Argentina fails to pay the Paris Club, invokes 60-day grace period

RIO DE JANEIRO, BRAZIL – This Monday, May 31, Argentina failed to meet its obligation to pay the outstanding balance of principal and interest on financing from the so-called Paris Club under the terms of a refinancing agreement signed in 2014.

Argentina, which had already acknowledged in advance the impossibility to meet its debt commitments with the Paris Club and with the International Monetary Fund (IMF), decided to avail itself of the 60-day grace period provided in the 2014 agreement in case a debt is not settled on the maturity date.

After that time, if Argentina does not regularize its situation, the forum of 22 creditor countries may declare the South American nation in cessation of payments. Still, the government of Alberto Fernández hopes to avoid that extreme and to reach an agreement with the Paris Club beforehand, at least to postpone for a few more months the maturity.

“There is a grace period with respect to the payment. In the meantime, we will continue negotiating,” Argentine government sources said on Monday.

The Argentine government is also continuing the dialogue with the IMF with a view to a debt refinancing agreement for some US$45 billion, a negotiation that has become crucial for the future of a possible understanding with the Paris Club.

It so happens that the forum of creditor countries has among its conditions for granting some refinancing that the debtor country must have a financial program in force with the IMF.

Although the negotiations with the Fund seem to be developing in a “constructive” spirit, as stated by Fernández, it is not certain that a new extended facilities program with the Fund will be signed before the expiration of the 60-day grace period with the Paris Club.

However, the Argentine chief executive is counting on achieving, before this “window of time” closes, some sign of progress with the IMF, which in some way will serve as a guarantee to the creditor countries, so that they will agree to grant Argentina more time to regularize the payment of its debt.

To achieve this goal, President Fernández himself has launched a search for the support of world leaders, both in the negotiations with the IMF and in the negotiations with the Paris Club, a forum where decisions are taken by consensus.

Thus, Fernández, who visited Europe in May, obtained the support of the President of the Spanish Government Pedro Sánchez, the German Chancellor Angela Merkel, the President of France Emmanuel Macron, and the Italian Prime Minister Mario Draghi.

In addition, he met on May 14 in Rome with the managing director of the Fund, Kristalina Georgieva.

“After the negotiations of President Alberto Fernández and the Minister of Economy, Martín Guzmán, with their peers from the countries with the highest incidence in the Club, the government is still waiting for a signal from the IMF: a letter of recommendation that endorses the Argentine commitment to agree on a new program”, CMF bank said this Monday in a report.

Argentina’s main creditors in the Paris Club are Germany, Japan, Holland, Spain, and Italy.

The country, which last year restructured debts with private creditors for some 100 billion dollars, is dragging through three years of severe recession aggravated by the pandemic, and has fiscal and monetary problems, as well as a growing level of poverty.