Argentina has at last settled its sovereign debt default dispute with foreign bondholders, effectively dismantling the barriers that blocked its path to tap international credit for the past 15 years. More than anything else, the deal will help Argentina overcome its financial pariah status and allow President Mauricio Macri’s new government to revive the economy with greater ease.
Court-appointed mediator Daniel Pollack said in a statement that the agreement in principle would see the nation pay 75% of the amount it owed to NML Capital, Aurelius Capital Management, and two other hedge fund creditors holding its long-defaulted bonds.
The legal saga involved years of court battles, street protests in Buenos Aires, the seizure of an Argentine naval vessel, and increasingly distorted economic policy as the government tried to avoid settling with the holdout creditors.
It dates back to 2001, when Argentina defaulted on nearly $100 billion in debt. The South American country tried hard to persuade bondholders to accept a nearly 70% reduction in the value of their investment. More than 92% of creditors agreed to the offer, but a small number of hedge funds refused and sued the government in the U.S. courts.
The U.S. court ruled that if Argentina doesn’t pay the hedge funds (holdouts), it can’t make any more payments to restructured bondholders. That put Argentina in a difficult position, keeping it away from the international credit market.
For decades, the Argentine government argued that the funds bought most of the debt at a deep discount and paying off such huge sums would push its economy back into a turmoil.
The deal comes barely two months after Mauricio Macri took over as Argentina’s new president and days after the U.S. President Barack Obama announced plans to visit the South American country.
Macri is now laying the groundwork for a fundamental shift in Argentina’s stance toward business and trade.