World Economy

Argentina in $6.5bn offer to debt holdouts

Benedict Mander in Buenos Aires

Argentina has offered to pay about $6.5bn in cash to US holdouts that refused debt restructurings after its 2001 default on $100bn, in an attempt to put an end to a decade-long legal dispute dubbed the "sovereign debt trial of the century".

Argentina's finance ministry said on Friday that an offer that implied a haircut of about 25 per cent on claims of about $9bn had been accepted by some of the "holdout" creditors, including Montreux Partners and Dart Management.

Argentine peso bills
Leo La Valle | AFP | Getty Images

If accepted by all the holdouts, which are led by US billionaire Paul Singer's Elliott Management, the deal will clear the way for Argentina's return to the international capital markets, providing a boost for the stagnant and inflation-wracked economy long starved of foreign investment.

"The proposal by Argentina is a historic breakthrough," said mediator Daniel Pollack. He said any deal would be subject to approval by Argentina's congress and the lifting of an injunction issued by New York judge Thomas Griesa.

Mr Pollack said four of the six leading holdouts had yet to reach an agreement, but that it was his "strong hope that, with continued negotiations, those firms, too, will be able to resolve their differences and reach Agreements in Principle with Argentina".

"The events of this week and today were an important step in resolving Argentina's debt crisis; more remains to be done," he added, referring to "intense but civil" negotiations between Argentina and the holdouts since Monday.

An agreement would represent a huge political victory for Mauricio Macri, Argentina's market-friendly president, who made putting an end to the dispute a key campaign promise in elections last year. Cristina Fernández, the former leftist president whose anointed successor Mr Macri narrowly defeated, had long refused to negotiate with what she called the "vulture funds".

It would also put an end to Argentina's second default this century, in 2014, after the holdouts' 2012 legal victory in New York prevented the country from continuing to service holders of restructured debt. It could also lead to upgrades by credit rating agencies and Argentina's inclusion in emerging market bond indices.

For Mr Macri, who attracted huge interest from investors at the World Economic Forum in Davos last month, solving the legal dispute is a key part of his economic reform programme, which included a 30 per cent devaluation in the overvalued peso in December after strict capital controls in place since 2011 were lifted. Last week, the centre-right government also began removing costly energy subsidies in an attempt to narrow a fiscal deficit that last year reached almost 8 per cent.

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Any agreement with the holdouts must be approved by Argentina's congress, where Mr Macri's Let's Change coalition became the largest minority this week after a faction splintered away from the divided Peronist movement that has dominated Argentine politics for the past 70 years. Despite his tough economic reform programme, Mr Macri, who was previously mayor of the city of Buenos Aires, enjoys approval ratings of 71 per cent after his first month in office, according to Poliarquia, a local pollster.

The announcement follows Argentina's agreement on Wednesday to pay $1.35bn to a separate group of Italian holdouts, which had initially demanded $2.5bn in payment on bonds with a principal value of $900m at the time of the 2001 default. Other holdout investors are still awaiting payment, with the total face value in 2001 of bonds held by holdouts worth more than $6bn. Accumulated interest means that the value of those claims was estimated at more than $20bn this year.