[stop-imf] Argentina to restructure debt

[Robert Weissman]

http://www.washingtonpost.com/ac2/wp-dyn/A2996-2001Oct28?language=3Dprinter

Argentina Says It Will Restructure Debt=20
Government Hopes to Avoid Defaulting on Loans as Economic Crisis Deepens=20

By Anthony Faiola
Washington Post Foreign Service
Monday, October 29, 2001; Page A14=20

BUENOS AIRES, Oct. 28 -- Confronting a deepening economic crisis,=20
Argentine officials today acknowledged the need to restructure the=20
national debt, saying the cash-strapped government
will move this week to voluntarily renegotiate payments with its foreign=20
and domestic creditors.=20

The decision -- which is expected to be officially announced by President=
=20
Fernando de la Rua in coming days and was outlined by de la Rua and=20
Economy Minister Domingo Cavallo in
interviews today -- was the first admission after months of financial=20
turmoil here that foreign lenders are unlikely to receive everything they=
=20
are owed. But the decision also amounted to an effort
by Argentina to find a middle ground with creditors that stops short of an=
=20
involuntary suspension of payments, or default, on the country's $132=20
billion debt.=20

With the failure of the government's repeated crisis-fighting measures,=20
and the nation's economy mired in its fourth year of recession, economists=
=20
have predicted for months that Argentina
would eventually have to renege on its debts. Still, the news could=20
further unsettle global financial markets already in a fragile state as a=
=20
result of the worldwide economic slowdown and the Sept.
11 terror attacks.

The impact is most likely to be felt in other Latin American countries,=20
especially Brazil and Chile, whose currencies have been plummetting for=20
much of the year because of fears that Argentina
would be forced to default and abandon the system that keeps its currency=
=20
rigidly linked to the U.S. dollar.

The debt-restructuring negotiations are expected to be arduous and could=20
last months. Argentine bonds are among the most widely held in the world.=
=20
Many U.S. pension funds, mutual funds
and financial institutions have invested in them. Argentine officials said=
=20
in interviews that the government would continue to honor its outstanding=
=20
debt, but hoped to swap new bonds with lower
interest rates for billions of dollars' worth of outstanding bonds now=20
yielding interest as high as 20 percent.=20

The resulting savings, de la Rua told La Nacion newspaper today, would=20
allow Argentina to implement a long-delayed financial stimulus package=20
that is expected to be announced this week. The
package is "aimed at [economic] reactivation and social rejuvenation"=20
after four years of recession, de la Rua said, and would include a job=20
creation program, relief for the unemployed, reduced
taxes and other measures to jump-start the country's economy.

The Argentine crisis also represents the first major test of how the Bush=
=20
administration, which reluctantly agreed to an $8 billion International=20
Monetary Fund bailout of Argentina last August,
will deal with financial crises after Sept. 11. Indeed, Argentina hopes to=
=20
induce investors to accept the new bonds by securing them with an=20
additional pool of money authorities hope to amass
through major international lenders such as the IMF, World Bank and=20
Inter-American Development Bank.=20

Sources close to the government said today that Argentine authorities are=
=20
in talks with the World Bank and Inter-American Development Bank about a=20
combined contribution of between $5
billion and $6 billion. But permission to apply existing loans along with=
=20
new IMF money to back up the new bonds, as well as the political support=20
of the U.S. Treasury, could prove essential.

IMF and Treasury officials in Washington declined to comment.

"Without international support," said a source close to the government, "a=
=20
voluntarily swap is probably impossible."

In exchange, Argentine officials suggested, they would be willing to=20
continue to overhaul state bureaucracies, eliminate subsidies on such=20
products as gas in Patagonia, and perhaps take further
measures to link the economy to the U.S. dollar.

Although the government had publicly announced that a smaller debt swap=20
was in the works with domestic creditors, the broader decision to enter=20
into voluntary renegotiations with foreign
creditors comes as Argentina's economic and political crises have=20
serverely worsened.

In the past month, Argentine unemployment has soared almost 2 percentage=20
points to reach a record high of 18 percent. Dozens of businesses are=20
closing every month, and consumer
confidence has reached an all-time low. De la Rua has faced repeated calls=
=20
from the opposition Peronist Party, which won control of both houses of=20
Congress two weeks ago, to call early
elections.

De la Rua has refused calls to step aside, but he is also facing=20
increasing isolation from his own party and his cabinet appears locked in=
=20
internal disputes. The breaking point, however, was the
collapse last week of a pending deal with provincial governments to limit=
=20
the amount of tax dollars they receive in order to service the debt.

Still, even a successful debt swap is likely to cause private lenders to=20
shun Argentina for months, if not years, and top bond-rating houses, such=
=20
as Standard & Poors, have threatened to declare
Argentina in default anyway if the country is perceived as imposing lower=
=20
interest rates on unwilling creditors. But analysts say the government is=
=20
willing to take that risk because the worsening
recession and increasing social unrest have eliminated the option of=20
further belt-tightening to make ends meet.=20

Staff writer Paul Blustein in Washington contributed to this report.

                                                            =A9 2001 The=20
Washington Post Company=20