MercoPress. South Atlantic News Agency

Argentina's debt spread at its highest since June 2005

Argentina's sovereign debt spreads topped 1,000 basis points on the JPMorgan EMBI+ index 11EMJ on Wednesday as investors worried about the country's ability to keep servicing debt in coming years, amid tighter credit conditions.

Argentina's spreads over US Treasuries shot up 52 basis points to 1,005 basis points, their highest since the level of 6,607 basis points reached on June 12, 2005, when the EMBI+ was rebalanced to take into account the country's debt restructuring, JP Morgan said. In order to regain access to international capital markets and meet its refinancing needs through 2010, Argentina is in talks with three US banks to reopen that debt restructuring to "holdout" investors who did not accept it initially. Holdouts are believed to be holding in the range of 20 billion US dollars. Lawsuits by those investors and judicial orders for Argentine assets to be seized have kept the government from issuing debt under international legislation. Argentina has also begun talks with the Paris Club after having announced its willingness to normalize the situation. Officials are meeting to decide on the total debt, interests and payments. Argentine president Cristina Fernandez de Kirchner has said the country is willing to dip into its international reserves (47 billion US dollars). However in both cases holdouts and Central Bank reserves, her administration must obtain approval from Congress. Another irritating issue has been the Kirchners administrations (Nestor and Cristina) insistence on defending the official Statistics Office inflation indexes, of one digit, which are considered non serious (fantasy accounting) by Argentine industry, unions and international banks including multilateral organizations such as the IMF and World Bank. The Argentine private sector works on an estimate of 18 to 23% annual inflation, on which many labor contracts are based and is the general feeling among consumers. Furthermore Argentine economists fear that lower commodity prices including a 36% drop in soybeans from a July record, slowing economic growth and higher government spending may erase the 3.6 billion US dollars budget surplus forecasted for 2009. Argentina's total financing needs for next year are estimated in 12 billion US dollars.