After 15 Years, Argentina Agrees To Pay Back U.S. Creditors

Argentina’s debt crisis is finally over.

On Thursday, the Argentine Senate voted 54-16 to issue $12.5 billion in bonds. Part of the money raised will be used to pay back $4.65 billion to U.S. hedge funds, most notably Paul Singer’s NML Capital, an offshore subsidiary of Elliott Management. Argentina has refused to pay back its debt since 2001, when it defaulted on loans that represented 150 percent of GDP as its economy collapsed. It again defaulted in 2014 after failing to reach a deal with creditors.

The legislation is a victory for conservative President Mauricio Macri, who was elected last November and had made a debt deal a centerpiece of his presidential campaign. The agreement means he can now tap global credit markets for the first time in 15 years, something his cash-strapped nation desperately needs. Former President Cristina Fernandez de Kirchner had refused to pay her country’s debt, calling creditors “vulture funds” who invested in their economy when it was at its weakest.  

It’s also a victory for Singer. According to a Bloomberg estimate, Elliott Management will get back $2.28 billion, or about 369 percent of the firm’s $617 million investment in distressed bonds; Singer paid just $117 million for them. The hedge fund did not respond to a request for comment.

The debt deal will level the playing field for Argentina when it comes to the cost of borrowing. It needs money to improve infrastructure, close government spending gaps, and win the confidence of investors. In the past, it had to pay 9 percent interest on loans, nearly double the rates peers like Bolivia and Uruguay were offered.

“This agreement will be great news for economic activity in the country during the next several years,” Eugenio J. Alemán, senior economist at Wells Fargo, said in a recent research note. “Access to the international capital markets means that the administration will reduce or eliminate the need to finance its fiscal deficit by printing money, which has continued to stoke inflation and inflationary expectations.”

After its default — the largest sovereign debt default ever — Argentina’s economy went into the worst recession in the country’s history, leading to unemployment of more than 20 percent, a GDP drop of 11 percent, and riots on Argentine streets that left 27 dead and more than 150 injured. Argentina’s president at the time, Fernando De la Rua, declared a “state of siege.” He was forced to resign, and escaped Casa Rosada, Argentina’s executive residence, in a helicopter as his country’s economy collapsed.

The deal is backed by the White House. At the end of President Barack Obama’s recent visit to Argentina, the Justice Department, in a brief filed March 23 with the 2nd U.S. Circuit Court of Appeals in New York, said the United States has “significant foreign policy interests” to find a “rapid” resolution to the long-simmering debt dispute.

The standoff between Argentina and U.S. hedge funds often turned ugly. In 2012, Singer, who had long resisted giving Buenos Aires any relief on its debt, seized an Argentine naval vessel as a form of repayment. When Argentina won the World Cup semifinals in 2014, fans, celebrating on the streets of Rosario, Argentina’s third-biggest city , chanted, “Vulture funds, stop messing around and agree to the swap.”

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