Paris Club to Spare Argentina From $2.4 Billion Debt Default

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May 14 2021, 3:00 PMMay 14 2021, 5:08 PMMay 14 2021, 3:00 PMMay 14 2021, 5:08 PM

(Bloomberg) -- The group of rich government creditors known as the Paris Club is willing to delay a $2.4 billion debt payment from Argentina due this month if the nation meets certain conditions, potentially averting a damaging default, according to three people with direct knowledge of negotiations.

The club will spare Argentina from default if it misses the May 31 payment in the hope that the country can rework a $45 billion agreement with the International Monetary Fund, said one of the people, who asked not to be named because the talks are private. An agreement with the IMF may not come until after Argentina’s midterm elections in October, the person said, declining to specify the conditions that the group is demanding.

The Paris Club secretariat did not answers emails and phone calls seeking comment.

Argentinian President Alberto Fernandez has spent the week in Europe meeting leaders in France, Italy, Spain and Portugal to drum up support for a delay and his push to renegotiate with the IMF. Fernandez extended his European tour by a day to meet with IMF Managing Director Kristalina Georgieva on Friday, according to the Argentinian daily Clarin. Argentina has formally asked the Paris Club for more time to make the payment and is expecting to receive a response by the end of the month.

The deadline comes at a difficult time for the administration in Buenos Aires, with the country in its third year of recession, inflation approaching 50% and unemployment over 10%. While analysts’ estimates of its cash reserves vary, some calculations have put them near zero since September of 2020, limiting Argentina’s capacity to meet its international obligations.

In May 2014, Argentina reached a deal with the Paris Club to repay a $9.7 billion debt after 13 years in default. The debt was supposed to be repaid over a five-year period, but the country’s latest financial troubles delayed the final payments due this month. Creditors include the U.K., Italy, Spain and Canada.

A Paris Club rule known as a “conditionality principle” states that the group only negotiates debt restructuring with debtors that have “a demonstrated track record of implementing reforms under an IMF program,” according to the group’s website. Argentina ceased following guidelines from a program with the IMF after a change of administration in late 2019, and talks for a new plan have stalled.