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Looking to send a signal to the Paris Club
La Nacion
August 26, 2008

The government wants to advance an agreement that allows it to obtain credits for infrastructure; they'll repurchase more bonds

By Mart n Kanenguiser

More or less, pushed on by financing problems, the government seems to be losing its long-standing lethargy: tomorrow will be the first public auction of debt repurchasing, while they intend to send signals to the Paris Club to see if, at some moment, it could reach an agreement that would allow for infrastructure credits.

Sources that are participating in the weaving together of the financial program told LA NACION that there is a will to reinitiate conversations with the Paris Club to pay a debt of close to US$6.5 billion, after the hold-up caused by the farm crisis and the succession of changes at the Economy Ministry.

Months ago, the Finance Secretariat put together some analyses for the discussion of the Paris Club, that now have been taken back up by the new Cabinet Chief, Sergio Massa.

The minimum alternative is to present a refinancing plan that is longer than the six years agreed to by Spain; the maximum, to use part of the Central Bank reserves to pay the penalties (close to US$4.5 billion) and refinance the other US$2 billion. The Central Bank seeks to minimize the potential use of reserves and affirms that the Treasury has sufficient resources in dollars by way of the trade surplus.

There are two main obstacles for this idea to move ahead:

* To convince the Kirchners that an agreement with the Paris Club will allow for reductions in financing costs (above all in the sensitive sector of infrastructure, which now has fallen into the need to prune down the rise in public spending to show a discal surplus of 3.5% for this year).

* To reverse the sour foreign mood that exists about this negotiation, above all after Argentina voted at the International Monetary Fund (IMF) against the reforms proposed by its director-general, Dominique Strauss-Kahn, who had expressed his readiness to act as a "facilitator" of an accord.

Also, in the context of Article IV, they will have to set a date for the review of the Argentine economy that is done for all members of the IMF, delayed since 2006, which means improving the inflation measures so they are more credible.

A more difficult mission, but mentioned by some officials, is an offer for the European bondholders that didn't accept the debt swap in 2005. Until now, to speak of this issue has been vetoed by N stor Kirchner, but it has begun to come out, in part, to raise the price of bonds.

To put these conditions in practice will be very complex, for now, the table that is made up of Economy Minister Carlos Fern ndez, Finance Secretary Hern n Lorenzino, and Central Bank President Mart n Redrado, is moving forward with the debt repurchasing to lower the country's very high country-risk.

Through the repurchases done on the secondary market for US$370 million in the last two weeks, Economy put a stop yesterday to that operation to focus on the first public auction, which will be announced today and take place tomorrow.

The official goal is that on Thursday there will not be too many offers (meaning that many investors want to continue selling their bonds), but, at the same time, raise the price of the bonds that come due this year and next.

In that respect, economist Miguel Bein bet that they will repurchase Pre8, Pre9 and, above all, Boden 2012, while they'll have to also move into Bonar 2017 and the coupons in pesos linked to GDP. "If they organize it well, they'll have success without the participation of the AFJP or the banks and could strongly lower the price on credit default swaps for Argentina, which are now the highest among countries which pay their debt," he said.

Resources on hand

In this symphony, the bank Morgan Stanley yesterday put out a report that assures that Argentina "should be able to pay its debt in the coming 12 to 18 months," differing from the apocalyptic reports coming from Wall Street over the last week.

According to analyst Daniel Volberg, of Morgan Stanley, the government has a series of tools to elude a default:

* There is US$ 10 billion in public deposits in the financial system and US$47 billion in Central Bank reserves. From this amount they could use US$4 billion above the 12 billion they need.

* The AFJP could hand over between US$1.8 billion and US$3 billion.

* A rise in residential light and gas rates of 30% until the end of 2009 would allow for a reduction of US$2.9 billion in state subsidies, which could be used to pay debt.

* A primary surplus of 3.4% this year and 2.1% in 2009 (plus another "favor" from the Venezuelan government) would provide the rest to elude a default.