Argentina set to avoid messy default

Argentina defused fears of a messy default after it gained backing from creditors, allowing it to exchange 99% of the bonds involved in a $65bn restructuring, news wires reported. The deal could set a precedent for future sovereign crises.

After months of winding and tense negotiations, framed by the coronavirus pandemic, bondholders tendered 93.55% of the eligible bonds in the exchange, Economy Minister Martin Guzman said at a news conference on Monday. “In recent days we have worked on the conditions of an offer that gained massive acceptance by our creditors as a result of the dialogue process in past months,” he pointed out.

According to Guzman, Argentina now needed to turn attention to sealing a new programme with the International Monetary Fund to replace a defunct $57bn facility agreed in 2018, as well as tackling provincial debt amid various smaller regional re-structurings. He said the government planned to send a 2021 budget bill to Congress in mid-September, which would include a forecast for a primary fiscal deficit next year of around 4.5%. A new deal with the IMF is unlikely before March next year.

The deal is a good news for Argentina, as it looks to escape from its ninth sovereign default and revive an economy in its third year of recession and expected to contract around 12.5% this year. Centre-left President Alberto Fernandez, who took power in December, said Argentina had been in a “labyrinth” of debt that had now been solved.

The government said the deal and a separate restructuring of local law dollar debt combined would bring financial relief of $37.7bn over the 2020-2030 period, and help cut average interest payments on foreign law bonds to 3% from 7%. “Now there are other challenges, the first of which is to reactivate the domestic market,” Fernandez said at the Casa Rosada presidential palace.

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