By Marcela Valente
BUENOS AIRES, Mar 4 2005 (IPS)

Argentina’s debt swap was accepted by 76 percent of the holders of defaulted bonds, which will reduce the country’s enormous debt burden and improve its ability to meet payments, although it also leaves a number of lessons.

Economy Minister Roberto Lavagna announced that out of a total of 81.8 billion dollars in debt that Argentina defaulted on in December 2001, bonds worth 62.2 billion dollars will be restructured.

Participating bondholders accepted a loss of around 70 percent of their investment in the restructuring, which enjoyed only lukewarm support from other Latin American governments.

"It’s likely that with greater regional backing, the restructuring would have been deeper, but we’ll never know that," economist Julio Gambina, an activist with the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC), told IPS.

Visibly pleased with the high proportion of bondholders who signed up to the government’s offer, President Néstor Kirchner said Thursday that the end of the debt swap marked a watershed in the economic history of Argentina, and that its success represented the removal of one of the main hurdles to the economic and social development of a country that still faces "many challenges."

The exchange of defaulted bonds for new ones opened on Jan. 14, after 37 months of default, and ended on Feb. 25.

The government presented only preliminary figures on the swap Thursday – the final results are to be announced Mar. 18 – and made no reference to the bondholders who refused the government’s offer, which was a one-time deal.

The success of the debt swap will bring Argentina’s public foreign debt down from 190 to 125 billion dollars, said Lavagna.

That means the country’s total public debt will stand at 72 percent of gross domestic product (GDP), compared to 113 percent in 1991.

And because the new bonds are denominated in four currencies – U.S. dollars, euros, yen and Argentine pesos – the restructuring lowered the portion of the debt in dollars from 66 to 37 percent, while the portion in pesos rose from three to 37 percent.

In addition, the amount going towards interest payments next year will be one-third less than in 2001.

Nevertheless, both Kirchner and Lavagna stressed the need to learn lessons from the debt swap, which drew criticism from all sides: from creditors, the multilateral lending institutions, and free-market economists, who had predicted that it would fail.

There were complaints from the left as well. Leftist leaders in Argentina said they did not accept the conditions offered, on the grounds that the debt should be investigated, rather than legitimised through a swap, and because the restructuring will still leave a hefty debt burden.

Kirchner insisted on the need to come up with an Argentine proposal that recommended special treatment for small bondholders at the expense of the large creditors, many of whom had purchased bonds even after the default was declared.

Lavagna said the restructuring demonstrated that a policy aimed at avoiding further indebtedness is key to maintaining macroeconomic equilibrium and to gaining greater maneuvering room for designing economic policies, especially with respect to the multilateral lenders.

Argentina stopped seeking fresh credit after the December 2001 economic collapse and default.

The economy began to pull out of its worst crisis ever, which tipped over half of the population into poverty in 2002, and economic growth has been strong over the past two years, while a fiscal surplus was posted and debt payments were made to the multilateral lending institutions.

Lavagna also said it was important to tie debt servicing payments to economic growth.

Kirchner acknowledged that economic growth would be insufficient, if the government fails to take measures to reduce poverty, achieve more equitable distribution of income, help generate "decent employment" and continue reducing the country’s foreign debt.

The debt swap and the periodic renegotiations of Argentina’s accord with the International Monetary Fund (IMF) did not have the support that Buenos Aires would have desired from its partners in the Mercosur (Southern Common Market) trade bloc, especially Brazil.

On Wednesday, in Montevideo, the capital of Mercosur member Uruguay, Kirchner and presidents Luiz Inácio Lula da Silva of Brazil and Hugo Chávez of Venezuela agreed to discuss a common stance to take towards the multilateral lenders.

But Chávez went even further, announcing that his country would purchase 500 million dollars in new Argentine debt bonds.

Uruguay’s new leftist government, headed since Tuesday by President Tabaré Vázquez, made no comment on Argentina’s debt rescheduling.

But new Agriculture Minister José Mujica said this week that what had prevailed in the region was a "lack of solidarity", and "cowardliness".

"Now, partly thanks to Argentina, the multilateral lenders could be more open to non-traditional approaches," said Mujica.

According to Gambina, the line taken by the Kirchner administration, which has faced up to the IMF and has suggested that a portion of the country’s debt be written off, is being analysed by left-wing movements in other countries as an alternative route to be followed that deserves the support of progressive governments in Latin America.

But, he added, Buenos Aires should have investigated the "fraudulent origin" of the foreign debt.

He also wondered how Argentina would pay off its foreign debt without compromising key national concerns like alleviating poverty.

"At the international level, Kirchner’s stance towards the IMF has had a much greater impact than the reality, which showed that the Argentine government saw that body as a privileged creditor, and punctually met all of its payments, without refinancing or reducing that part of the debt," said the economist.

"It is very likely" that with greater support from the rest of the region, the government could have gone even further, said Gambina. "Even if they say Argentina talks tougher than its bite, we have to admit that Brazil didn’t even accompany it in its tough talk."

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