After negotiating with the IMF, Guzmán travels to France to postpone the payment of the Paris Club debt: what proposal does he have and why he could move forward

After closing the agreement with the International Monetary Fund (IMF) and obtaining an extension until March 31 of the two capital payments that Argentina faced this week for USD 2.8 billion, the Minister of Economy, Martín Guzman, travels to France to advance negotiations to refinance the outstanding debt with the Paris Club.

According to the Palace of Finance, “the minister plans to meet tomorrow, Tuesday, with the president of the Paris Club, Emmanuel Moulin”.

Economía reported that “following the negotiations undertaken by Guzman, Argentina had reached a time bridge with the Paris Club in June last year until March 31, 2022. The understanding had avoided default and entailed financial relief for Argentina of $2 billion”, given that the agreement signed by Cristina Kirchner's last Minister of Economy, Axel Kicillof, was renegotiated.

Guzmán's preliminary proposal is to have a seven-year agreement, with a two-year grace period, with an interest rate of 1% in the first 24 months and then a 1.5% one, compared to the 9% that was triggered by the agreement signed with Kicillof in 2014 for not having an agreement with the IMF.

On Friday 25, the Board of Directors of the Fund will meet to discuss the technical agreement reached by the agency's staff with the Government and it is expected that, although there are complaints, it will be approved; there is no history of elevated agreements - and previously considered informally by the board - which will then be rejected in the plenary of the 24 directors who are meet regularly.

The validation of this agreement with the Fund is a necessary step for the Paris Club to accept a more extensive and lower rate refinancing.

Last June, Guzman announced: “We have reached an understanding with the Paris Club to obtain a time bridge that will allow us not to have to face a situation of default or default on July 31 of this year”, announced at the beginning of this week the Minister of Economy Martín Guzmán. He added that “in the 8-month period” he will face “a set of payments that will amount to about $430 million”, which “implies financial relief for Argentina of $2 billion between now and March 31.”

The annex to the decree, with the list of creditor government agencies, specifies that the second installment would be paid on February 28, 2022, that is, one month before the deadline established to reach a definitive agreement on the form and deadlines of payment of the balance due.

Alberto Fernández, Guzmán and the rest of the ministers signed the Decree which provides, “within the framework of the understanding reached with the Paris Club, the deferral of payments of debts incurred under the Bilateral Agreements signed with the Paris Club nucleated countries, with the exception of those reached by article 2 until the Ministry of Economy determines its resumption by virtue of the progress of negotiations with these countries, or as a result of the definition of the new framework agreement reached, or until 31 March 2022, whichever comes first”. The countries referred to in Article 2, which were authorized to make partial payments of debt services are: Germany, France, United States, Belgium, Denmark, Austria, Canada, Israel, Italy, Japan, Spain, Sweden, Switzerland, the United Kingdom and the Netherlands.

Argentina passed May 31 as the last payment date to that consortium of nations and a 60-day window was opened until the end of July. After this grace period, the member countries could declare the Argentine State in default on its debt.

More than half of Argentina's debt to the Paris Club is concentrated in two countries: Germany (37%) and Japan (22%). Further behind are the Netherlands (almost 8%), Spain (6.68%), Italy (6.29%) and the United States (6.28%).

The annex provides a better understanding of what types of debt are negotiated within the framework of the Paris Club. The list includes debts to government agencies, such as Delcredere Ducroire, an official credit institution in Belgium, or the Export Development Bank of Canada, the Export Credit Fund (Eksport Kredit Fonden) of Denmark, the Bank of France, the French country's foreign trade insurance agency (Compagnie Francaise D'Assurance pour le Commerce Exterieur, Coface), the insurer Euler Hermes, from Germany, which is, by country, the largest Argentine creditor within the framework of the Club. There are also four unpaid loans with agencies in Italy (two in euros and two in dollars), with the EximBank of Japan and the US and debts whose creditors are directly - as written in the Annex - the “Governments” of Spain and Israel.

In total, there are 40 credits granted by agencies in 16 countries. The age of the original credits means that several of them are nominated in currencies that no longer exist, such as the French franc and the Swedish and Danish kronor, which have since been replaced by the euro. The annex details the debt and the value of the installments payable in the original currency and does not include a conversion of the total to a currency, such as the dollar or the euro, but Guzman said that the agreement involves payments equivalent to $430 million.

In addition, the minister will participate in a ministerial meeting of the International Energy Agency that will bring together the highest energy authorities of the leading countries, to coordinate actions in the context of the global energy crisis. It will also hold meetings with companies in the energy sector.

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