Argentina-US debt deal charts faces hurdles despite bond offer

BUENOS AIRES : Argentina has claimed a breakthrough in efforts to get US hedge funds off its back by offering $6.5 billion of debt, but faces tricky maneuvers to settle the dispute for good.

The leaders of Latin America’s third-biggest economy said on Friday they had offered the sum to settle its long debt battle with “holdout” creditors suing it in a US court.

Two of six major holdout creditors have accepted the deal, which would impose a 25-percent loss on their investment. But four have not done so yet.

“The proposal is undoubtedly an historic moment for Argentina.” wrote an analyst at financial research group Capital Economics, Edward Glossop.

Edward Glossop said it is the first formal deal that the government has presented to the holdouts, and is a significant step in the government’s bid to return to global capital markets.”

That is the aim of Argentina’s new President Mauricio Macri, who took over last month from leftist leader Cristina Kirchner. She had refused to pay the hedge funds, branding them “vultures.” Creditors are demanding full repayment of about $9 billion on bonds the country defaulted on.

“This litigation has gone on for nearly 15 years since the original Argentine default of 2001, and the proposal by Argentina is an historic breakthrough.” said mediator Daniel Pollack.

Glossop warned, “There are still a number of hurdles to overcome in order for the government to return to global capital markets.”

The holdouts are a minority class of creditors that refused to go along with the restructuring of the country’s debt after it defaulted on about $100 billion.

They were led by two funds, NML Capital, a unit of Elliott Management, and Aurelius Capital Management. The funds which accepted the offer were Montreux Partners and Dart Management, according to the government. Glossop reckoned some of the holdouts may yet press for better terms. NML Capital was among those yet to respond to Macri’s offer.


– Political debt maneuvers –



Apart from winning over the other four funds to the deal, Macri must also gain approval in a congress dominated by his opponents.

Macri aims to build support so that he can launch reforms of existing laws governing the debt repayments when congress reconvenes in March. There were signs of openness among the opposition to work constructively in its relations with him.

“There is a sector that is planning to adopt confrontational policies, and another large majority sector that is planning to be serious and responsible in opposition, to guarantee governability.” said a prominent governor, Gustavo Bordet.

The United States voiced optimism that Argentina will be able to settle its long battle with the holdouts.

on the other hand, US Treasury Secretary Jacob Lew expressed “strong hope that all creditors will be able to resolve their differences and reach agreements in principle with Argentina.” a spokeswoman for his department

The offer came days after Macri’s government reached a deal to pay Italian bondholders $1.35 billion to settle their $2.5 billion in claims. Macri has promised to strengthen Argentina’s ties with foreign countries and investors after years of combative relations under Kirchner.

He has rolled back various protectionist policies of his predecessors, lifting currency and export controls and eliminating electricity subsidies. Macri says such measures are necessary to make the economy competitive. His critics warn they will hurt poorer Argentines.

Argentina’s inflation rate is forecast at up to 25 percent this year and economic growth at no more than 1.0 percent. “Restoring credit is fundamental for returning to growth,” said Finance Minister Alfonso Prat-Gay.


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