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With the DNU in danger, Economy bets it all on the debt swap
El Cronista
February 15, 2010

The intention is to clean Argentina's "brand" through accords with the holdouts and then with the Paris Club. They believe that would allow getting interest rates of 9% for new debt.

PABLO FERN NDEZ BLANCO Buenos Aires

While the government is hoping for a positive result in the Senate, the Economy Ministry, at the direction of Amado Boudou, already defined a financial strategy that will follow during the year in case the Bicentennial Fund capsizes. The official intention is to improve Argentina's profile among international lenders public as well as private ones to obtain rates around 9% that will allow the Treasury to cover financial necessities for US$10 billion in case it is necessary.

On that path laid by the Finance Secretariat, led by Hernan Lorenzino, the crucial step is to close the swap of debt in default for US$20 billion in the hands of the so-called holdouts that is expected to begin during the first week of March, according to what official offices believe.

After that, the strategy will continue to improve "brand Argentina" in the international markets through an accord with the Paris Club. According to the diagnosis from Economy, a triumph on both fronts will derive a resulting logic: that the country can return to placing debt at a reasonable rate, due to the fact that according to Boudou's men, today "the financial market doesn't reflect the real situation in Argentina."

Although there aren't precise references these days to determine how much the country would pay for taking debt, in the government they are taking the Boden 2012 as a measure, which on Friday paid a rate of almost 11% annually in dollars. And the Boden 2015, which also is being watched closely by the men at Finance, is further out, around 14.4%.

Both references are long from the 9% that Economy put as a ceiling for taking new debt.

"We are sticking with Plan A with respect to the Bicentennial Fund because we believe in the institutional responsibility of the opposition. There is no Plan B. And we will bring the financial program forward that is in the budget with or without that tool," they said from the team.

Everything for the swap

Soon after a January shaken by the conflict between the ex-head of the Central Bank, Martin Redrado, and the government, which continues with the dispute in Congress over the use of reserves to pay debt, the swap took up a new urgency.

While it's a schedule they don't manage, at Economy they hope to receive new observations this week from the regulatory entities through which they will have to structure the operation. Among them, the Securities and Exchange Commission (SEC) of the United States and its counterparts in Luxembourg, Italy and Japan.

According to the idea that the government has, the offer to the creditors there has already been contact to private bondholders in Italy and institutional investors in Great Britain will remain open for three weeks.

The greatest aspiration for Economy is that 75% of the holdouts accept the proposal, while the floor for showing the operation to be a success from the financial team was established as 60%.

Barclays, Deutsche and Citi banks suggested to the government that they emit a Discount bond with a nominal haircut of 65%, the emission of another bond to get US$1 billion, the GDP Coupon with the payment made last December, for 2008 yields and a bond to cover expired interest on the Discount and GDP Coupon between 2005 and 2007.

The Economy Ministry, however, will make changes: it will cut the payment terms from seven to three years, but will put a haircut on payments attached to growth, which will reduce the final offer between US$3 and US$3.50, with an estimated fiscal savings of US$1.5 billion.

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