The impossible agreement

Publish date 15-10-2020

by Lucia Capuzzi

The cards at the negotiating table have suddenly changed. Until the last moment, the stalemate seemed inevitable. Private investment funds - which had amassed a $ 67 billion claim on Buenos Aires - did not want to give in to the debt restructuring proposal. Then, in the night between 3 and 4 August, the situation turned around. And Argentina managed to snatch "the impossible deal", as president Alberto Fernández (photo) called it, avoiding the ninth default in its history. It took seven months of negotiation to do it. And that's just the first step.

Argentina has $ 320 billion in accumulated pending, including $ 44 billion with the International Monetary Fund. The negotiation with the funds, however, was the test of fire. Not only for the amount due, but also for the strength of the counterparty. A third of the stocks are in the hands of powerful foreign funds, including giant BlackRock. The latter kept the national and international community in suspense until the last. They didn't want to accept the Buenos Aires proposal to give back 40 cents for every dollar obtained. In the end, the parties agreed on the sum of 54.8 cents for every dollar: a saving of about 33 billion for the Republic of Plata. It was a good compromise. Obtained also thanks to the far from secondary support of the main international financial institutions. Fmi in the head. It was a delegation of the Fund, sent for an inspection in Buenos Aires in early February, to declare the "unsustainability" of the Argentine debt. And to ask private individuals "for an appreciable contribution to heal the situation". A turning point, given the history of the IMF Latin America.

With the progress of the pandemic and its economic turmoil, the pressures not to fail a key country of regional balance have grown. No one could afford to trigger a dangerous domino effect at a time of global recession. Private investors themselves were forced to agree. Also to their advantage: in the event of no agreement, the parties would remain at the mercy of the decisions of the New York courts. Of course, the road for the Republic of Plata to get out of the default nightmare is still long. First of all, Argentina must sit at the table with the IMF for the restructuring of a 44 billion dollar debt. To then negotiate with the Paris Club, to which it owes 2.1 billion dollars. But "now our horizon is more serene", declared President Fernández. Among the first numbers typed to express gratitude to those who had contributed to the success of the negotiation, the latter composed that of Casa Santa Marta. On the other end of the line, Pope Francis listened to the thanks of his compatriot. "I will be eternally grateful to him because he silently helped us a lot," said the leader himself in an interview. It is impossible, given the frankness of the main protagonist, to know what he really said and did to save Argentina from the ninth default in its history. Starting with some tracks coming from the Casa Rosada, the media have launched into various reconstructions.


What is certain is that Fernández and Bergoglio are old acquaintances from the days of Buenos Aires where the cardinal and the then head of the cabinet shared the same dental office. The two then met again in Santa Marta where Fernández went on January 26, 2018 and in the following August, in informal meetings. The issue of debt, however, would have been touched upon for the first time over a year later, in a telephone conversation at the end of 2019. Then, again, on January 31, 2020 when the Argentine president was received by the pope for 44 minutes. Shortly after, at the beginning of February, the Pontifical Academy for Social Sciences organized a seminar on the new frontiers of solidarity. Apparently, one of the many meetings organized by the prestigious institution directed by Marcelo Sánchez Sorondo. The event, however, was attended by both the new Argentine economy minister, Guzmán, and the director of the IMF, Kristalina Georgieva. Some passages of the speech delivered by the Pontiff in the aula magna - "the debts incurred cannot be expected to be paid at the price of intolerable sacrifices" and it is necessary "to find ways to reduce, delay or pay off the debt, compatible with the fundamental right of peoples to subsistence and progress ”- are sounded, to the ears of the most attentive observers, as a message addressed to the two guests.

Not only that, some well-informed sources claim that Francis himself exercised his good offices so that Guzmán and Georgieva could speak in private, without the constraints of the protocol. Furthermore, the director of the IMF was a guest in the Santa Marta residence in the two days before the seminar. In fact, two weeks later, the IMF came out publicly in favor of Argentina's request for restructuring. The most pressing challenge for Fernández is translating the financial breath of fresh air on debt into an improvement in the real economy. The recession, which has been underway for over two years, risks deepening further with Covid. And the burden will fall on the shoulders of the poor, now 40 percent of the population.

Lucia Capuzzi
NP august - september 2020


Since 1916, the year of its independence from Spain, Argentina has defaulted 8 times, reaching double-digit inflation rates that have led to the devaluation of the local currency.
In the South American country, military dictatorships have alternated with democratic governments creating a dangerous situation of economic and social instability. Three bankruptcies occurred at the turn of the millennium. Particularly burdensome was that of 2001 which had a heavy impact on Italian savers, about 450 thousand, who had exposed themselves on "tango bonds" - Argentine government bonds equivalent to BOTs and BTPs - for over 12 billion euros.


The International Monetary Fund declares the unsustainability of the Argentine debt which amounts to 320 billion dollars. Thanks also to the intervention of the Pontiff, a path could open up that will allow the South American country to save itself from the ninth default in its history.


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