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Argentina breaks deadlock to restructure $65bn of debt

Tom Rees
Argentine flag
Argentine flag

Argentina has finally broken the deadlock in talks with international creditors and struck a deal to restructure its huge $65bn (£50bn) pile of sovereign debt.

The country’s bonds rallied after Argentina claimed the agreement with three creditor groups will provide “significant debt relief” following months of negotiations.

However, analysts warned the deal was just a sticking plaster for the country's perennial debt woes as talks continue with the International Monetary Fund (IMF).

The South American country suffered a ninth default in May, and needed to restructure its debt even before Covid-19 dealt its moribund economy another blow. The country was already struggling to cope with a deep recession, surging inflation and a collapse in the peso. 

Argentina will now have several years more breathing space before debts mature, and has also cut the interest rates it pays. But analysts warned the deal represents only a small haircut of 3pc on most of the bonds.

The government said the revised agreement includes new payment dates that improve the offer to creditors, which include BlackRock, Ashmore and Fidelity, but do not increase the amount owed.

It means the country will avoid being locked out of  international markets as it was for years following its default in 2001.

But analysts questioned whether it will be enough to stabilise Argentina's dire public finances, given another $44bn must be repaid to the IMF over the next four years.

Nikhil Sanghani, an economist at Capital Economics, said: “It is a positive in that it avoids this massive legal scrap that was a worry at one stage, and it could pave the way for a new IMF deal, but we don’t think this will be sustainable in the medium to long term.

"We suspect that the IMF will provide additional funding to Argentina in a repackaged agreement which also extends the current debt repayment schedule."

In February, the IMF told bondholders that Argentina’s debt mountain had become unsustainable and warned they would need to make a “meaningful contribution” to stabilise its public finances.

Several offer deadlines had passed without an agreement between the bondholders and the new leftist government before Tuesday's breakthrough.

Despite suffering a less serious virus outbreak than neighbouring Brazil, Argentina is still expected to lurch into a deep contraction this year.

Bank of America economist Sebastian Rondeau said that lockdown has hit the Argentine economy hard and warned of a 14pc plunge in GDP in 2020.

He said: “We expect a partial rebound in activity next year as the pandemic is likely to leave a long-lasting impact on the economy.”