The Argentine government will not entertain re-opening last
years record breaking debt swap to resolve the $20
billion in defaulted bonds, whatever the economic implications,
according to analysts. But fund managers are increasingly
calling into question the governments strategy of
ignoring the unresolved debt.
That strategy does not make good economic sense for the
country, a leading fund manager said. At this point,
with a minimum of decent communications [from the Argentines],
a broad majority of the hold-outs would fold and accept an even
larger discount. According to my calculations, there are only
about $6 billion held by investors who are willing to pony up
the money to keep fighting.
He questions the rationality of being barred from raising
money in the cheapest, most liquid market in years in order to
clip the wings of the vultures to save what
amounts to a piddling sum of money.
Although the unresolved bond hold-outs should, in principle,
have prevented Argentine authorities from accessing
international financing, the opposite appears to be the
The sovereign has been able to place successful foreign
currency bonds in the domestic jurisdiction, avoiding the
threats of embargos posed by deep pocketed vulture
funds which are still fighting in US and European
Sources in the economy ministry claim that three quarters of
this years financing needs are already covered,
leaving, they say, only a $2 billion gap to be filled during
the rest of the year.
Guillermo Mondino, Latin American economist for Lehmann
Brothers, points out that, given the current economic picture
in Argentina and the appetite for yield, there is simply no
source of sufficient pressure to force any movement
on the hold-out front. From the
governments point of view, there is no gain at this
point, he said.
No question about it: Argentinas debt
swap was a big win for the country and a big rip-off for the
markets, said a prominent hedge fund director. He
predicts that the paper still held by investors who refused to
participate in the restructuring will join the bonds of Czarist
Russia and the US Confederacy as worthless curiosities.
The February 2005 restructuring discounted over $120 billion
in bonds by about 75%, the largest haircut in the modern
history of defaults. For 24% of the bondholders this was a trip
to the barber they were unwilling to make.
The US Treasury which has played a dominant hand
in debt restructurings around the world is sitting
conspicuously on the sidelines. When asked about the hold-outs,
Clay Lowery, Assistant Secretary of the US Treasury for
International Affairs, was categorical: the issue does need to
be addressed. But, he added quickly: We are very
careful not to intervene and in no way are we trying to be an