MercoPress. South Atlantic News Agency

Cristina announces possible deal with bonds' “hold outs”

Nasdaq, an appropriate stage for a U turn in economic policy

Argentine President Cristina Fernandez de Kirchner announced Monday in New York her administration was considering a proposed deal with holdout creditors who rejected the country's 2005 sovereign debt swap and have since used the courts to try to seize Argentine assets abroad.

The announcement follows Argentina's decision to pay back its defaulted debt to the Paris Club of creditor nations and marks a further effort to improve access to financing before the country's debt obligations rise sharply next year. "Three large international banks have made a most interesting proposal regarding bond holders which did not accept the 2005 swap. I hope it is successful". Mrs. Kirchner made the announcement at the Council of Foreign Relations and later at Monday's closing bell at the Nasdaq stock exchange. Although no details were advanced the Argentine president said the offer must now comply with three stages: "the presentation of the formal proposal; followed by the evaluation of the Executive and if considered viable it will then be sent to the Argentine Congress". However the Argentine press did advance some details of the possible understanding which apparently was presented two weeks ago by Barclays from London and basically means the hold outs admit a 65% cut in the face value of the bonds. I was later revealed that the two other mega institutions are Citibank and Deutsche bank. Accrued interests since June 2005 (when the majority of the swap was agreed) will be paid with similar "discount" bonds at an annual rate of 8.28%. The operation would be under an agreed international court. The Argentine government has some conditions for the operation: no use of the words "swaps", not only because it would be politically embarrassing for the Kirchners but because of a law which bans opening the defaulted sovereign bonds restructuring process. This could be avoided by what is defined as "reverse inquiry" which means it is an initiative from bond holders. Another condition is no bonds linked to GDP growth, as Barclays was first demanding. The proposal also has honey for the Argentine government: 2 billion US dollars which would help the Kirchner administration complete its 2009/2010 international commitments. Furthermore Argentina's decision to cancel the Paris Club debt with Central Bank reserves could leave the country legally vulnerable since the hold outs have won several judgments with US courts and there's another pending (probably favorable) from Magistrate Thomas Griesa. On the other hand the turbulences in global financial markets are an additional incentive for hold outs to sit and negotiate. Another point which banks are demanding is the normalization of Argentina's statistics office, since its releases are considered unreliable and manipulated to please political and financial interests of keep inflation below two digits. Argentina in 2005 restructured most of the debt from its world-record 95 billion US dollars default in 2001, and has since built a double surplus: trade and primary for the budget having managed since then to build international reserves to the tune of 47 billion US dollars. But individual and institutional lenders still are holding on to 20 billion US dollars in sovereign bonds. Two years ago Argentina paid back all pending loans with the IMF (9 billion US dollars) and now plans to use 6.7 billion of the cash to pay off debt from the Paris Club. Her announcement at Nasdaq confirms Buenos Aires press advances and her openness to discuss the proposal, which she said "is much more favorable" for Argentina than the 2005 restructuring represents a turnaround from her position in August, when she said "a country shouldn't have to kneel" for loans.