MercoPress. South Atlantic News Agency

Brazil praises Argentina’s ‘successful’ debt swap process

But inflation, lack of credibility in official statistics remain challenges for the Argentine economy

Brazil said on Thursday that the sovereign debt swap process led by the Argentine government and its economy administration was “successful”.

“I would like to congratulate Argentina for their large success in restructuring the debt, something which will solidify Argentina with a strong economy that will continue throughout the next few years,” said Brazilian Economy Minister Guido Mantega.

Mantega spoke alongside Argentine Economy Minister Amado Boudou, with whom he met in Sao Paulo to analyze bilateral commerce.

Boudou also spoke and said that the support shown by the Brazilian government “is a generous move” because the economic team that works with President Lula da Silva “followed the entire process of restructuring” the debt.

He explained that between the 2005 debt swap and the one closed this week, “Argentina was able to re-program 92.4% of its total defaulted debt and the greater part of shareholders accepted” the proposal.

“This allows us to advance even more within the world markets” and their reestablishment. He did clarify, however, that “Argentina will begin to look for funds in the markets once it sees reasonable interest rates,” mentioning also the current “volatile” state of the world economy.

On Wednesday Boudou announced that the debt-swap acceptance rate has reached 66%, which is equivalent to 12.067 billion dollars in defaulted Argentine bonds.

“Almost 12.7 billion US dollars have entered in this stage of the process,” he ratified. “Expectations have been loosely exceeded” he celebrated, and specified that the final percentage goes “10 percentage points beyond” of what the government had imagined it would account for.

One of Wall Street leading risk raring agencies, Standard & Poor's Rating Services said that the Argentine debt swap is a ‘very important success’ that will contribute to the normalization of the relationship between Argentina and international financial markets.

However, the agency added that the limited sources of available financing for the government continue to restrict the condition of the country's debt.

Standard & Poor's says that the debt swap will not affect the actual limits of the Argentine economy due to lack of available financing sources for the government. Despite the steps taken, obtaining financing in the international markets will continue to be an important obstacle for Argentina due to the amount of debt that it chose to leave out of the swap program, which is estimated to be at 6.2 billion dollars.

The limits that Argentina faces include factors related to the country's internal economic policies. Among these, the doubt that shadows future governmental policies and the lack of credibility in official statistics were mentioned, and the agency highlighted the official inflation index.

According to the agency, the principal payments are for a total of around 12.8 billion dollars (3.5% of GDP) in 2010, and 11 billion dollars (2.8% of GDP) in 2011.

The agency said that it estimates the Argentine GDP will grow at least 5% this year, but also cautioned about inflationary pressures which may erode some of the strong points of the economy in the near future.

Inflation is forecasted will reach around 25% at the end of 2010; although the risk is clear when it comes to the possibility of a larger inflation index due to a combination of current economic policies and strong demands from labour unions.