Argentina's debt dispute: a step nearer resolution?

One of the key priorities of Argentina's new President, Mauricio Macri, has been to resolve Argentina's international debt dispute, currently embroiled in a long-running court case in New York, which would allow payment to Argentina's creditors and give Argentina access once more to the international credit markets. Macri has overturned former President Cristina de Kirchner's policy of refusing to negotiate with so-called 'vulture funds' and a judicial ruling by the presiding US judge, Thomas Griesa, on 19 February signals an important step forwards a final settlement.

Argentina defaulted on its US$100bn debt in 2001, resulting in its exclusion ever since from international finance markets. Most creditors accepted significantly reduced returns when the Government of Argentina (GoA) offered debt restructuring in 2001 and 2010 (of 30 cents on the US dollar). But some hedge funds, which had bought Argentine Government bonds at deflated post-default prices, demanded full repayment and were successful in persuading a US court in New York in 2012 to issue an injunction preventing the Argentine Government from paying out on defaulted bonds until all creditors had come to an agreement. Argentina appealed unsuccessfully to the US Supreme Court; President Cristina de Kirchner refused to concede; and laws were passed by the Argentine Congress preventing any agreement with the 'hold out' creditors that was better than the terms offered in previous restructuring. It was an unproductive stand-off that harmed Argentina's economy and Argentina's international reputation.

On his election, Macri made it clear that he was prepared to negotiate with the remaining creditors and sent a high powered team to New York to talk to the Court-appointed mediator, Daniel Pollack, in January. On 2 February, GoA struck a deal with a group of Italian bondholders; then offered to settle with remaining six hold-out organisations for $6.5bn against the $9bn claimed. Two settled for $1.1bn but the remaining four continued to press for full repayment.

In the light of this, Judge Griesa indicated on 19 February that he was prepared to lift the court injunctions preventing GoA from issuing new notes or paying off restructured debt provided that GoA repealed its own legislation (and subject to the approval of the US Federal Appeals Court). Repayment could then begin to all creditors who agreed to settle before 29 February 2016. Two of the remaining hold-out firms accused Judge Griesa of imposing 'an abrupt judicial ultimatum' on them to settle.

Argentina's Congress reconvenes in March. The signs are that the GoA will be able to get the necessary repealing legislation through the Chamber of Deputies, particularly as several members of Cristina de Kirchner's 'Front for Victory' (FPV) have left the party in disagreement over how to recover from their November electoral defeat. The FPV will now command only 83 seats out of the 257-seat Chamber of Deputies. But the FPV still commands the Argentine Senate which may make it difficult for Macri to push through the necessary legislative changes.

That said, the pressure is now on the remaining few 'hold-out' firms to settle – and if all is agreed (and there is now at least a realistic chance that it will), Argentina will no longer be the pariah of the international markets that it has been since 2001.