MercoPress. South Atlantic News Agency

Argentina begins dialogue with private creditors.

Argentina proposed this Monday in Dubai a restructuring of its foreign debt of 94,3 billion US dollars that includes an average write off equivalent to 75% of the face value of defaulted bonds.

As had been announced and taking advantage of the annual IMF-World Bank annual assembly, Economy Minister Roberto Lavagna addressed Argentine defaulted bond holders' representatives and offered three main options: discount, par and capitalization "C" bonds linked to Argentina's economic growth.

Discount bonds will suffer a nominal 75% write off and par bonds will keep face value but have longer maturing dates and lower rates.

The 94,3 billion US dollars represents 52,7% of Argentina's sovereign international liabilities with the private sector. Officials estimate Argentine residents are holders of half that amount that is made up of 152 different bond issues with arbitration in eight countries.

Finance Secretary Guillermo Nielsen added that the three basic restructured bonds will also contemplate a mix of further options with fixed and linked rates.

"We want to share the benefits of a faster medium term growth, with interest rates that contemplate the situation in the event of a slowing down or fall of the economy", said Mr. Nielsen emphasizing that Argentina will offer "a whole family of bonds to satisfy the different holders".

Mr. Lavagna indicated that Argentina would be the global coordinator of the operation but will invite twelve leading banks in emerging markets to syndicate for the exchange process. Bonds will be issued in US dollars, Euros, Japanese yens and indexed Argentine pesos.

The defaulted bonds restructure is closely linked to the recent three years 21 billion US dollars accord reached with the IMF to refinance and limit repayments to multilateral organizations such as the IMF, World Bank and Interamerican Development Bank, "extending until 2013 and 2018".

"This point is not included in the current letter of intent that expires in 2006, but conversations have begun", said Mr. Nielsen. According to the agreement with the IMF Argentina must achieve a 3% of GDP primary budget surplus in 2004 with the purpose of addressing creditors.

Mr. Lavagna stressed that the main burden of the restructuring bond negotiations will fall on Argentine residents who hold 34% of the defaulted papers and revealed that the 3% surplus estimated for 2005 and 2006 is the floor "and could increase depending on economic growth and a reduction in unemployment and poverty".

Mr. Nielsen added that if Argentina was to pay debt interests in 2004 according to the original agenda "it would have needed an 8% primary surplus budget".

The press in Dubai described the reactions of defaulted bond holders' representatives as "diverse and angry". Foreign creditors are organized in four consulting groups operating from New York, Italy, Germany and Japan.

In Buenos Aires financial markets Argentina's country risk index jumped to over 5,100 points, the bond market lost ground but the Argentine peso remained stable at 2,93 to the US dollar.