MercoPress. South Atlantic News Agency

Argentine Senate reopens debt restructuring process for bond holdouts

Finance minister Amado Boudou closer to his objective

Argentina’s Senate passed a bill on Wednesday with a significant majority to reopen the country's 2005 debt restructuring. The administration of President Cristina Fernandez de Kirchner hopes it will help it settle a dispute with holders of an estimated 20 billion US dollars in defaulted bonds.

Senators voted 45 to 10 to back legislation that would temporarily overturn the “Ley Cerrojo,” or Bolt Law, which closed the debt deal four years ago. The bill was passed earlier this month by Argentina's Lower House of Congress and must now be signed by the Executive to take effect.

Argentina hopes to reach an agreement with investors who rejected the 2005 restructuring deal to clear the way to issue new debt nearly eight years after the country's 100 billion US dollars default.

Under the legislation, investors who want to take part in the swap must accept the same conditions or worse than the 2005 restructuring, when Argentina paid some 30 cents on each dollar of defaulted debt.

The head of the Budget and Finance committee Senator Fabian Rios said the project will help “reactivate foreign investment in Argentina”.

“Restabilising legal security for indebtedness and financial mechanisms that will help lower the country risk and rates for the private sector to obtain credits overseas, will help boost foreign investment in the Argentine economy”, he emphasized.

Economy minister Amador Boudou and other government officials have also said that funds that may have bought the defaulted bonds dirt-cheap after Argentina's 2001-02 economic crisis should not get the same terms as retail investors.

Lawsuits by the holdouts have since weighed on Argentina's risk rating and proven to be an obstacle to foreign debt issues by the government. The bill requires bondholders who participate in the swap to drop their pending lawsuits against the government.

Full terms of the debt reopening have yet to be released, but Minister Boudou has said the government would try to structure a proposal taking into account differences between retail and institutional debt holders.

The government has named Barclays, Citigroup and Deutsche Bank AG to manage the reopening.

The reopening of the restructuring process should help Argentina return to global money markets from where she has been absent since the default. Argentina has managed to survive these last years without foreign loans basically working on the two surpluses system (budget and trade), “Chinese” growth rates and multilateral organizations.

However since late 2008 the Argentine economy has slowed down considerably, the two surpluses system is not as fluid as before and its monetary “isolation” is limiting the country’s access to abundant global resources to help with the economic contraction.