Telecom Argentina in record default

The falling peso means higher prices and rising joblessness

Telecom Argentina, the country's second-biggest phone firm, has suspended payments on debts of $3.2bn.

It is the largest corporate default ever in Argentina, analysts believe.

Telecom Argentina, which is jointly owned by France Telecom and Telecom Italia, said it had made the decision because of the falling value of the peso.

The peso has plummeted by about 65% since it was devalued in January, bringing an end to a decade of exchange rate stability.

Paper promises?

As a result, many firms are struggling to afford repayments on dollar denominated loans.

The phone operator said it would continue to pay interest on its debts, but was suspending repayment of the original loans.

Meanwhile, it intends to talk to its creditors about "a comprehensive plan" to restructure all its debts.

"The company has no money to make payments and it has already suggested that what it will do is exchange debt for equity," said analyst Rafael Ber at Argentine Research.

For ordinary Argentines, devaluation has brought higher prices for imported goods and raised fears of further unrest.

Growing trend

Last week US telecoms firm Verizon Communications said its Argentine wireless business, CTI Holdings, would default on $1bn of debt.

And in March, Metrogas suspended payments on debts of $420m. The gas distribution firm is owned by British Gas and YPF of Spain.

A delegation from the International Monetary Fund has arrived in Argentina to weigh up whether to grant the stricken country fresh aid.

New money is essential for Argentina to pull itself out of a deep financial crisis that has caused widespread rioting and deep social unrest.