MercoPress. South Atlantic News Agency

Argentine bond swap begins

This Monday Argentina sets off the first stage of the bonds swap operation addressed to lower interest payments with an expected 2,5 billion US dollars saving in 2002 and avoid defaulting on foreign loans.

"The operation is to guarantee savings and the assets of Argentines and foreigners", said Finance Minister Domingo Cavallo, adding that the new 13 years bonds should have interest rates below 7% and will be backed by a tax on financial revenues. Risk agencies have warned that since bond holders have no choice in the swap, the whole plan "is a default in fact if not in name".

Mr., Cavallo denies the swap is imposed and insists it ensures Argentina will honour its debts, which can also be interpreted that if the operation does not go ahead, the country might be forced to default on its 132 billion US dollar debt.

In this first stage the scheme covers 60 billion US dollars of bonds held by local banks, pension funds and other financial institutions. Banks are being asked to sign this week while private creditors from November 19th., until the end of the month.

The swap deal follows an austerity agreement with provincial governors that took several weeks of intense negotiations. The agreement is seen essential for the IMF to release a 3 billion US dollars loan which should help with the swap operation. However big holders of Argentina bonds have grouped under the Emerging Markets Traders Association and consider that "it's not the job of creditors to re structure long term viability of a country or its foreign debt; it's the creditors job to get a return on their original investments". Nevertheless US Treasury Secretary Paul O'Neill praised the initiative of the Argentine government, and warned that there will be no public US bailout to the situation since the responsibility belongs to the IMF. But Mr. O'Neill also set the framework for the re structuring.

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

In this first leg, ten year bonds will be swapped for 13 year bonds with a 7% interest rate cap. Interests will be paid monthly beginning next April and will be guaranteed with a tax on financial revenues equivalent to 400 million US dollars per month.