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Thursday, 15 November, 2001, 23:31 GMT
Argentina announces debt swap
Argentina's President Fernando de la Rua
de la Rua: Praise for policies from the US
Argentina has set the date for a daring attempt to slash its $60bn (42bn) domestic debt and avoid defaulting on foreign loans.

The country's central bank wants to swap the 10-year bonds creditors currently hold for 13-year loans with more manageable rates of interest, to be backed by a new tax on financial transactions.

It is not the creditors' job to structure the country for long-term viability. It is the creditors' job to get a return on their original investments

Emerging Markets Traders Association spokesman
Banks are being asked to sign up between 19 and 23 November, while the dates for private creditors are from 19 to 30 November.

Under the swap scheme, $60bn worth of locally held 10-year bonds will be extended by three years and earn lower rates of return than before. The aim is to free up breathing space for Argentina to find a way to avoid defaulting on $72bn of international debt.

Its hands have been tied by a four-year recession, and exacerbated by the global economic slowdown.


The swap deal finally became possible - if still risky - after provincial governors from the opposition Peronist party agreed to sign an austerity pact.

Their agreement was vital, not only for the swap deal, but if Argentina is to have any hope of getting a $3bn loan from the International Monetary Fund (IMF).

The sticking point was cuts in the amount of income the central government gives to the provinces each month.

"This is fundamental for Argentina finding a way out of all this," said Marcelo Tain, director of Argentine Brokerage SBS.

But some ratings agencies have warned that since local institutions have no choice in the swap, the whole plan is a default in fact if not in name.

People who put their money in risky situations... if it turns out badly, it should be for their account

Paul O'Neill
US treasury secretary
And the IMF said it is not ready to free up any more money until Argentina could give it more information - and until it managed to achieve a better relationship with its creditors.

"We certainly want to get to the point where we can send a mission," said Anne Krueger, the IMF's first deputy managing director.

"There is, however, no point in sending a mission until such time as we can actually complete it, and that means we need more information on several things."

Some creditors are planning legal action against both Argentina and the IMF, saying the debt swap prioritises local investors over foreign ones.

About 10 big holders of Argentine bonds are grouped together under the auspices of the Emerging Markets Traders Association (EMCA)

"Everybody on our side of the table recognizes that not only Argentina but the multi-laterals will be arguing from the standpoint of doing a debt restructuring that ensures the long-term viability of the country," said Hans Humes, spokesman for the EMCA.

"But it is not the creditors' job to structure the country for long-term viability. It is the creditors' job to get a return on their original investments."

US encouragement

And US Treasury Secretary Paul O'Neill helped concentrate minds by stressing that no public bailout would be available in the US, nor would the US muscle in on what it sees as an IMF responsibility.

"People who put their money in risky situations... if it turns out badly, it should be for their account," he said.

But he praised the initiatives taken by the Argentine government of President Fernando de la Rua.

"The situation is really quite encouraging at the moment, because President de la Rua is personally taking charge of taking the initiative," Mr O'Neill said.

"He is not crying for huge volumes of new additional money."

See also:

15 Nov 01 | Business
Breakthrough for Argentine debt plan
06 Nov 01 | Business
Argentina debt default fears mount
31 Oct 01 | Business
Argentina plays down default fears
31 Oct 01 | Business
Argentina's woes fan further concern
22 Aug 01 | Business
IMF agrees extra cash for Argentina
01 Sep 01 | Business
Argentina's economy set to shrink
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