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Argentina lawmakers edge towards defaulted debt settlement

Argentina's lawmakers are considering a proposal to settle with international creditors holding defaulted sovereign bonds. The long running dispute has blocked the country's access to much needed international finance.

Protesters gathered Tuesday outside Argentina's Congress to voice disapproval over a proposed settlement with creditors holding defaulted sovereign bonds. For years Argentina has been effectively blocked from access to international credit markets.

"It's not about assigning blame for the debt but rather finding solutions right now," Luciano Laspina, a lower house deputy and president of the budget commission, said as the debate got started on Tuesday.

A deal would finally grant Latin America's third largest economy access to international finance after 14 years of lawsuits that have hamstrung the country's finances by keeping it locked out of the bond market.

Up for consideration is a payment of $4.6 billion (4.19 billion euros) to resolve the outstanding claims. Opponents of the deal argue it represents capitulation to what they deem "vulture" capitalists.

Debate opened in Congress' lower chamber on Tuesday and the ruling party was optimistic it had the votes to move forward. "We have managed to reach a strong consensus regarding the basic provisions of the law," said Mario Negri, lower chamber leader of President Mauricio Macri's party.

If approved, the next hurdle would be the Senate, where provincial governors have lobbied for the bill as a way of opening access to the credit needed to finance the rebuilding of crumbling infrastructure including roads running throughout the grain belt.

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Argentina’s debt problem

The dispute has its origins in Argentina's 2001-2002 financial collapse, when it defaulted on $100 billion in bonds. Most creditors renegotiated in bond swaps in 2005 and 2010. But a group of creditors led by US billionaire Paul Singer refused to accept lower-value bonds and instead sued Argentina in a US court and won.

The settlement would finally release restrictions imposed by US courts that have prevented Argentina from accessing much needed capital investment because of the dispute.

The deal comes at a heavy price. Argentina would pay billions from the treasury to US hedge funds managed by Elliot, Aurelius Capital, Davidson Kempner and Bracebridge Capital.

'Easy to give in to vultures'

Paul Singer

Most of Argentina's creditors renegotiated the country's debt in 2005 and 2010. But a group of creditors led by Paul Singer (pictured) refused and took Argentina to court in New York and won.

The plan has provoked ire from the opposition. Former Economy Minister Axel Kicillof said that by proposing repayment terms of 70 to 75 cents on the dollar the pact would give too much to hedge funds that rejected a profitable settlement in 2005 and 2010.

"It's easy to settle by giving the vulture funds everything they want," Kicillof said during the debate.

But President Macri - who swept to power in December on a platform promising to modernize the economy- encouraged lawmakers to accept the expensive payout and close the long-running dispute.

Macri campaigned on a promise to boost Argentina's economy. Gross domestic product (GDP) shrank by 3.5 percent in the last quarter of 2015.

Macri has floated the local peso currency, cut trade barriers and grain export taxes and eliminated thousands of public sector jobs in his quest to cut state spending while stimulating growth.

jar/jm (AP, Reuters)

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