“In a first phase, we want to solve all the cases with a firm ruling in the New York courts. Then we’ll of course look into the pending cases in other jurisdictions such as Europe,” Prat-Gay told reporters. “The total unpaid debt reaches US$20 billion. 40 percent is in Europe and the rest in New York.”

Friday, January 15, 2016

C. Bank close to sealing US$6B-loan

Finance Minister Alfonso Prat-Gay is seen speaking with foreign reporters yesterday.

Government expects economy to grow 4.5 percent in 2017, says Prat-Gay

The Central Bank will confirm it has managed to seal a much-anticipated loan from international banks worth as much as US$6 billion in the coming days, Finance Minister Alfonso Prat-Gay said yesterday, bringing funds that will help Mauricio Macri’s administration to rebuild the foreign-currency reserves, which are close to a nine-year low.

Prat-Gay also told foreign correspondents in Buenos Aires the government expects the economy to grow 4.5 percent in 2017 after a mild improvement this year, stressing the need to solve the long-term dispute with the “vulture” funds while lowering the inflation rate in order to turn those goals into reality.

The total amount from the loan will be between US$4 billion and US$6 billion and it will be backed by dollar-denominated bonds held by the Central Bank, Prat-Gay said.

The Finance minister added that Argentina still has around US$2 billion available from its currency swap with China to bolster the foreign reserves.

Macri’s administration had already exchanged 20 billion yuans for US$3.09 billion dollars in December, which are readily available in case the monetary authority needs to sell currency to stabilize the country’s exchange rate. The move didn’t have an effect on the level of reserves though because the yuans were already counted at their dollar value.

“The Central Bank is an independent entity and like any other Central Bank it can administrate its assets as it wishes,” Prat-Gay said.

The loan was first mentioned as a possibility by Prat-Gay and Finance Minister Luis Caputo at a press conference on December 16, saying it would be agreed to in two weeks. The list of banks would include HSBC, JP Morgan, Goldman Sachs, Deutsche Bank, Citibank, Santander and BBVA, which already met with Caputo in New York to finalize the details of the line of credit.

After that was announced, the “vulture” funds that are locked in litigation against Argentina in New York court served HSBC with a subpoena for documents on the bank’s involvement in the loan. Their objective was find out whether it would violate United States District Judge Thomas Griesa’s order limiting the country’s capacity to raise money outside its borders.

Argentina re-started talks with the “vulture” funds on Wednesday in order to try to reach a deal over the country’s debt, which now amounts to US$9.8 billion in New York courts alone. Caputo met with representatives from the holdouts in New York alongside court-appointed mediator Daniel Pollack and agreed to file a proposal on January 25.

Whether the holdouts seek further actions when the loan is announced or not will be a first indicator of the success of the new round of talks. Nevertheless, the government has already said that since the financing will be arranged in the local market it shouldn’t violate United States court orders that keep Argentina from servicing its foreign-law debt.

Getting access to such a loan would be an important aid to the Central Bank’s foreign-currency reserves, which stand at a nine-year low of US$25.5 billion. Reserves dropped US$55 million yesterday and although the sum continues to be low it has been gradually increasing over the past few weeks, surpassing the US$25 billion mark.

“In a first phase, we want to solve all the cases with a firm ruling in the New York courts. Then we’ll of course look into the pending cases in other jurisdictions such as Europe,” Prat-Gay told reporters. “The total unpaid debt reaches US$20 billion. 40 percent is in Europe and the rest in New York.”

Economic growth

Prat-Gay said the economy would grow between 0.5 percent and one percent this year, to be followed by a 4.5 percent growth in 2017. In order to reach that goal, the government has to order a set of economic variables inherited by the Cristina Fernández de Kirchner administration, he said.

The government estimates that the country’s fiscal deficit is now at 7.1 percent of Gross Domestic Product (GDP) and hopes to lower it one percentage point this year, mainly through a cut on subsidies for public utilities for the 30-40 percent wealthiest Argentines. The Finance ministry estimates the preceding administration left a hidden debt of about 110 billion pesos and wasted most of the funds it collected.

Macri’s administration hopes to end the year with an inflation rate between 20 and 25 percent, down from the 28 percent reached in 2015. The inflation will decelerate in 2017 with a rate between 12 and 17 percent, to be continued in 2018 with a rate between eight and 12 percent. Finally, Macri would end his term in 2019 with an inflation rate of about five percent.

“We hope Argentina can start growing again after a quite complicated second half of the year in 2015. We don’t have the final data, it’s just estimates,” Prat-Gay said. “We hope to grow in between 0.5 and one percentage point this year, to be followed in the next three years by (yearly) growth of 4.5 percent.”

Prat-Gay’s forecasts are partly in line with the World Bank outlook, which recently said Argentina will grow 0.7 percent this year, instead of the 1.8 percent previously expected. The country would then grow 1.9 percent in 2017, also 1.1 points lower than the previous report, and three percent in 2018.

That’s not the case with the country’s budget, which forecasts a three percent growth this year.

“The new government in Argentina is expected to implement monetary and fiscal tightening in 2016, pushing a rebound in growth to 2017, as investment slowly strengthens on renewed investor confidence and leads the recovery,” the World Bank said last week.

Herald with Reuters, Bloomberg