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Paris Club to be paid with reserves
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September 07, 2008

The Government's financing plans for 2009

By C.L.I.

The perception of risk among operators depends more on the evolution of soy bean prices than paying off the debt with the Paris Club. This is conclusion reached by Ecom trica in its latest report which underlined the weakening fiscal structure of the model. According to the consultancy, although the country has the resources to pay off its maturities in 2009, even after the decision to pay off the Paris Club with reserves, the lack of decisions in the area of the need to correct the maladjustments and the lack of negotiations to resolve the problem with the hold.-outs do not eliminate the risks which the financial markets perceive concerning the country's capacity to pay. "The tendency to reduce the primary surplus requires corrective action from the Government, which hitherto has only shown itself in stopping payments to public works and some minor operations to transfer funds to the provinces, which are probably only temporary and most likely insufficient to reverse the trend of the fiscal results." However, although less than in 2008, the outlook for 2009 continues to manage a surplus of 2% of GDP, which will allow for part of the public debt maturities to be met. As for the rest, the Government will have to look to other sources. Local institutional investors, such as the pension funds, banks and insurance companies appear to be a first option. Also, the Government could use assets which it can dispose of in pesos and transfers from the Central Bank. The Venezuelan option seems the least likely after the effects caused by the latest operation. In 2009, as maturities in pesos increase, practically all the primary surplus foreseen by the consultancy would be used to finance the servicing of the debt in pesos, leaving only 600 million dollars to buy dollars. The servicing of the debt in dollars which is USD 8.5 billion, would have to be financed by issuing new debt with reserves or other public assets.

Will the government find it difficult to meet these maturities because of its difficulties in accessing the capital markets? The 2009 maturities correspond to public papers in pesos Bogar, Bonar, Bocones Prestamos Garantizados and a large part of these assets are in the hands of institutional investors banks, pension funds an insurance companies. Thus, the refinancing of these maturities by emitting new papers in pesos is a viable alternative but "although part of these maturities may be refinanced, there will probably be a difference which will have to be met using other resources," evaluated Econom trica. "If the Government does not take decisions that will improve access, it will have to resort either directly or indirectly to using reserves or other assets (deposits) to meet the debt servicing requirements," concludes the report.