Argentina’s $677M credit cred makeover

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Eager, if not openly so, to get fresh cash from multilateral organizations, Argentina said on Friday that it would pay $677 million to settle with five foreign companies that had hauled it in front of the International Centre for Settlement of Investment Disputes (ICSID), the World Bank’s arbitration agency for disputes between investors and states. The agreement indicates a change of Argentina’s attitude towards the ICSID, albeit a tactical one, and a comely glance towards the World Bank’s sister organization the International Monetary Fund, with whom the country has been at very public odds.

The motive: Argentina is looking to unlock credit lines from Western-based organizations — up to $3 billion in loans through 2016. It needs the money to bolster its shrinking currency reserves and to boost confidence in its economy, Latin America’s third largest. Its reserves have fallen by 20% this year to $34.5 billion, according to preliminary data released last week, their lowest level since early 2007 and now sufficient to cover only four months of imports. Any further shrinkage could lead to a new economic cataclysm.

The Argentinian economy ministry said the five companies had agreed to cut their arbitration claims by a quarter (a saving of $171 million to Argentina) and to accept payment in domestically issued U.S. dollar-denominated government bonds (Bonar 2017s and Boden 2015s). The companies also agreed to invest $68 million in Argentine energy bonds known as Baade. The quintet are France’s Vivendi Universal SA; U.S.- based water company Azurix Corp.; Blue Ridge Investments, a subsidiary of Bank of America Corp. which owned rights to CMS Gas Transmission Company claims; CC-WB Holdings LLC, which holds the rights to Continental Casualty Company claims; and NG-UN Holdings LLC, which holds rights to claims by U.K. utility National Grid PLC. The amount to be paid to each individual company wasn’t disclosed.

These settlements don’t clear the slate for Argentina at the ICSID. More than a dozen claims against it remain outstanding. The most prominent is the one by Spanish oil company Repsol. It has valued its stake in YPF, the Argentinian energy company nationalized without compensation in 2012, at $10 billion. The case is currently stalled. (Read more: Argentina opposes arbitrators assigned by World Bank to Repsol case.)

Argentina hopes the arbitration settlements will help restore its reputation with the multilateral organization from which it desperately needs to borrow as private lenders are reticent. The World Bank is currently considering a new three-year lending program for the country. This is reportedly for $3 billion and would be the biggest since 1998. The Bank’s board is expected to decide in December whether to approve it. In an encouraging sign for the country, Augusto de la Torre, chief economist for the Bank’s Latin America and Caribbean Office, recently said Argentina will grow at an enviable rate compared to other countries in the region. The World Bank currently has an Argentina investment portfolio of 31 projects valued at $6.2 billion.

Argentina still has long ways to go to restore its international credit cred. The country is fighting hedge funds in U.S. courts that are suing Buenos Aires for repayment on defaulted Argentine bonds. The case has raised concerns that Argentina could again default on its dent. Settling some arbitration claims is only a first small step in the opposite direction.