MercoPress. South Atlantic News Agency

Argentina yields to creditors: cancels Paris Club debt

Cristina on a crash course of intenational finance

Argentina will repay its 6.7 billion US dollars of pending debt with the Paris Club group of creditors, seeking to ease companies' access to financing as growth slowed and growing signals from risk rating agencies indicated the country was heading for a default scenario if no changes were implemented to economic policies.

President Cristina Fernandez de Kirchner said she had signed a decree allowing the use of the central bank's 47.1 billion US dollars in international reserves to pay the Paris Club. The announcement was part of the "Industry Day" celebrations. "This is an important step of state policy, which is to cut our debt'' said Mrs. Kirchner at the presidential palace in Buenos Aires where she had invited representatives of industry, banking, trade unions and political leaders. "This payment puts companies in a pole position, which they haven't had before this decision, and reaffirms Argentina's willingness to pay its international commitments". An accord with the Paris Club, an informal association of creditors, including the US, European countries and Japan, (precisely launched in 1954 to help with Argentina's financial problems) would shore up investor confidence in the country at a time when economic growth is slowing as political challenges for the Kirchner administration mount and commodities international prices are falling. According to United Nations Argentina received a meager 5.4% of the 105.9 billion US dollars in foreign direct investment in Latin America and the Caribbean last year. While this happened Brazil received 33%, Mexico 22% and Chile 14%. "This will have some positive impacts, but it will also raise more questions about how the government uses central bank reserves'' anticipated Daniel Marx a former finance secretary and advisor to multilateral organizations. Other economists also point to the two digit inflation and profligate government spending "which must be curbed". Helped by a boom in farming and agriculture prices tax revenue has been soaring in Argentina with international bank reserves skyrocketing from 8.2 billion US dollars in 2003 to 47.1 billion US dollars on September, two years after having cancelled all debts with the IMF, approximately 11 billion US dollars. Mrs. Kirchner in her speech recalled that the Paris Club debt dates back to December 1983, when the rebirth of the current democratic system, "but 45% of it was even from before that date". Anyhow it was "genuine debt" since it helped finance exports and therefore not "financial debt", as with most of the 2001/02 default, she emphasized. "This is another essential step in the country's policy of cutting on debt which was started in the previous administration, with the rescheduling of sovereign debt, with the highest cuts ever, and later when cancelling Argentina's debt with the IMF", underlined the Argentine president. During July, August Argentina was exposed to insistent rumors that she was heading to a pre default situation, be it in 2008 or 2009 because the country would not be able to honor maturing debt. This was confirmed when risk rating agencies lowered Argentina's debt to pre-default and the Central Bank had to intervene to cut a run on deposits by hiking interest rates and appreciating the Argentine peso almost 12%