Argentina has lifted the last major barrier blocking its return to capital markets 15 years since it was shut out following the catastrophic debt default of 2001.
The country’s senate voted in the early hours of Thursday morning to repeal laws that prevented the government settling with holdout creditors who had used US courts to demand better terms than those offered by Buenos Aires in a 2005 restructuring deal.
Despite new President Mauricio Macri lacking a majority in the upper chamber his package of proposals to end the dispute was passed by 54-16 as governors from the opposition Peronist movement lobbied their senators to vote in favour in order to unlock new financing for their cash-strapped provincial administrations.
Default
“This is the definitive act which rubs out that decision in 2001 when [interim president] Adolfo Rodríguez Saá announced the default and everyone celebrated,” said finance minister Alfonso Prat-Gay.
Thursday’s vote now leaves the path clear for a resolution to the legal dispute between Argentina and the group of US hedge funds whose action in US courts prevented the country raising new debt despite over 90 per cent of creditors having accepted the 2005 restructuring deal which was reopened in 2010.
Former Peronist president Cristina Kirchner had made it a point of principle not to cave into the demands of what she denounced as “vulture” funds, who had snapped up Argentine bonds for pennies on the dollar and then demanded full repayment.
But the conservative Macri, sworn in as her successor in December, says the decade long stand-off had cost the country millions of jobs because government and businesses were starved of reasonably priced credit necessary to invest in infrastructure and new industrial capacity.
The new administration was desperate to resolve the dispute in order to tap the funds necessary to limit the social impact of a fiscal adjustment necessary to restore the precarious state of the public finances inherited from the outgoing administration. To do so it will pay the holdouts 75 cents on the dollar and cover their legal expenses.
The focus now switches back to the New York court hearing the case where a sitting on April 13th should decide if Argentina has done enough to end the dispute, despite not having reached agreement with some smaller holdouts.
Argentina is already planning an initial debt sale of up to $15 billion as soon as the legal dispute is settled in what could be the largest emerging market debt issuance in two decades. The money will be used to settle the bill with the holdouts and could be followed by up to another $15 billion in debt issuances this year alone to fund government spending and boost dangerously depleted foreign reserves.
