MercoPress. South Atlantic News Agency

Argentina vows to press on with debt swap of defaulted bonds

“Firm political decision”, said Economy minister Amado Boudou

Argentina vowed on Wednesday to press on with a debt swap targeting 20 billion US dollars in defaulted bonds in spite of the political turmoil. The announcement had an immediate reaction in the stock market and Argentine bonds.

President Cristina Fernandez de Kirchner administration is hoping to settle with the “hold outs” to clear up the fallout from a 2002 default and issue new bonds to help cover the 13 billion USD in debt payments the country faces this year.

“We will continue moving forward with the debt swap; there is a firm political decision to move forward with the swap” Economy Minister Amado Boudou told Radio 10. He acknowledged that a dispute over the use of central bank foreign exchange reserves has taken some of the shine off the offer.

Boudou told local radio stations that the US Securities and Exchange Commission is examining the proposed reopening and is likely to return it to the Argentine government for corrections at some point.

The swap will proceed ”as fast as possible” Boudou was quoted by Reuters’ news agency.

Meantime the Merval stock index closed 3% higher at 2,338 points, while the Discount sovereign bond due 2033, denominated in pesos, was up 5.2% at ARS106, to yield 11.74%.

Doubts have been cast that the debt swap, which is a reopening of the larger swap completed in 2005, would proceed as a political crisis has unfolded over the use of Central bank reserves to pay debts through the creation of a Bicentennial Fund for Stability and Reduced Indebtedness.

Turmoil over President Cristina Kirchner decision to set up a fund with Central bank reserves and oust Governor Martin Redrado has pitted the government against Argentine courts and Congress, where opposition leaders have questioned the legality of the move.

Boudou said the government intends to go ahead with the 6.5 billion USD reserves fund, which he has described as key to determining the interest rate Argentina pays when it returns to global credit markets after the swap.

He also said senior Argentine officials were meeting with retail investors and banks in Mexico and London to discuss the proposed swap. Denying press reports Boudou said the banks managing the swap had at no time proposed delaying the transaction.

Meantime Judge María José Sarmiento accepted the appeals lodged by the government in connection with the use of Central bank reserves for debt payments and Martin Redrado's dismissal as the agency's governor.

According to judicial sources, the judge's decision means that the Executive's official arguments are already being evaluated by the Court related to administrative litigation, which will have to decide whether or not to uphold Sarmiento's ruling.

However, Redrado restitution as head of the CB and the ban on the use of reserves will remain in effect until an eventual decision.