Paris Club: Deadline agreement set for April 16, 2011

By Carlos Burgueño

The administration of President Cristina Fernández de Kirchner must reach an agreement with the Paris Club before April 16, 2011, when the International Monetary Fund's committee is scheduled to hold its next autumn meeting. By then, the intergovernmental organization is said to debate the Argentine case and its refusal to comply with the Article IV consultations, which are conducted annually in each of the Fund's 186 member countries. Argentina has refused to submit its economic data since 2006, when former president Néstor Kirchner paid off the country's debt to the IMF. According to Dominique Strauss-Kahn, the IMF's managing director, if Argentina fails to comply with the IMF's periodic reviews by then, the intergovernmental organization could impose sanctions on the country, which could lose its membership in the Board of Governors, the highest decision-making body of the IMF

This scenario was the core issue of the televised address made by President Cristina de Kirchner Monday afternoon. For the first time, member countries seem to be willing to start talks on the payment of defaulted debt to the Paris Club of without the IMF intervention. The administration of President Cristina Fernández de Kirchner seeks to speed up negotiations in order to come to an agreement before April 16 2011, so that the government might take political advantage of eventual sanctions imposed by the IMF on Argentina, amid the next presidential election campaign.

Next stage of the process
Once the administration of President Cristina Fernández de Kirchner manages to hold negotiations with the Paris Club creditors, the Congress will have to pass the accord, because the legislative branch is the only branch of government entitled to let the Executive cancel its debt. Deputies and lawmakers should endorse the official agreement reached with the Paris Club group of nations, which could represent the definitive end of the default era.

Awareness
The series of meetings held with German Chancellor Angela Merkel persuaded President Cristina Fernández de Kirchner to come to an agreement with the Paris Club group of nations.

Merkel and Fernández discussed the Paris Club issue for the first time in June 2007, when the Argentine presidential candidate was received by the German Chancellor in Berlin. At that moment, Merkel mentioned the relevance of coming to terms with the group of creditor nations and also made reference to a German car-maker that would drastically increase its investments in Argentina if they could apply for loans granted by the European Bank. Merkel and Fernández de Kirchner met three times and an eventual agreement with the Paris Club was always included in the agenda.


However, Germany has not got a neutral point of view regarding Argentina's conditions. During her last meeting with Cristina Fernández, Angela Merkel deemed IMF monitoring 'essential'. Holland, Switzerland, Italy and United Kingdom agree on this, whereas Spain, Japan and the United States encouraged the possibility of prescinding from the IMF intervention.

Those countries taking a conciliatory stand accept Argentina cancels its debt within one-year time frame without the IMF monitoring. Argentina seeks to repay its debt following semestral payments within five-year time frame. The government expects to reach a two or three-year scheme.


This stage of the process is not easy to achieve. Paris Club's organic law stipulates accords are to be reached by consensus, i.e.: all member countries are to accept the above-mentioned conditions.

Argentina's case could set a precedent in matters such as these within the Paris Club scheme, since other debtor countries might also seek to reach an agreement without the IMF intervention.


Translated by Jimena Gibert