MercoPress. South Atlantic News Agency

Argentine bonds’ swap could not be sufficient, warn anks

Charles Dallare, IIF CEO demands “transparency and good faith negotiations” with creditors

In spite of Argentine authorities optimism regarding the 20 billion USD bonds’ swap launched on Thursday the Institute of International Finance, (IIF), warned that the initiative could be insufficient to re-establish the country’s full access to voluntary money markets.

Since the 2001 default Argentina has been unable to float bonds in international markets, a problem that could persist in spite of the positive effects from the swap, said IFF, the world’s main association of financial institutions which groups 375 banks from 70 different countries.

“Even a high rate of participation from bond holders could not fully re-establish the Argentine government access to international money markets given the persistent legal challenges and associated risks”, according to a report on emerging markets released on Thursday.

Nevertheless IIF believes that the swap “will probably increase private capital inflow into the country in 2010 and 2011”.

This basically will take place through two main channels: Argentine corporations and the Argentine state and local governments will have cheaper access to foreign capital; on the other hand private investors could directly increase their participation in the local market.

Charles Dallara, IIF CEO said that the best way for solving Argentina’s debt problems is to abide by a set of principles agreed a few years ago by governments and investors.

“They are the principles of transparency in relations with creditors, good faith negotiations and equanimity, fair and equal dealings with all creditors plus obviously a sound economic policy that supports and sustains the restructuring”, said Dallara.

Enforcing these principles is “the most effective” way for Argentina to solve its problems.

Argentina has been criticized for increasing government interference in the economy through a complicated mechanism of subsidies, frozen public utility rates and export taxes that helped boost consumption but discouraged investment.

The government has also been accused of manipulating statistics to satisfy its goals of nominal low inflation, and moderate growth so as to limit yields on bonds tied to GDP growth.

Although 2010 prospects are promising based on excellent crops and strong demand for Argentine exports, inflationary expectations are in the range of 30 to 40% annually and the budget deficit both at federal and provincial levels is soaring.