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Source: The Economist
By: J.R.A.

On February 1st finance ministry officials opened negotiations in New York in an attempt to reach an accord with the remaining holdouts. They made quick progress. On February 2nd a group of Italian bondholders accepted an offer of $1.35 billion. On February 17th two hedge funds, Montreux Capital and EM Ltd settled for for $1.1 billion. But it was the four largest holdouts who represented the real prize. Their agreement comes at a cost: the $4.65 billion settlement equates to a write down of just 25%, far more generous terms than were offered to creditors in 2005 and 2010.

Mr Macri calculates that this is a price worth paying. His predecessor left Argentina’s economy is in dire straits: in 2015 it ran a 5.8% fiscal deficit; inflation is currently at around 30%. Borrowing on international credit markets will help him to tackle both. Until now the central bank has been forced to print money to finance the budget shortfall, driving up inflation. Soon Mr Macri’s government will be able to use credit to bridge the gap instead. That gives Mr Macri more time to cut spending, negating the need for a sharp fiscal adjustment, which could threaten jobs and growth. Mr Macri’s economic recovery will take time. But after fourteen years, Argentina’s abrupt U-turn means it is finally heading in the right direction.