Picture: ISTOCK
Picture: ISTOCK

BUENOS AIRES — Argentina has claimed a breakthrough in efforts to get US hedge funds off its back by paying $6.5bn of debt, but faces tricky manoeuvres to settle the dispute for good.

The leaders of Latin America’s third-biggest economy said on Friday they had offered the sum to settle its long debt battle with "holdout" creditors suing it in a US court.

Two of six major holdout creditors have accepted the deal, which would impose a 25% loss on their investment. But four have not done so yet.

"The proposal is undoubtedly an historic moment for Argentina," wrote Edward Glossop, an analyst at financial research group Capital Economics.

"It is the first formal deal that the government has presented to the holdouts, and is a significant step in the government’s bid to return to global capital markets."

That is the aim of Argentina’s new President Mauricio Macri, who took over in January from leftist leader Cristina Kirchner. She had refused to pay the hedge funds, branding them "vultures". Creditors were demanding full repayment of about $9bn on bonds the country defaulted on.

"This litigation has gone on for nearly 15 years since the original Argentine default of 2001, and the proposal by Argentina is an historic breakthrough," said mediator Daniel Pollack.

Mr Glossop warned, however: "There are still a number of hurdles to overcome in order for the government to return to global capital markets."

The holdouts are a minority class of creditors that refused to go along with the restructuring of the country’s debt after it defaulted on about $100bn.

They were led by two funds: NML Capital, a unit of Elliott Management, and Aurelius Capital Management.

The funds that accepted the offer were Montreux Partners and Dart Management, according to the government.

Mr Glossop said some of the holdouts may yet press for better terms. NML Capital was among those yet to respond to Mr Macri’s offer.

Apart from winning over the other four funds to the deal, Mr Macri must also gain approval in a congress dominated by his opponents.

His chances improved last week when a group of rebel legislators broke away from Ms Kirchner’s party in congress, weakening the opposition bloc.

Mr Macri aims to build support so that he can launch reforms of existing laws governing the debt repayments when congress reconvenes in March.

There were signs of openness among the opposition to work constructively in its relations with him.

"There is a sector that is planning to adopt confrontational policies, and another large majority sector that is planning to be serious and responsible in opposition, to guarantee governability," said Gustavo Bordet, a prominent governor.

The US voiced optimism that Argentina would be able to settle its long battle with the holdouts.

US Treasury Secretary Jacob Lew expressed "strong hope that all creditors will be able to resolve their differences and reach agreements in principle with Argentina", a spokeswoman for his department said.

The offer came days after Mr Macri’s government reached a deal to pay Italian bondholders $1.35bn to settle their $2.5bn in claims.

Mr Macri has promised to strengthen Argentina’s ties with foreign countries and investors after years of combative relations under Ms Kirchner.

He has rolled back various protectionist policies of his predecessors, lifting currency and export controls and eliminating electricity subsidies.

Mr Macri says such measures are necessary to make the economy competitive. His critics warn they will hurt poorer Argentines.

Argentina’s inflation rate is forecast at up to 25% this year and economic growth at no more than 1.0%.

"Restoring credit is fundamental for returning to growth," said Finance Minister Alfonso Prat-Gay.

AFP