Abandoning the exchange rate fixed parity policy of one US dollar equivalent to one Argentine peso in January 2002 cost Argentina an additional 28,184 billion US dollars in sovereign debt according to the latest release from the Finance Ministry.
The "non voluntary and inertial" sovereign debt increase "derived from the collapse of the convertibility system" between the peso and the US dollar was caused by the issuing of new bonds to compensate bank depositors and financial mismatches; rescuing provincial bonds (that were being used as regional money) and paying provincial debts as well as government suppliers, reports the Argentine Finance Ministry.
Argentina's gross debt at the end of 2001 stood at 144,453 billion US dollars which jumped to 178,821 billion US dollars December 31 last year, which represents an increase of 34,368 billion.
The debt increase in those two years is made up of 6,184 billion US dollars of "new" debt and 28,184 billion which was the cost of abandoning the convertibility system, January 2002, after almost eleven years of existence.
The release indicates that the issue of 6,086 billion US dollars in bonds was distributed among bank depositors who had their earnings retained in the financial system following the "corralito" (freezing of bank deposits).
Another 8,304 billion US dollars issue was to compensate financial mismatches when all deposits in foreign currency were converted to Argentine pesos.
Financing provincial debts demanded a bond issue equivalent to 9,679 billion US dollars and 853 million US dollars to pay government suppliers. Rescuing provincial bonds that replaced money issued by some bankrupt provincial governments demanded a bond issue of 2,429 billion US dollars. Finally the civil service and pensioners were reimbursed with bonds totalling 853 million US dollars to compensate for the compulsory salary and pension 13% reduction imposed during 2000, in accordance with the IMF austerity program.
In December 2001 Argentina defaulted 100 billion US dollars in sovereign bonds and interest, considered one of the largest ever in the world. According to the Argentine government 52% of the country's debt remains in default and the Kirchner administration has offered to repay bonds with a 75% cut which has been rejected by sovereign bondholders.
With the purpose of avoiding "interferences" the Argentine government has also requested that the third review of a stand-by agreement with the IMF be delayed until the end of 2004 or early next year to give time for negotiations with creditors regarding a defaulted bonds exchange.
The third review was scheduled for last July but the IMF delayed considering it because of Argentina's lack of advance in the implementation of agreed structural reforms.