MercoPress. South Atlantic News Agency

Argentina/Paris Club debt negotiations have a deadline: April 2011

By then Argentina could be exposed to sanctions warns IMF chief Dominique Strauss-Khan

Finance Secretary Hernán Lorenzino said Argentina wants to successfully conclude negotiations with the Paris Club Group of creditor nations involving 6.7 to 8 billion US dollars in defaulted debt before April.

Lorenzino added that Economy Minister Amado Boudou “will seek to agree on a negotiating road map with the Paris Club in the first half of December.”

According to Lorenzino, a resolution of the debt with the Paris Club, which includes Germany, Japan and the US among 19 developed countries, would remove a 'main obstacle' to investment by companies in Argentina’s energy and infrastructure.

However the agreement with the Paris Club must be reached before April 16, 2011, when the IMF holds its autumn meeting and the multilateral organization is scheduled to debate the Argentine case and its refusal to comply with Article IV consultations, which are conducted annually in each of the Fund's 186 member countries.

Argentina has refused to submit its economic data since 2006, when former president Néstor Kirchner paid off the country's debt to the IMF. According to Dominique Strauss-Kahn, the IMF managing director, if Argentina fails to comply with the IMF periodic reviews by then, the organization could impose sanctions on the country, which could lose its membership in the Board of Governors, the IMF highest decision-making body.

Once negotiations with the Paris Club creditors begin and are agreed the Argentine Congress will then have to approve the accord.

Apparently negotiations are finally take off following a series of talks between Argentine president Cristina Fernandez and German chancellor Angela Merkel who explained the relevance of coming to terms with the group of creditor nations.

However another contentious point is IMF monitoring, which countries such as Germany, Holland, Switzerland, Italy and United Kingdom consider “essential”, whereas Spain, Japan and the United States encourage for this case, the possibility of leaving aside IMF intervention.

Those countries taking a conciliatory stand accept Argentina cancels its debt within a one-year time frame without the IMF monitoring. But Argentina seeks to repay its debt in two annual payments over a period of three to five years.

Another obstacle is that Paris Club decisions must be reached by consensus.

If Argentina finally reaches an agreement with the Paris Club it will have rebuilt relations with international money markets and could see a “flood” of capital inflow into crucial sectors of the economy.

The sovereign debt dispute with private bond holders pending from the 2001/02 default has been almost totally (92%) agreed.