Argentina cancels its debt with Paris Club

This week’s big news in Argentina was the government’s decision to pay back its debt to the Paris Club, whose 19 members include Japan, Germany, the Netherlands, Italy, Spain and the United States.

President Cristina Kirchner made the announcement on Tuesday, September 2, to much applause from loyal party members and Argentine empresarios. The debt amounts to $6,706 billion US dollars and will be paid ahead of deadlines in an effort to boost the country’s weakening credit rating and encourage much-needed foreign investment. Many rating agencies have lately sounded worried about Argentina’s ability to make its debt repayments next year, with government spending high.

The debt will be repaid out of central bank reserves, which drew criticism from some government opponents who say the reserves shouldn’t be touched. Others say the real reason the payment is being made is to avoid an IMF visit to Buenos Aires to evaluate the country’s finances – a precondition of any renegotiation of the Paris Club debt. There’s very little affection for the IMF in Argentina, with many people blaming it at least in part for Argentina’s 2001 economic crisis, so paying back this debt and denying the IMF its fact-finding mission plays well with Argentines whose pride is still wounded by the country’s dismal fall.

The unexpected move was largely welcomed as a positive first step towards normalising relations between Argentina and its lenders. But until Argentina pays back all those bold holders who lost out in the 2001 default, its access to international capital markets remains blocked, forcing it to rely on friends like Hugo Chavez, who recently bought expensive Argentine bonds at 15%.

Click here for the Wall St Journal’s story, along with one of those weird WSJ sketched portraits that look nothing like the actual person.

[Cristina Kirchner]

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3 Responses

  1. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  2. […] the day. With the announcement on September 2 that Argentina would pay off its 6.7-billion-dollar debt to the Paris Club of international creditors, the government hopes to open Argentina up to foreign credit. But many […]

  3. […] of this throws in doubt the capacity of Argentina to make good on bold plans to pay its debt to the Paris Club and to strike a deal with those still holding Argentine bonds that were subject to the […]

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