ECONOMY-ARGENTINA: Government Proposes Record-Setting Write-Off

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Sep 22 2003 (IPS) - Argentina on Monday proposed a 75-percent write-off of its 94.3 billion dollars in debt held by private creditors, representing the biggest and most complex debt restructuring offer in contemporary economic history.

Economy Minister Roberto Lavagna used his presence at the International Monetary Fund and World Bank board meetings in Dubai, United Arab Emirates, to lay out the operation, which would not include compensation for interest accumulated since December 2001, when Argentina defaulted on the privately-held debt.

Lavagna’s announcement was reiterated in Buenos Aires by President Néstor Kirchner, who explained the proposal’s details to lawmakers.

Cabinet chief Alberto Fernández said the aim of the restructuring of debts to private creditors "is to find a realistic balance between what the country produces, what it owes, and what it can pay."

The plan is "realistic" given that the bond price today is 30 percent of the nominal value, says Alejandro Vanoli, professor of international economy at the University of Buenos Aires.

Furthermore, Argentina would be in danger of failing to keep up with payments in a few more years if the government reduces the 75-percent write-off request, Vanoli told IPS.

Lavagna admitted that the proposal might not meet the creditors’ expectations, but he justified its limits citing the data representing country’s current financial situation.

His finance secretary, Guillermo Nielsen, said it is "the most complex restructuring in history," with 152 types of bonds in 14 different currencies, issued under eight different legislations.

The Argentine government is proposing that creditors should opt to exchange their debt titles for three groups of treasury bonds.

The swap calls for a 75-percent reduction of the debt’s nominal value and a lesser reduction of interest, a second would be without a cut in the current sum but with a longer payment timeline and loss of accumulated interest, and the third would be tied to the economic growth of Argentina’s gross domestic product (GDP).

"It is not the intention of the government to modify" the write-off percentage stated in the proposal, Lavagna said.

Official projections indicate that the country’s total debt of 145 billion dollars could surpass 170 billion by year’s end, when the emission of bonds will be completed for compensating those who lost money in the December 2001 economic collapse.

"If we set aside the GDP of an entire year to pay off the debt, we would still be left owing a third of the total," noted Fernández. In other words, Argentina’s debt is equivalent to 150 percent of its GDP.

As such, in addition to the debt owed to private titleholders and some 15 billion dollars in late interest payments comes the debt to the multilateral creditors of 32 billion dollars. The latter was renegotiated earlier this month, postponing maturities that were to come due over the next three years.

"Argentina doesn’t have much margin to make payments, and so far has planned to earmark 15 percent of public spending next year for payment of interests on the foreign debt," said economist Vanoli, who is a member of the "Grupo Fénix", a multidisciplinary group of experts critical of strict neoliberal economic policies.

He said the offer of a bond that is adjusted to the country’s GDP is a novel and realistic approach to the debt problem. "Only if there is growth, and if the capacity for payment increases will Argentina pay more."

A Grupo Fénix study found that the interest that Argentina paid in the 1990s, at rates higher than those in stable economies, was 43 billion dollars.

Vanoli said the holders of these treasury bonds "earned before the default what they stand to lose now."

In this sense, the economist says there is a "co-responsibility" of creditors and their advisers, a fact that minister Lavagna mentioned in his address in Dubai, and recognised by the titleholders themselves.

In an interview on a local Argentine radio station, Italian attorney Mauro Sandri, representing creditors in his country for debt totalling 25 million dollars, said Lavagna’s proposal "can’t be considered positive," but that responsibility does not lie in this country alone.

"Argentina defaulted after being assisted by the IMF for more than 10 years, and the international banks used a strategy of placing bonds among their clients in order to carry forward a major speculative deal," he said.

Regardless of responsibilities, economists here say there has never been a debt restructuring so vast and complex as Argentina’s in contemporary economic history.

Russia and Ecuador also turned to debt restructuring after undergoing serious financial difficulties, but the sums involved were smaller (31.6 billion and 6.6 billion dollars, respectively) and the conditions for reprogramming their debts were much simpler.

Experts say the Argentine proposal may not put an end to the lawsuits that creditors have filed against the Latin America country in courts in France, Germany, Italy, Japan, and the United States for some 740 million dollars, but at least the long-interrupted negotiations are beginning again.

Once the details of Monday’s offer are considered, the creditors – through their associations – could present a counteroffer with a menu of choices, just as the Kirchner government did. And once there is agreement on all sides, Argentina would begin to pay.