Argentine Senate set to OK debt deal, new bond issuance expected

BUENOS AIRES (Reuters) - Argentina is expected to take a big step toward reentering the global financial system on Wednesday, with the Senate set to pass a landmark deal to repay creditors who rejected earlier restructurings of the country’s sovereign debt.

Argentine President Mauricio Macri gestures during a news conference at the Casa Rosada Government House in Buenos Aires, Argentina February 22, 2016. REUTERS/Enrique Marcarian

The deal, already approved by the lower house of Congress, is the cornerstone of new President Mauricio Macri’s plan for revitalizing an economy hobbled by low investment, high inflation and precarious central bank reserves.

The Senate started debating the proposal late Wednesday morning with a vote expected late in the day. The chamber is expected to approve the deal after lobbying by cash-strapped provincial governors who see it as key to regaining access to financing needed to repair crumbling roads.

The country has until April 14 to pay $4.65 billion to the main hedge funds that fought for and won an advantageous settlement after balking at steep payment reductions offered in Argentina’s 2005 and 2010 bond revamps.

A U.S. court ordered Argentina to negotiate a settlement, which should set the stage for the country to once again issue global bonds.

Locked out of the capital markets since its 2002 default, Argentina needs international financing to close its wide fiscal deficits and start rebuilding investor confidence.

“I’m going to vote for the deal because it’s what’s best for the country,” Miguel Pichetto, head of the opposition Victory Front party in the Senate, told local media.

“It’s not right and it’s painful to pay this much to the funds, but the reality is we lost the court case. Meanwhile, the interest we owe on the debt is mounting and we’ve been blocked by the court from paying the holders of our restructured bonds.”

Senators from Macri’s Let’s Change party are firmly behind the deal. Those votes, together with Pichetto’s Victory Front, assure its passage.

The deal calls for Argentina to issue up to $12.5 billion in new bonds in order to pay the $4.65 billion to the “holdout” hedge funds. About $3 billion more is needed to pay smaller funds that joined the suit over the years.

Appeals being heard in U.S. federal courts could push back the April 14 deadline for payment to the funds, but are not expected to derail the process.

Money left over from the bond issuance would give financial breathing room to Macri as he carries out free-market reforms and starts paying down deficits run up by previous Argentine leader Cristina Fernandez, who left office in December after eight years of free-spending populist rule.

Additional reporting by Gabriel Burin; Editing by Fiona Ortiz