NEW YORK, USA – Argentina's new market-friendly government has ended a bitter 15-year battle with creditors led by a US billionaire, opening the door for the South American country to escape financial pariah status.
Court-appointed mediator Daniel Pollack said in New York Monday, February 29, that a deal in principle was struck for Buenos Aires "to settle all claims" with a payment of $4.65 billion to NML Capital, Aurelius Capital Management and two other hedge fund creditors holding long-defaulted bonds.
Pollack told journalists that the funds must be handed over in cash: "green US dollars."
The deal made good on a promise by President Mauricio Macri, who took office in December, to reverse his predecessor Cristina Kirchner's refusal to bargain with what she called "vultures" feasting on the debt-ridden country.
An IMF spokesperson said the organization was "very encouraged" by the agreement, calling it an "important step towards allowing Argentina to return to financial markets and restore its financial position."
A US Treasury Department spokesperson added: "Resolution of this longstanding dispute is a positive development for the entire global financial system... We look forward to full implementation of the agreement, which should help Argentina return to the international capital markets and promote strong and sustainable growth."
The announcement came on the eve of a court hearing Tuesday, March 1, in New York where an injunction effectively blocking Argentina's access to new loans while the dispute lingered is expected to be lifted – another step in the financial rehabilitation of Latin America's third biggest economy.
"It gives me greatest pleasure to announce that the 15-year pitched battle between the Republic of Argentina and (NML owner) Elliott Management, led by Paul E. Singer, is now well on its way to being resolved," Pollack said in a statement, calling Macri's turnaround "heroic."
A spokesman for Elliott, who led the creditors, confirmed, saying: "We are pleased to have reached an agreement with Argentina."
The conflict dates back to 2001 when Argentina defaulted on nearly $100 billion in debt. Nearly all the country's creditors eventually accepted to write off 70% of their bonds in a restructuring that was meant to allow the country to get back on its feet.
But 7% of the creditors refused. Elliott, head of a New York hedge fund which bought up debt after the default, sued together with Aurelius for full payment on the face value of the bonds.
In the compromise announced Monday, Argentina has now agreed to pay the funds 75% of what they wanted, including principal and interest and some legal fees and expenses, according to Pollack.
End of default nightmare
The breakthrough could lead to Argentina regaining its financial footing, both with a reopening of access to international creditors and attracting foreign investors.
"I think that we need call an end to the default with these steps, which are part of the plan for normalization," said Nicolas Dujovne, who heads an economics consultancy in Buenos Aires. "That's necessary so that the Argentine economy can return to functioning well."
Some questions remain.
On the broadest level, the case has raised concerns that creditors in future defaults might be encouraged to take similarly uncompromising positions, undermining the ability to rescue financially stressed governments.
And for Argentina, repaying the hedge funds means taking a sizable chunk out of its foreign reserves. Payment needs to come by April 14, Pollack said, or the whole deal is "terminated."
The government – struggling to escape the stigma of a "Caa1" deep junk credit rating from Moody's – says it plans to issue new debt to clear out the old debt.
That would become feasible provided the New York federal court lifts its 2012 injunction which was slapped on Argentina in response to the refusal to deal with the creditors.
And Pollack said the creditors had agreed in the new deal not to interfere with Argentina's bid to raise capital.
"It is hoped by the parties that all necessary steps can be taken in a period of six weeks," he said.
Finally, the fate of the deal could rest on Argentine domestic politics.
Macri, who has sought to draw a distinct line under the policies of his leftist predecessor, still needs to get approval from the opposition-dominated Congress. Juan Pablo Ronderos, from the Abeceb.com economics consultancy, said he expected Macri to get enough votes.
Pollack lauded Macri for resolving what once seemed an intractable impasse.
"Immediately upon his election in November, (he) set about to change the negative course that the Republic had steered in this litigation," Pollack said.
He also praised Singer – a billionaire who has built a fortune by buying up defaulted and deeply discounted sovereign debt and suing the issuers – for his personal involvement in the final talks, calling him "a tough but fair negotiator."
"No party to a settlement gets everything it seeks," Pollack said.
"A settlement is, by definition, a compromise and, fortunately, both sides to this epic dispute finally saw the need to compromise, and have done so." – Mariano Andrade, AFP / Rappler.com