Kirchner to drive hard bargain

19/03/2007 | Thierry Ogier

Argentina is expected to restructure its outstanding debt with the Paris Club before it considers reopening the exchange with private bond holdouts and normalizes relations with the international capital markets.

The restructuring will follow the 2004 compulsory debt restructuring and the $82 billion default of bonds in 2001.

Argentina is likely to reopen the exchange sometime next year. But this will definitely not happen before the elections [a presidential poll is due next October],” said Edwin Gutierrez, fixed income portfolio manager at Aberdeen Asset Management.

Meanwhile, some progress is expected at the Paris Club on sovereign debt, following the $900 million agreement with Spain last month. Nevertheless, Argentine president Nestor Kirchner has warned that he would not allow the IMF to coordinate any Paris Club deal.

“The only current negotiations are related to the Paris Club,” Christian Giraudon, head of the Brazilian subsidiary of BNP Paribas in Buenos Aires, said. Argentine officials “have made some progress, and there is a will to pay back the entire debt,” he said. Terms and the length of the payback period have yet to be agreed. 

Argentina still owes nearly $6.5 billion to 19 Paris Club creditors, and the Kirchner government is trying to reschedule payments over 10 years at a 6.5% annual interest rate after a three-year grace period. In addition, Argentina still has to deal with the consequences of $20 billion of unpaid private debt dating back from 2005.

The sovereign’s access to international capital markets has been virtually cut off since then, as private creditors have threatened to sue and seize any amount raised by Argentina. The Kirchner government has instead had to rely on Venezuela-led joint bond issues.

Kirchner is now understood to be considering offering new securities to investors who turned down the previous debt settlement in order to end lawsuits.

“People may be pleasantly surprised with the level of acceptance in the second opening. A lot of bonds have been changing hands,” said Gutierrez. Aberdeen Asset Management started buying Argentine bonds in the third quarter of last year.

“The bond is already a good performer and it may become one of the potential good deals of the year,” Gutierrez added.

Meanwhile, the government is facing accusations of manipulating inflation figures.

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