Spanish case could set good example for Paris Club deal

By Carlos Burgueño

In the next few days, President Cristina Fernández de Kirchner and Spanish Prime Minister José Luis Rodríguez Zapatero are to hold a bilateral meeting in Mar del Plata on the occasion of the 20th Ibero-American Summit.

Argentina's willingness to reach a debt-refinancing agreement with the Paris Club is expected to be a top issue of the political agenda. José Luis Rodríguez Zapatero could have a relevant role in helping the administration of Fernández de Kirchner to fulfill this goal, not only because Spain is one of the 19 industrialized countries participating in the Paris Club and controls 7 percent of the Argentine debt, but also because an agreement over a previous loan could set a good example for the debt-refinancing talks with the group of creditor countries.

In 2007, former president Néstor Kirchner signed an agreement with the Spanish government to pay off almost US$1 billion of debt contracted in 2001 over the following five years, with a 5 percent annual interest rate and without the IMF monitoring. However, the most important piece of information regarding the above-mentioned agreement is that Spain finally accepted not to include Argentina's late fees and punitive interest rate worth US$180 million. According to the Argentine government, the previous accord could set a good example for the negotiations to be held December 9-10 between Finance Minister Amado Boudou and Paris Club representatives in the French capital. Even though this is a hard goal to achieve and the creditors are certainly reluctant to accept the removal of punitory interests, the administration of Cristina Fernández de Kirchner expects Zapatero's performance before his European colleagues -especially before German Chancellor Angela Merkel, since Germany holds nearly US$2.2 billion of Argentine sovereign debt- in order to reach a similar agreement.

Such possibility would have a strong beneficial impact on Argentina, because the administration of President Cristina Fernández de Kirchner would not be forced to use Central Bank foreign currency reserves to pay off its debt. In theory, current revenues and low-interest voluntary sovereign debt placement would be enough to cancel Argentina's debt with the Paris Club of creditor nations

Argentina still owes nearly US$982 million to Spain. This amount of money arrived in Argentina at the beginning of 2001, and was allocated in a single banking transference during the administrations of Fernando de la Rúa and ex-Spanish Prime Minister José María Aznar. At that moment, Spain's government sought to strengthen the negotiations between Argentina and the International Monetary Fund, amid a debate discussing the implementation of a financial, economic bailout in order to avoid Argentina's default, which was finally inevitable.


Translated by Jimena Gibert