MercoPress. South Atlantic News Agency

Argentina will meet debt obligations, says cabinet chief

Cabinet chief Sergio Massa

Argentina will meet all its debt obligations in 2008 and 2009, said Cabinet chief Sergio Massa addressing investor concerns that political tensions could reduce its budget surplus and slow its debt payments.

Given foreign currency reserves of about 47 billion US dollars "no well-intentioned person can doubt that Argentina is going to meet each and every one of its commitments", Massa told investors in Buenos Aires. Argentina edged near economic crisis this year when four months of farm strikes stalled exports, slashed export tax income, caused sporadic food shortages and there was an incipient run on bank deposits. President Cristina Fernandez de Kirchner popularity fell below 20% in several July polls, while Standard & Poor's cut its country rating and Moody's Investors Service slashed its outlook for Argentine debt. Investors have warned that slowing tax income could narrow Argentina's fiscal surplus and force Mrs. Kirchner to choose between public spending and debt payments. The fear is that her weakened political position could push her to maintain spending rather than honor 18 billion US dollars and peso-denominated bonds that mature this year and next. The spread between Argentine bonds and US Treasuries has widened in recent months, reaching 727 basis points, or 7.27 percentage points, on August 8, the highest perceived risk since 2005, when Argentina restructured about 103 billion US dollars in debt. Investor concerns that Argentina may once again face cash shortages increased as the government sold Venezuela 1.5 billion in dollar-denominated 2015 bonds at an unusually high 15% interest rate in early August. Two weeks ago, Argentina announced plans to buy back an unspecified amount of 2008 and 2009 bonds, narrowing the spread to a still notable 670 basis points on Wednesday, according to JPMorgan's EMBI+ index. The buyback will begin with 49 million in dollar- and peso-denominated bonds, the Economy Ministry announced earlier in the week. "Argentina is a friendly country to people who want to come and invest," Massa said. "It's even more friendly for those who've put in a dollar and want to keep putting in more dollars, because that generates work for Argentines". Argentina has sold about 7 billion US dollars in debt to its left-leaning ally Venezuela since 2005, but it has not issued any other new bonds on international markets. Argentina defaulted on about 95 billion in bonds in 2001, the largest default in history. It restructured much of that debt four years later, swapping old bonds for new ones worth about a third of the price. About 76% of holders accepted the offer, while others are suing Argentina in European and U.S. courts for about 20 billion. Their cases are still pending. Massa declined to comment Wednesday on media reports that the government is planning to repurchase more debt from former bondholders who did not agree to the 2005 swap. However some Buenos Aires media quote Massa saying that "we did an offer at the time; the issue was sealed by Congress, there is no chance of reopening negotiations with the holdouts". He also denied the Argentine government was holding talks with the Paris Club to reschedule a 6.5 billion US dollars, which would help open credit markets to the country. The Paris Club includes governments which through their overseas aid offices have granted soft loans to developing countries.