed to exclude the IMF “in return for a larger down payment by Argentina.”

With the Paris Club settlement done, the final, and largest hurdle, to returning to capital markets is a solution to the vulture fund holdouts, which, unlike the other 93 percent of bondholders, did not accept the restructurings agreed upon with other creditors and have instead pursued full payment in U.S. courts. Jubilee USA noted:

Meanwhile, on May 27th the country filed its final arguments at the US Supreme Court in its dispute with hold-out creditors NML Capital and Aurelius Capital. These predatory hedge funds seek more than $1 billion in debt payments and refuse a deal that nearly 93% of Argentina’s creditors accepted after its default. The high court is expected to decide in June whether or not to take the case. Because of the case’s impacts on poor populations, global debt restructuring and poor country access to credit, Jubilee USA filed an amicus curiae brief to the Supreme Court.

But, unlike the 93 percent of creditors who accepted restructuring, the Paris Club will be paid in full. Tim Jones of the Jubilee Debt Campaign in the U.K. said:

It is unfair for the Paris Club countries to be demanding huge amounts more from Argentina than received by private lenders. Countries such as Japan, Germany and the UK lent money to previous Argentine governments recklessly. There is no reason why they should be paid in full.

Rich countries have condemned the profiteering of so-called vulture funds in debt crises around the world, but this is vulture-like behaviour from the Paris Club themselves. Trying to double their money from Argentina’s default after private lenders accepted a two-thirds write-down is extraordinary hypocrisy.

Jones goes on to point out that much of the debt that is being paid back to the Paris Club was actually lent to the military junta that ruled Argentina as well as other corrupt regimes:

The UK claims it is owed $119 million. Of this, Vince Cable’s UK Export Finance has admitted 38% of the debt comes from loans to the Argentine military junta in the 1970s to buy military equipment.

Jubilee USA notes that according to “Spain’s El Pais, two-thirds of the debt is rooted in previous Argentine dictatorships and corrupt regimes.”

“The Argentine people should not have to pay for dodgy deals between the UK government and the long gone military junta. UK funding for an oppressive military dictatorship was wrong, and Vince Cable should cancel the debt,” said Jones.

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