MercoPress. South Atlantic News Agency

Argentina to buy 2008/98 bonds to help calm markets

The Argentine government announced the purchase of 2008 and 2009 bonds, --plus interest payments in advance-- in an effort to ease markets which have shown great anxiety over the political situation and economic slowdown of Argentina, particularly last week.

"This action is sustained on the opportunity offered by the market value of national debt paper registered in the last few days and which don't correspond at all with the solidity of economic and social fundamentals of the country", said a release over the weekend from the Economy ministry. Bonds to be purchased include issues in Argentine pesos and in US dollars. According to Economy ministry sources quoted in the Buenos Aires press, the strategy consists in advancing payments which have to be honored in the rest of 2008 and in 2009 "since the Financial Program for the current year has been virtually completed". The idea is to take advantage of the collapse in markets of some of the Argentine bonds. Argentina's risk rating has soared since the country has been involved in the long stand off with farmers protesting over taxes which included a serious government setback in Congress, exposing the vulnerability of the Kirchners' administration. With the risk factor up and bonds down, last week was considered the worst Argentina has undergone since 2005. This was further heightened by Venezuelan President Hugo Chavez who has become the country's lender of last resort and acquired a billion US dollars in Argentine bonds at an interest rate undisclosed, but estimated at 15%. The Venezuelan government immediately got rid of the Argentine papers by selling them to Venezuelan banks. Argentina is fearful of international money markets because of the holdouts from the massive sovereign bonds reschedule agreed in 2005, whom still have over 20 billion US dollars. Argentina is also trying to come to an agreement with the Paris Club, the industrial nations developing banks organization which usually extend soft loans, and has seven billion US dollars pending. Developed nations are demanding the IMF audit Argentine accounts before an agreement is reached with the Paris Club, which would then open access to further credits. However since the two Kirchner administrations have made combating the IMF a political crusade, and responsible for the evil of all economic evils Argentina has suffered, the situation remains stagnant until an elegant exit for both sides can be reached. Benefited by soaring prices for commodities and budget primary surpluses, Argentina has managed to accumulate international reserves to the tune of 50 billion US dollars. But domestic and international investors are restless over Argentine inflation and the Statistics Office (and the Kirchners) which insists that the Consumer Prices Index is below 10% and the private sector, provincial governments and unions (even faithful to government) work on the basis of 25 to 30% annually.