The green light

ARGENTINA’S exit from default is finally in sight. On April 13th, more than 14 years on from a catastrophic $82 billion sovereign default, a federal appeals court in New York upheld a ruling that allows the country to pay its “holdout” creditors, holders of its defaulted debt who rejected restructurings in 2005 and 2010. That paves the way for Argentina’s long-awaited return to international credit markets. The decision marks another important victory for Mauricio Macri, who reopened formal negotiations with the holdouts after becoming president in December.

The appeals court upheld a decision taken on February 19th by Thomas Griesa, a lower-court judge, to lift an injunction blocking Argentina’s access to international credit markets. Mr Griesa agreed to remove the bar on two conditions: that Argentina repeal laws barring payments to the holdouts, whom the previous government had dismissed as “vultures”, and that it pay those of them who agreed to a deal promptly. The move infuriated the holdouts, who had used the injunction as leverage in their negotiations. While they took their case to the appeals court, Argentina fulfilled its end of the bargain: last month its Congress voted to repeal the relevant laws.

Argentina now plans to raise up to $15 billion through a bond issue, which is set to begin on April 18th. It will use $10.5 billion-12.5 billion of that to pay the 90% of holdouts with whom it has reached an agreement. The remainder of the cash will be used to finance the budget deficit, which amounted to 5.8% of GDP last year. The bonds will be issued under New York law, in tenors of 5, 10 and 30 years; the government expects to pay interest of 7.5-8.5%.

Argentine officials think demand will be high. Although Argentina has defaulted eight times since independence in 1816, Mr Macri’s government has been applauded around the world for its efforts to restore the country’s standing and revive its economy (see article). His lieutenants say he will keep a better grip on the country’s finances than his predecessor, Cristina Fernández de Kirchner. Investors seem willing to give him the benefit of the doubt.

Argentina’s stockmarket responded positively to the news of the appeals-court decision, jumping by 4% to a five-week high. The same cannot be said of those bondholders who have yet to reach an agreement with Argentina. Some are retail investors, who bought bonds with their savings, rather than speculative hedge funds. They now have little alternative but to accept Argentina’s formal offer, made on February 5th, of 72 cents on the dollar. They will feel aggrieved; Mr Macri, ecstatic.