Argentina, Wall Street banks in talks

Argentina’s new government is negotiating with a group of Wall Street banks for a credit line worth up to US$7 billion to bolster its low foreign reserves and help it eventually lift capital controls, a banking source said on Friday.

Argentine President Mauricio Macri wants to move quickly to remove currency controls that restrict access to US dollars but is stymied by the central bank’s precariously low hard-currency reserves.

Argentina is in talks with HSBC Holdings PLC, JPMorgan Chase Co, Goldman Sachs Group Inc, Deutsche Bank AG and Citigroup Inc, the commercial banking source said.

However, there remain obstacles to an agreement and no immediate deal is likely, he said.

“The banks are working on a deal. It would be difficult for anything to come about immediately. There are some key details needed to close this out that are missing,” the source said, without giving more details.

Argentine Finance Secretary Luis Caputo met with banks in New York earlier this week and the government is happy with the talks so far, an Argentine Ministry of Finance spokeswoman said.

Argentine Minister of Finance Alfonso Prat-Gay declined to give details.

“We’re negotiating different financing options so that the dollars that should never have left the country come back as quickly as possible,” Prat-Gay told reporters after unveiling his team.

The previous government eased the reserves shortage in part by negotiating an US$11 billion currency swap with China.

The government expects to start talks with China, “which will include a possible re-opening of that swap line,” Prat-Gay said.

A second source in the central bank confirmed the talks were taking place but could not confirm the amount being discussed.

Argentine newspaper La Nacion reported that beyond the possible US$7 billion being sought via the group of five banks, a further US$1 billion could be secured through a financing agreement with Spanish banks Banco Santander and BBVA Bancomer.

“They’re working to lower Argentina’s credit risk given the fact that it is in default and keeping in mind the new government is working to resolve that situation,” the commercial bank source said.

Argentina is to ease currency controls under Macri, but not until the true amount of central bank reserves is known and its board of directors has been replaced, a senior incoming bank official told reporters on Friday.

Argentina’s central bank counts its total reserves at US$25 billion, but some economists estimate net reserves are a fraction of that.

“We will [ease controls] when we are sure it’s the right moment. We will do it as soon as possible and as calmly as possible,” Prat-Gay told reporters.

The US dollar crunch stems from a festering legal battle with US investment firms over unpaid debt that tipped Argentina back into default in July last year.

Caputo this week also met with the mediator handling the case filed by holdout creditors who rejected the terms of Argentina’s 2005 and 2010 debt restructurings and have sued for full repayment.

“We would like to conclude the talks as soon as possible, but as you know, we will negotiate as hard as possible,” Prat-Gay said.

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