FINANCE-ARGENTINA: Small Creditors Dissatisfied but Persistent

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jun 2 2004 (IPS) - The local creditors of Argentina’s public debt saw the debt they held declared in default 29 months ago and now are seeing progress in the restructuring offer the government presented Tuesday, but they are upset because they will be treated just like the so-called "vulture funds".

"Our bondholders, whose average age is 65, cannot wait 42 years to cash out their titles and will be forced to sell them to the vultures," says Carlos Báez Silva, head of the Savers’ Association of the Argentine Republic (AARA), created when payments to private creditors were suspended in December 2001.

Báez Silva is referring to speculative funds that target companies or countries in bankruptcy to purchase bank debts or "junk bonds" cheap, staking bets on profits from quick trades or ultimately suing the state for full repayment.

They are usually far from the media spotlight, but the local holders of Argentina’s public debt constitute 40 percent of the creditors hit by the default that the government declared more than two years ago.

These small creditors include retirees, professionals, academics, housewives and small business owners – many now in bankruptcy. They are represented by three entities, one of which encompasses the administrators of Argentine pension and retirement funds.

The latter entities had nearly half of their portfolios placed in the government bonds that fell into default in late 2001 when Argentina’s economy collapsed.

Now they are being offered a new bond (quasi-par) in the local currency, the Argentine peso, with a maturity of 32 to 42 years, and 5.7 percent interest, but without taking inflation into account.

Economy Minister Roberto Lavagna announced on Tuesday an "improved" offer for restructuring the privately-held debt, estimated to be worth 81.2 billion dollars.

The government now includes the interest accumulated from the time of default through Dec. 31, 2003, which increases the sum to be refinanced to 99.4 billion.

Argentina plans to apply a 75-percent cut in the nominal value of the titles for this new sum that includes interest. In other words 60.9 billion dollars, leaving a new debt of 38.5 billion.

But if more than 70 percent of creditors accept the new bonds, the state will recognise that effort, including in the total amount the interest that has built up since Dec. 31, 2003, through Jun. 30 of this year, raising the debt to be restructured to 104.1 billion dollars.

As such, in applying the 60.9-billion-dollar discount in the value of the titles, the debt to the private creditors could reach 43.2 billion.

Furthermore, the new Buenos Aires proposal establishes three types of new bonds, with different interest rates and based on different currencies, with maturities of 30 to 42 years.

The Argentine government also proposes for each bond the payment of an extra coupon if the gross domestic product (GDP) growth is more than three percent annually beginning in 2005, which would increase the eventual volume of debt to be restructured.

But there will be no cash payments, and this is the final offer, says Buenos Aires.

On another front, Argentina has another debt of 80 billion dollars, on which it makes regular payments, to multilateral credit institutions and bondholders who purchased titles after the default, many of which are private banks. Overall, the national debt reaches 180 billion dollars.

Many private foreign creditors rejected the new proposal announced Tuesday, saying it is "unilateral" and was drafted without consultation, while local creditors expressed greater willingness to accept the changes – and keep negotiating.

Báez Silva says the proposal is "an advance" with respect to the plan Lavagna announced last September in Dubai, during the joint meeting of the World Bank and the International Monetary Fund. That offer did not recognise the interest accumulated since the default.

But the AARA – with 400 members and more than 2,000 followers – is still waiting for a response to its request for differentiated treatment for individual and institutional bondholders, an initiative that was well received by the Economy Ministry during a round of dialogue with creditors in March.

The AARA creditors also demand that the government recognise the real purchase price that the individual Argentines paid for the titles, which, in general, was quite high. Most bought bonds for 85 to 95 percent of their nominal value, estimates Báez Silva, and some were simply forced to accept the paper as a form of payment.

"Many of our members are retirees or government suppliers who received bonds as payment," the AARA leaders said.

These bondholders are not in the financial market speculating to obtain major profits like the vulture funds are, he stressed.

"We don’t aim to recover 100 percent of the bonds, but a 75-percent cut is the opposite extreme," said Báez Silva.

He expressed optimism that the government might consider the differentiated treatment request. "Just as they loosened the Dubai proposal, which seemed firm, now there could be further changes."

Will there be a "third round" of offers and counter-offers in talks between the government and creditors? "We are focusing on that, because we are assuming there won’t be 70 percent approval (among bondholders) as minister Lavagna has calculated," Báez Silva predicted.

Another group of local individual creditors, ADAPD, an association of Argentines who lost money in the default and in the conversion of their dollar savings into pesos, also sees the new proposal as positive, but announced it will continue negotiating cash payments for the bondholders, because "they need money to keep living."