Tango Nuevo
Argentina to Pay Back “Vulture” Creditors

Tell the world’s bankers to open the door: Argentina wants to come back in from the cold. The Financial Times reports:

In a bid to end a bitter legal dispute that has effectively barred the country from international capital markets since 2001, Alfonso Prat-Gay, finance minister, told a panel [at Davos] that Argentina would honour the face value of debts owed to the US hedge fund holdouts while seeking to negotiate the costs of accumulated interest.

“We want to put an offer on the table,” Mr Prat-Gay said, adding that Argentina was offering 120 cents on each dollar owed.

The problem, he said was that the creditors, including Elliott Management, were asking for 350 cents on the dollar, which had spiralled due to accumulated interest payments over the past decade on certain loans.

In this context, a mediator from the U.S. will coordinate a February sit-down with the Argentina and the country’s creditors—and that’s not all the U.S. is doing. Reuters:

The United States is ending its policy of opposing most lending to Argentina from multilateral development banks, the U.S. Treasury Department said on Thursday.

U.S. Treasury Secretary Jack Lew informed Argentine Finance Minister Alfonso Prat-Gay of the move on Thursday when the two met in Davos, Switzerland, the department said in a statement. It said the United States will consider each Argentinian project on its own merits.

This is going to be a painful deal for Argentina. In addition to the around $30 billion owed to restructured creditors (who swallowed a haircut of around 30 cents on the dollar), the Argentines owe around $1.7 billion to the holdouts—a substantial combined burden considering that Argentine currency reserves are currently floating around $30 billion. And it is currently illegal in Argentina—where the Peronist opposition still controls Congress—to pay the holdout creditors more than the bondholders who accepted restructuring. But the presence of a key Peronist leader in Davos with Macri suggests that the frustration with Argentina’s lack of access to international capital may carry the day.

More problematic: it’s a tough time in the world economy, with commodity prices down, the China bubble still deflating, and Brazil, a major Argentine trading partner, in trouble. Then there’s the mess that the outgoing Fernandez de Kirchner Administration left Macri. A mysterious fire at the Argentine Finance Ministry—at least the fifth such “mysterious” conflagration (often deadly) at a government finance center—conveniently destroyed years of records days after CFK found out her party had lost power. And the fire is not a bad metaphor for what she did to the country’s finances, either.

So Macri has a lot of rebuilding to do. This is a major, painful, and necessary step in the right direction, and good access to international finance will help them ease the pain. The U.S. should be on the lookout to do all we can to help.

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