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Seeking to reduce debt payments
La Nacion
July 03, 2009

The government is analyzing whether to launch a Boden 2012 swap or to place a short-term letter with the banks

Mart n Kanenguiser
LA NACION

The government is preparing two options to lessen the debt burden for next year, through a short-term letter for the banks or a swap of the Boden 2012 after the coming payment in August. Official sources told LA NACION that, while first they predict that the payment on official commitments will be made out of State funds, these alternatives are being studied to cover the US$700 million that remains to be obtained this year and the US$3 billion for 2010.

The tenuous optimism at the Economy Minister reflects a certain euphoria that predominates the markets after Sunday's elections, because financial investors believe that the beginning of the end of the K era has come, as many local analysts have commented. That feeling is seen in various investment banks (Deutsche, Morgan and Bulltick, among others), which began to recommend buying Argentine bonds in dollars this week.

Amidst that positive buzz, one of the ideas coming out of Economy is that, after the payout on the 2nd of next month for the US$2.2 billion Boden 2012 coupon, they refloat the possibility of a swap of the rest of the coupons of that bond, which has already been under study since the beginning of this year. Next year the country has to pay out US$4.434 billion on that bond, part of a total financial program of some US$10 billion (considering that they will not have to pay the coupon attached to growth if the INDEC doesn't stretch the figure this year above 3.2%).

The gap would fall between US$3 billion and US$5 billion, according to recent private and official calculations. But the moves are still cautious, because, despite the improvement in bond prices, the interest rates continue to be "exorbitant" for the government to offer a new bond to investors, they recognize at Economy.

Soon after the payment next month "there could be a strong demand for a new bond," according to the recent soundings from officials. "The larger part of the bonds that are on the market are found in the hands of the public sector (Anses, Banco Naci n and the Central Bank), for which private investors that want to buy could seek a new bond if they want to add Argentina to their portfolio."

The second alternative would be to place a six-month or a one-year "letter" within the banks of the local financial system, with similar yields to those that are paid to public sector entities for instruments of the same duration (around 15%). While up to a few months ago that idea would cause irritation in the private sector, with the recent political change various banks rose to give their blessing to this plan. "There is much excess liquidity in the system (30 billion pesos), and if they offered something like the Lebacs of the Central Bank for some 10 billion pesos in various segments, it could become an attractive offer," one experienced executive of a foreign bank with operations in the country told LA NACION.

Almost all the banks estimate that the primary source of financing for the government will remain the money that is controlled by the ANSeS and the reserves of the Central Bank. However, they also believe that there is a space for their clients because "in financial terms the situation is manageable (which the flight of capital will have to be monitored) and, by measure of the clarity of the political future, there would be good buy opportunities," according to the sincere comments of one executive.

On that, in the financial system they are more interested in the government recovering credibility in its statistics than a settlement of the situation of the bondholders in default. "That is a situation of the past that could help, but it is not so key as the question of the INDEC," the source said candidly.

Anyway, as much within the office of the Chief of the Cabinet as at the Economy Minister, they say that the possible swap with the holdouts, which was announced last September and then quickly fell out of favor because of the global crisis, remains on the table for being launched before the end of the year, without the original demand for the bondholders to bring in fresh cash. The authorities believe that this agreement for US$30 billion together with the payment of the Paris Club debt is a necessary condition for the country to pay lower interest rates and could sustain their financial program with less stress.

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