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Argentina settles creditor dispute with £3.3bn deal Argentina settles creditor dispute with $4.6bn deal after marathon negotiation
(about 3 hours later)
Argentina has reached a $4.65bn (£3.3bn) agreement to settle a dispute with creditors, a move that could help to revive its economy. Argentina’s new president, Mauricio Macri, struck a $4.65bn agreement with the US creditors on Monday, ending a 15-year debt dispute between Argentina and a number of holdouts led by US billionaire financier Paul Singer.
The country has been in dispute with holdout creditors, led by US hedge fund Elliott Management, who are demanding to be paid in full on debt that Argentina defaulted on in 2001.
The deal, agreed by a US court-appointed mediator, will see the holdout group take a 25% haircut on their claims.
“This is a giant step forward in this long-running litigation, but not the final step,” said the mediator, Daniel Pollack.
A final settlement would open financing options to Argentina’s new president, Mauricio Macri, as he tries to improve the country’s dire fiscal situation without imposing the kind of sharp spending cuts that have seen previous Argentinian leaders removed from office.
Related: Argentina's former president suspected of role in peso inflation schemeRelated: Argentina's former president suspected of role in peso inflation scheme
Macri was elected in November promising free-market policies after eight years of protectionism under Cristina Fernández de Kirchner, who refused to negotiate with hedge funds suing the country over its defaulted bonds. The settlement was mediated by US attorney Daniel Pollack, appointed by New York judge Thomas Griesa to find a solution to legal action brought by investors who refused to settle their losses after the country’s disastrous 2001 foreign debt default.
The holdouts rejected two previous restructurings in 2005 and 2010 that paid out roughly 30 cents on the dollar. The deal was made possible by a “course-correction for Argentina that was nothing short of heroic”, said Pollack. It came after a marathon weekend negotiation between Argentinian officials and the holdouts that lasted up to midnight both Saturday and Sunday.
On Tuesday Macri will preside over the opening of the 2016 congressional session. In his speech to politicians he is expected to stress the need for Congress to approve a set of bills clearing the way for a deal. The mediator was referring to the hardened refusal by Argentina’s previous president, Cristina Fernández de Kirchner, to pay the holdouts, despite a 2012 ruling by Griesa in favour of bondholders.
The holdout creditors are likely to be paid from the proceeds of a large government bond offering. Former president Fernández, who stepped down last December, called the holdouts “vultures” and “financial terrorists” during previous rounds of negotiations also mediated by Pollack, sending the country into technical default in July 2014.
Argentina offered a pot of money, $6.5bn, to settle the claims filed in the US courts that amounted to about $9bn. Following Argentina’s dramatic economic collapse in 2001, when the country defaulted on its giant $82bn foreign debt, the largest default in world history until that date, Argentina reached an agreement with 93% of its creditors for a “haircut” on the money owed them.
But Singer and other holdouts took Argentina to court in the US demanding full repayment, obtaining a favourable ruling from Griesa in a ruling confirmed by the US supreme court in 2014.
The agreement between Argentina and its holdout creditors still needs to be approved by Argentina’s congress before it is finally clinched. The Argentinian president must first ask congress to overturn two laws that prevent payments to the holdouts.
One law passed in 2005 prevents Argentina from paying the holdouts more than it paid the original creditors who took the “haircut”, while the other law, passed by Fernández in 2014 at the height of her verbal and legal war with the “vultures”, prevents Argentina from making payments outside the Argentinian financial system.
Observers believe congress will overturn both laws during March, paving the way for Argentina to settle its outstanding debt before the 14 April deadline set in the agreement.
Although Macri does not hold a majority in either house of congress his administration has been seeking alliances to smooth overturning the two laws.
If approved, the deal will be a major win for Macri. It opens the door to badly needed international credit to beef up Argentina’s central bank reserves, which are estimated to be precariously low, and smooths the path for international investment, which had fallen during the economically tumultuous Fernández administration.
Argentina’s economy minister, Alfonso Prat-Gay, has already announced the country will emit $15bn in bonds to meet the payment to the holdouts.