Argentina averts default in debt deal with Paris Club

Argentina has reached a deal to avoid another damaging default by delaying the bulk of a $2.4bn payment due to a group of wealthy countries by the end of July, economy minister Martín Guzmán said on Tuesday.

Argentina now has until the end of March to reach an agreement with the so-called Paris Club of 22 countries, which includes the US, Germany, Japan and France.

Guzmán said Argentina would pay just $430m in two instalments before then, the first by July 31, when the 60-day grace period for the $2.4bn payment originally due on May 30 ends. The agreement would effectively save the country $2bn over the next eight months, Guzmán said.

The deal will provide some breathing room for Argentina’s struggling economy, with foreign exchange reserves greatly depleted despite receiving a boost from booming commodity prices in recent months.

“Resolving the issue of our unsustainable debt is a fundamental pillar of the process of restoring stability to the economy,” Guzmán said at a press conference in Buenos Aires. He said it would also help ease annual inflation, which is running at almost 49 per cent.

The agreement with the Paris Club comes as negotiations have stalled over the repayment of the $45bn the IMF has lent Argentina since a 2018 currency crisis during the previous government of Mauricio Macri.

Local analysts say that talks with the IMF stalled due to political considerations, with midterm elections approaching in November, when the government will not want to be hamstrung by stiff budget cuts agreed with the multilateral lender.

Although Argentina had initially been expected to reach an agreement with the IMF as early as last year — shortly after a successful restructuring of some $65bn owed to private creditors — the absence of a deal containing a commitment to reduce the country’s bulging fiscal deficit had complicated talks with the Paris Club.

“Paying that amount would have been a blow to international reserves and generated more instability for the exchange rate and the macroeconomy in general,” said Guzmán, adding that a default would have destabilised the economy and caused greater uncertainty.

Guzmán clarified that the government would continue in “constructive” talks with the IMF, and that the March deadline with the Paris Club “by no means has anything to do with the objective of an agreement with the IMF. Our aim is to secure a good deal, the sooner the better, but the priority is that it is good.”

The 38-year-old minister added that another key element of the agreement with the Paris Club was that Argentina would treat its creditors equally, in order to soothe concerns in Japan that Argentina was paying its debts to China but not to the Paris Club.