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The swap brings doubts and the official reaction is to go back to gathering dollars
Clarin
June 17, 2010

The differences disappear behind closed doors, but just for that it doesn't mean they don't still exist.

A group of officials asked the newspaper: what is the advantage of having held the debt swap if in the short term it will bring more costs than benefits?

That group, who are in fear of the Economy Minister, base this on concrete facts.

The process of the swap of bonds for Argentina to end the cessation of payments for part of its debt was met by the financial crisis that hit Europe with an intensity.

Lack of skill? Of opportunity? Bad advice? A cocktail of all this and more?

The reasons aside, what is clear is that still reaching an adhesion level of 60% or 65%, the swap on defaulted bonds for new bonds doesn't give the government much margin for complying with one of the short term goals.

The clear success of the swap was to have been to obtain a high level of adhesion and, as such, get US$1 billion in fresh money at a rate below 10% annually.

In those days and with volatile markets, that chance is not in Argentina's reach, which will have to pay between 13% and 15%, a politically untenable rate for the Casa Rosada.

But, also, the emission of new bonds to deliver to the creditors for some US$6 billion will mean having to pay out an exacting toll of dollars from now until next year's elections.

Far from having gotten their US$1 billion, the Treasury will have to pay out some US$900 million until the end of 2011 to comply with the conditions of the emission of the new bonds.

For that, apart from asking themselves about the real economic advantage of the swap (in the medium term, without a doubt, there will be one) the governmetn put its Plan B into motion.

The strategy is not new for Kirchner, which consists of putting together the biggest amount of dollars from exports to face financial uncertainty and, as such, avoid the dollar dropping.

In May, the Central Bank bought US$1.5 billion, totaling purchases of US$3.9 billion in the year so far.

One number to take into account is that despite this result, the reserves only grew something more than US$900 million.

Was it because the reserves were used to pay debt or because, although it has moderated, the exit of dollars has not stopped?

Certainly that little by little the Central Bank, beyond the possible heterodox definitions, acted in a clearly orthodox manner.

Worried about inflation, it placed letters and notes to take the majority of pesos out of the market that it had to emit to buy dollars.

The inflationary scare of the first quarters, when meat shot up and the cost of living index was projected at 30% a year (now estimated at 20 to 25%) seeks to have changed some ideas.

Or maybe they are preparing the ground for the second part of the year when they roll out the loans for SMEs at a fixed rate of 9.9% a year that the Central Bank had planned to pour 8 billion pesos into.

Meanwhile, and together with the reactivation it is seeing, Argentina is continuing to give signs of having two difficult problems to solve: inflation and the high cost of financing.

They are two signature pending issues that, as it's possible to see in the charts, the country can't feel proud of either at home nor among its neighbors.

The impulse that proportions the export of soy beans, at the hands of a good level of production, and the demand generated by Brazilian growth continues to push the economy along.

Also, according to estimates from United Nations organizations (FAO and OECD) that came out this week, food prices will be high at the international level in the coming years.

The "Agricultural Perspectives for 2010-2019" indicate that, with the exception of pork, prices of agricultural products should be higher than in the decade of 1997-2006.

And it predicts rises of 14 to 40% for wheat and dairy products and more than 40% for vegetable oils.

To be fulfilled, the tailwind that comes from abroad could be maintained for Argentina.

The increase in agrofarming production and good international prices project a trade surplus for the year of US$15 billion, but that result is not static.

Economist Ricardo Arriazu regularly says that with the same level of production, and with prices of grains from 2001, the strong surplus of today would turn into a deficit.

Argentina, like all countries in development, continues to depend greatly on what happens with prices abroad and on rainfall.

This year, prospects play in favor of the point where it is believed that the European crisis won't hit grains hard and that would help to maintain low international interest rates.

But, despite that the planets are largely aligned, the country still can't get credit at a reasonable rate. Today Argentina's foreign interest rate is more than 11% a year, double that of Brazil.

The exercise seems to demonstrate that to make a fruitful economic policy in time, there's much more to do than gather dollars.

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