MercoPress. South Atlantic News Agency

Lavagna: IMF-Argentina relation has resumed

Argentine Economy Minister Roberto Lavagna described as “positive” his meeting in Washington with IMF Managing Director Rodrigo Rato which helped resume Argentina's relation with the multilateral organization following the completion of the defaulted sovereign debt exchange.

Mr. Lavagna returned Wednesday to Buenos Aires after spending three days in Washington where he met with IMF and US Treasury officials plus representatives from private and multilateral financial institutions.

Argentina in late February managed to restructure 62,2 billion US dollars out of its 81,8 billion dollar defaulted debt, (76,06% acceptance), thus reducing its total public debt to 125,2 billion (72% of GDP) from the 191,2 billion at the end of 2004.

Argentina proposed a 75% face value cut on defaulted bonds meaning restructured bond holders were paid 30/34 cents on the dollar in net present value terms.

IMF spokesperson Thomas C. Dawson described the conclusion of the debt offer as "an important step for Argentina" which represents "an important opportunity for the country to move forward since there's a lot of work remaining ahead to achieve a sustainable growth path in the years ahead".

A more formal release indicated that the initial conversations between IMF and Argentine representatives had been "fruitful and cordial" and it was agreed that the following step is holding additional meetings at technical level in Washington in the coming weeks.

US Treasury Undersecretary for International Affairs John Taylor said that the participation in Argentina's debt exchange was higher than many had expected, given the complexity of dealing with such a large number of bondholders. "It has to be regarded as a success; now we are anxious to see how they proceed with the other creditors", emphasized Mr. Taylor.

However Mr. Lavagna at all times has insisted that Argentina's new bonds had been issued on the condition that old debt would not continue to be serviced and recommended the holdouts to sue investment banks for the losses they had to take.

But Italian and Japanese officials have indicated that the relatively high level of acceptance has not closed the matter. Furthermore in Italy where many sovereign bond holders are individual pensioners the government has requested market regulators to sanction several Italian banks for not having respected the correct presentation procedures of investment services, "particularly those referred to the sale of bonds issued by the Argentine government".

When Argentina finally gets its existing stand-by program with the IMF on track, or a new one, it will have to go ahead with pending structural reforms previously agreed among which restructuring the banking system; dealing with the public utilities which have had rates virtually frozen since the 2002 crisis and sorting out the relationship between the federal government and spendthrift provinces.

Last September Argentina and IMF agreed to freeze the 13,3 billion US dollar aid program signed in 2003 until the country had completed the swap of debt in hands of private bondholders. Argentina has been honoring its debts with multilateral agencies during the three years plus default.