BUENOS AIRES, Argentina – Argentina and a group of U.S. holdout creditors announced a deal on Monday in a longstanding debt standoff, potentially breaking an impasse that has kept the South American country on the margins of international credit markets and led to a rewriting of the terms of debt issuance and negotiations worldwide.
The deal is a boost for President Mauricio Macri, who assumed power in December after campaigning on promises to modernize South America’s second-largest economy by solving the dispute and attracting foreign investment.
“It gives me greatest pleasure to announce that the 15-year pitched battle between the Republic of Argentina and Elliott Management, led by Paul E. Singer, is now well on its way to being resolved,” arbiter Daniel A. Pollack said in a statement.
The agreement still must be approved by Argentina’s Congress, which would also need to revoke two laws that effectively ban such settlements. The “Lock Law” prevents Argentina from offering one group of creditors a better deal than others and the “Sovereign Payment Law,” passed in 2014, allowed Argentina to pay creditors with renegotiated debt in the face of a New York court order not to do so.
The 2014 law was passed at the behest of former President Cristina Fernandez, who refused to negotiate with groups she called “vultures,” casting the fight as an American court trying to bully a sovereign nation.
Under the deal, Argentina would pay $4.653 billion to resolve all related claims, including those from Singer’s group in New York and other creditors around the world. The agreement would pay the funds managed by Elliot, Aurelius Capital, Davidson Kempner and Bracebridge Capital about 75 per cent of their full judgments, according to the statement.
Speaking to reporters in New York, Pollack declined to provide more specifics agreement. He said April 14 is the deadline to finish the deal, but added that it could be extended if both sides agree. He described grueling negotiations in recent months, joking that it “felt like a thousand years to me.”
The deal “closes a chapter by putting an end to the debt default saga which limited Argentina’s access to international capital markets,” said Alberto Ramos, chief Latin America economist for Goldman Sachs, predicting that it would also lead to an influx of investment in Argentina.
The debt conflict goes back to Argentina’s 2001-2002 financial collapse, when it defaulted on $100 billion in debt. Most creditors renegotiated in 2005 and 2010 bond swaps. But a group of creditors led by billionaire hedge fund manager Singer refused and took Argentina to court in New York, under whose laws the debt was issued, and won.
New York federal court Judge Thomas Griesa has repeatedly ruled against Argentina, saying the country had to pay the holdouts before it could pay other creditors with renegotiated debt. Those rulings have kept Argentina from accessing international credit markets, forcing it to issue domestic bonds to raise funds and search for backdoor financing from countries like China.
The long, costly fight led to changes in how debt is issued worldwide. Many countries have restructured contracts in attempts to avoid getting into similar situation.
While Macri has good relations with many members of Congress, passage of the deal is not a given. Fernandez’s Peronist Party maintains a majority in the Senate and the largest bloc in the lower house.
However, the Peronists have been fractured since Fernandez’s chosen candidate, Daniel Scioli, lost the election to Macri in November. And business leaders across sectors along with governors in the provinces have joined the federal government in arguing that the country desperately needs foreign investment.
Associated Press writers Luis Andres Henao in Santiago, Chile, and Joseph Pisani in New York contributed to this report.
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