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Argentina clinches landmark debt repayment deal with Paris Club

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[May 29, 2014] By Leigh Thomas

PARIS (Reuters) - Argentina reached an agreement on Thursday with creditor nations on repaying overdue debts, in a landmark deal that should open up much-needed international financing for the country.

The Paris Club of creditors said the agreement will allow Argentina to clear over five years arrears that stood at $9.7 billion at the end of April.

Negotiations over the deal - whose terms one analyst said looked favourable for Buenos Aires - had dragged into the early hours.

The dispute was the legacy of Argentina's 2001/2002 default on roughly $100 billion, which left it starved of foreign capital.

The country's resistance to settling with its creditors until now had made it a pariah of international capital markets but a hero in the eyes of many Latin American leftists.

"Paris Club creditors welcomed progress made by the Argentine Republic towards the normalisation of its relations with creditors, the international financial community and institutions," the group said in a statement.

"Realisation of initial payment under a formal commitment of Argentina to fully clear its arrears is a necessary and important step for (this)...normalisation."

Argentina's refusal hitherto to bow to its creditors has also created a mountain of litigation and helped fuel inflation that has eroded living standards.

The main challenge now to it regaining full access to markets is a long-running battle with "holdout" sovereign bondholders who have declined to participate in its debt restructurings. The U.S. Supreme Court is expected to decide in coming weeks whether to take on the case. If it does not, Argentine officials have said the country may be forced into a technical default.

Offering the country some breathing room, the Paris Club agreement calls for a first instalment of at least $1.15 billion due by May 2015, followed by another payment within a year.

The group said the deal cleared the way for export credit agencies of its members to resume doing business with Argentina, which should ease making foreign investment in the country.

Foreign investment could prompt a revival in Latin America's No. 3 economy, which faces a decline in output this year, not least in helping develop its vast Vaca Muerta shale field.


With its dollar reserves dwindling, Buenos Aires has been eager to secure a deal that does not put too much strain on its balance of payments. Argentine central bank reserves stood at $28.6 billion as of Monday evening.

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"It seems a good deal for Argentina, both in terms of the seemingly generous repayment profile and the fact that they seem to have reached an agreement much sooner than I expected," said Stuart Culverhouse, head of research at Exotix, a frontier markets broker in London.

"The hit to reserves appears light in the near term, which will reassure exchange bondholders."

Argentina and Paris Club members came close to striking a deal in 2008 but the government pulled out at the last moment, concerned about its falling foreign exchange reserves in the midst of the global financial crisis. Germany is Argentina's biggest Paris Club creditor with about 30 percent of the debt, followed by Japan with about 25 percent. Smaller holders include the Netherlands, Spain, Italy, the United States and Switzerland.

Argentina wrung a major concession from the Paris Club by avoiding any International Monetary Fund involvement in the deal, which the creditor group usually requires.

President Cristina Fernandez' government has publicly lambasted the institution and would have lost credibility if it had to accept an IMF programme or audit.

Though a major agricultural producer and endowed with shale oil and gas reserves, Argentina's development has fallen behind many other emerging economies, stunted by a history of economic mismanagement.

The country's history with the informal group of mostly Western nations goes back to the Paris Club's origins in 1956, when Argentina agreed to meet its public creditors in Paris.


(Reporting by Leigh Thomas, Additional reporting by Sarah Marsh in Buenoes Aires and Sujata Rao-Coverley; Editing by John Stonestreet)

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