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Business

Argentine Lawmakers Seen Favoring Deal With Holdout Creditors

Agreement would enable Macri to tap global bond market

Argentine President Macri gestures during a news conference at the Casa Rosada Government House in Buenos Aires
2 years ago

BY HUGH BRONSTEIN

AND GABRIEL BURIN

Reuters

BUENOS AIRES — Argentina’s Congress is likely to repeal two laws that have blocked it from settling a court suit that has hobbled the country’s finances, a key lawmaker and analysts said Monday.

A settlement would allow Argentina’s new president to tap the global bond market and jump start the economy without imposing the kind of shock spending cuts that have gotten previous Argentine leaders thrown out of office.

President Mauricio Macri won office in November on a free-markets platform following eight years of free-spending populism under Cristina Fernández, who refused to negotiate with hedge funds suing the country over its defaulted bonds.

The U.S. judge hearing the case on Friday signaled his willingness to lift injunctions that he had placed on debt payments if Congress repeals laws that allow Argentine bond payments to be processed in Buenos Aires rather than New York and also prohibit the government from offering better terms than those included in Argentina’s 2005 and 2010 debt restructurings.

The funds have been in negotiations with the Macri administration in recent weeks in New York to resolve the years-long dispute. Friday’s ruling robbed the funds of leverage in those talks by throwing the injunction into question.

“I think we are going to have the numbers we need (to repeal the laws),” Nicolas Massot, the head of Macri’s PRO party in the lower house, told local radio.

Analysts agreed Macri can probably corral the necessary votes in the lower house by appealing to moderate members of the opposition Peronist party, which has been leaderless since previous President Cristina Fernández left office in December.

Provincial governors are expected to lobby the Senate to repeal the two laws in order to improve the country’s finances and free up money needed for roads and other local projects.

“Factional struggles within Peronism and the provinces’ critical financial situation should help Macri to get both laws repealed by Congress,” said Ignacio Labaqui, who analyses Argentina for New York consultancy Medley Global Advisors.

The country has been locked out of the global bond market since it defaulted on its sovereign debt in 2002. About 93 percent of creditors accepted around 30 cents on the dollar in restructurings carried out in 2005 and 2010.

But a group of “holdout” hedge funds went to the courts asking for full repayment. In 2014 they convinced a U.S. federal judge to prohibit Argentina from honoring its restructured bonds until a settlement was reached.

The judge on the case said on Friday it would serve the public interest to lift that injunction, provided that Argentina repeals the two laws and pays creditors who agree by Feb. 29 to settle.

Argentina’s Congress reconvenes March 1.

Jimena Blanco, an analyst with Verisk Maplecroft in the U.K., agreed that Macri should be able to cobble together the votes needed to clinch the repeals.

“Settling with the holdouts is the only way the government can continue applying a gradual economic adjustment,” Blanco added. “Without external financing, the only option would be a shock treatment. Macri will try to avoid this by all means possible.”

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