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Argentina strikes eleventh-hour debt deal

August 4, 2020

Argentina has announced a deal with international creditors over the mountain of money it owes them. A restructuring of $66 billion in debt could allow the country to narrowly escape bankruptcy.

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People on a roof in Buenos Aires, Argentina
Image: picture-alliance/NurPhoto/C. Smiljan

Argentina's Economy Ministry on Tuesday announced it has struck a deal with creditors, allowing Buenos Aires to restructure its $66 billion (€56.2 billion) debt as well as guaranteeing debt relief. Negotiations had been at a deadlock after creditors such as the AdHocGroup Limited, Argentina Creditor Committee and the Exchange Bondholder Group united in opposition to Argentina's previous proposal last month.

A statement released by the Economy Ministry Tuesday read: "Today (we) have reached an agreement that will allow members of the creditor groups and such other holders to support Argentina's debt restructuring proposal and grant Argentina significant debt relief."

Read more: Argentina's debt restructuring deal explained

Tuesday's agreement came as the previous deadline, which had already been extended several times, was set to expire. Buenos Aires now says creditors have until August 24 to formally approve the deal.

Once in danger of collapsing altogether — an event Argentina claimed would cause it to default and send the once-wealthy country into state bankruptcy again — was only made possible after Argentina adjusted previous proposals that had proven unpalatable to creditors. 

Leveraging debt

Buenos Aires used its bankruptcy argument to leverage debt relief with creditors such as the international investment firms BlackRock, the Ashmore Group, and Fidelity Investments. Argentina has been in dire financial straits for two years now, with an economy in recession, high inflation, high unemployment and increasing poverty — and then the coronavirus pandemic hit.

In late May, Argentina missed a $503 million interest payment on its sovereign debt, causing it to default. Now, experts say Argentina's economy could contract by as much as 12% in 2020.

Read more: Argentina's unprecedented economic boom-to-bust history

Though there was no immediate confirmation of an agreement from creditors, news of the deal pushed the government's existing euro bonds up by as much as three cents on Tuesday, after previously rallying them on Monday in anticipation of a deal.

In the agreement, Buenos Aires will adjust some payment dates for its new bonds as outlined in an offer sent to creditors on July 6. The changes will not raise the overall amount of Argentina's principal or interest payments but officials in Buenos Aires say they enhance the proposal's value for creditors.

Argentina has also said that when the ink dries on the deal penned with private creditors, it will seek to secure new loans from the International Monetary Fund (IMF), with which it struck a deal in 2018 for a $57 billion dollar loan — the biggest in IMF history.

js/stb (AFP, dpa, Reuters)