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Key points to understand the presidential announcement
La Nacion
September 04, 2008

--What is the Paris Club?

It's a group of 19 creditor countries (like France, Germany, Italy, Japan, Spain and the U.S.), whose role is to find coordinated solutions for the payment difficulties of 85 debtor nations.


--How much is owed to the Paris Club?

Some US$6.7 billion. In December 2001, when the default was declared, they also stopped paying the Paris Club. This group had been greated in 1956 to renegotiated debts with Argentina.


-- How will it be paid?

-Once, and with Central Bank reserves. Another option would have been a reprogramming of the payments, for which they'd need the support of the International Monetary Fund (IMF), according to the rule of the Club.


--What consequences will follow paying the debt?

It will improve Argentina's credit rating for reinsurance from developed countries, which would open financing for commercial operations, investments from business from those countries, and infrastructure projects, like the bullet train. If the market interprets that the capacity to pay debt is improving, bonds will appreciate and country-risk will fall.


--How does this decision change people's lives?

-If it generates more investment, it will mean more employment. As the State could finance public works, it could send mores funds to spending on things like salaries, pensions and subsidies.


--Why pay in full?

Because the government didn't want a renegotiation tutored by the IMF. They would be saving interest: in 2009 alone, US$355 million. But the interest rate on the debt with the Club countries rounds out to 6% a year, against 15% that it paid Venezuela in the last bond issue.


--Why now?

After the bond swap in 2005, Argentina sought an arrangement with the Paris club, but rejected the controls of the IMF and didn't want to pay in full. But now, after the lack of resources for infrastructure from lower fiscal strength, the government decided to pay in full. Also, facing the lack of confidence in the markets toward the country, it wanted to send another signal that it can pay its debt, to which it recently added the repurchasing of bonds.


--In what way is this payment different from the payment to the IMF in 2006?

The form of payment will be similar, but the motivation different: in the case of the IMF it was political, to undo the monitoring of economic programs; in the case of the Paris Club, to get financing for public works.


--Can it be paid with reserves?

Yes, if the Treasury places a letter at the Central Bank. But the analysts believe that the holdouts (the bondholders that rejected the swap) could use this operation to ask for embargoes on reserves. The Central Bank would have a smaller margin for acting on its policy, as when it defended the value of the peso in the rural crisis. The reserves, which recovered in a few months after the IMF payment, will take longer to be built back up.


--Is there more debt to pay?

The balance with the Club makes up only 3.7% of the total, which also includes the money owed to the holdouts. Now all that is left to close the default that began in 2001 is to renegotiate with those bondholders.