MercoPress. South Atlantic News Agency

Paris Club group lays out terms for Argentina to repay defaulted debt

According to the creditors club Argentina’s debt is roughly 9 billion dollars

Members of the Paris Club group of creditors want Argentina to repay an estimated 9 billion dollars in defaulted debt within three years and to make a big initial payment, Buenos Aires newspaper La Nacion reported over the weekend.

Argentine officials have been negotiating a repayment plan with the Paris Club over the outstanding debt, one of the last remnants of Argentina's 100 billion dollars debt default in 2002.

They have said repeatedly that they are optimistic about reaching a repayment deal, which is seen as a key step in Argentine efforts to clear up lingering fallout from the 2001/02 economic crisis and pave the way for a return to credit markets.

But the report from La Nacion quoting diplomatic sources says that there had “not yet been progress” toward an agreement on the payment conditions. The sources said the Paris Club wanted the debt repaid within three years.

The newspaper also said a large initial payment would be needed for creditors to reopen credit lines for the purchase of capital goods and medium-term investments in Argentina.

Early this year, Buenos Aires media said that in exchange for agreeing to a higher payment, Argentina would try to extend the repayment period to five or six years from the 18 months the creditors initially requested.

In a routine filing to the US Securities and Exchange Commission (SEC) late last month, Argentine put the total Paris Club debt at 8.9 billion dollars.

Argentina's government plans to use central bank reserves to service its debts for a third consecutive year in 2012, but economic analysts say reserves alone will not be enough to cover an estimated financing gap of up to 9 billion.

The gap would widen still further if the government seals a deal to repay the Paris Club debt.

President Cristina Fernandez said late last year that Argentina had persuaded the Paris Club to negotiate a deal without the usual oversight from the International Monetary Fund.

However since then Argentina faces a further hurdle which is Washington’s annoyance with the fact that the Cristina Fernandez administration has not paid compensation to US companies taken over in Argentina, in spite of favourable rulings from the World Bank tribunal on investment disputes.

In effect the US voted, in the World Bank and in the Inter American Development bank, against granting loans to Argentina and anticipated this will be official policy until Buenos Aires complies with the rulings.

The US is also a member of Paris Club creditor nations and in the past has had a supportive attitude towards Argentina. This apparently will no longer be the case.