[stop-imf] Argentine Debt Restructuring Raises Copy-Cat Concerns
Robert Weissman
rob@essential.org
Tue, 06 Nov 2001 12:23:13 -0800
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November 6, 2001
Dow Jones Newswires
Argentine Debt Restructuring Raises Copy-Cat Concerns
By Stephen Wisnefski
NEW YORK -- Argentina's upcoming debt restructuring is sparking
concerns in some corners that the deal could blaze a trail for other
emerging market countries with heavy financing needs and economic woes.
The Latin America country - deep into its fourth year of recession -
announced plans last week to lower the average cost of its $132 billion
public sector debt to 7% from around 11%-12%, by encouraging investors
to accept lower rates in exchange for better repayment guarantees.
The plans have received a chilly reception at home and abroad, with
market participants increasingly skeptical that the restructuring will
be voluntary for bondholders.
But looking beyond the transaction itself, there are rumblings that
Argentina may not be the only country in line for an overhaul of its
debt profile, particularly as the sharper slowdown in the wake of the
Sept. 11 terrorist attacks weighs on several already-vulnerable
countries.
"Here we're going into a recession... (and) a lot of these countries
are going to be hit," said Gary Clyde Hufbauer, senior fellow at the
Institute for International Economics in Washington D.C. and a former
U.S. Treasury official. "I would be surprised if we came out of this
recession without at least two or three defaults."
He cited Indonesia, the Philippines, Pakistan, Thailand, Turkey and
Bolivia among the handful of nations with troublesome debt profiles.
"I think these countries would have been more hesitant before (to
default), but the way the Argentina drama has played out is a seal of
approval. Argentina sets the new standard," Hufbauer said.
Sets Precedent For Future Restructurings
Argentina - which has traditionally accounted for about a quarter of
emerging market debt issuance - has been rumored to be on the verge of
default for more than a year, as a deteriorating economic scenario
marked by declining consumer confidence and rising unemployment took a
huge bite out of tax revenues.
The country seems to have worn out the welcome of multilateral lenders
and the world's leading industrialized nations, which have expressed
support for Argentina's most recent announcements without accompanying
promises of new financial aid.
"What has happened in Argentina is not even tolerance of default, it's
encouragement," Hufbauer said, referring to the role of the
International Monetary Fund and U.S. Treasury. "I think we will see
copycats."
While not as pessimistic, Edwin Ferrell, international markets analyst
at Carmel, IN-based Conseco Asset Management, agrees that Argentina will
set the pace for moves to restructure within the asset class.
"Given the level of debt, it's likely that Argentina will be a
precedent for further restructurings or discussions of what is a level
of sustainable debt," said Ferrell, who oversees around $800 million in
emerging markets investments.
He added, however, that it's difficult to gauge the potential impact of
an Argentine restructuring given that the details haven't yet been fully
announced.
Indonesia May Be Next In Line
Indonesia is one country that has already given indications that it
will seek debt relief in the coming months on its $125 billion debt
load.
Last week, President Megawati Sukarnoputri termed the country's debt
payments as "dangerous," while Economics Minister Dorodjatun
Kuntjoro-jakti was quoted Monday as saying that Indonesia may ask the
Paris Club of bilateral creditors to write off some of the country's
debt.
Later this week, Jakarta is expected to request about $4 billion in
project and program loans from the group of donors known as the
Consultive Group on Indonesia to help cover its 2002 financing gap.
Standard & Poor's last Friday cut its rating on Indonesian sovereign
debt to triple-CCC from triple CCC+, citing an "anticipated" debt
restructuring following an upcoming meeting of Indonesia's bilateral
creditors.
Analysts point out that Indonesia, which has very little commercial
bond debt relative to Argentina, can likely count on the support of the
IMF and other international creditors in the wake of Sept. 11 even if
the country's fiscal performance is subpar. Indonesia is the world's
most populous Muslim nation and any worsening of relations with the West
could, analysts say, radicalize the country's political leadership.
Turkey and Pakistan also fall into the category of countries likely to
receive steady support given their geopolitical importance in the fight
against terrorism.
In Latin America, some observers point to potential problems in Brazil,
which has seen its ratio of debt to gross domestic product balloon this
year and faces the uncertainty of a presidential election in 2002.
"There's possible political contagion in Brazil. A populist candidate
could grab the theme: `(Argentina) defaulted, why can't we?"' said
Nicholas Field, an asset manager of emerging market debt at WestAM in
London.
Depth Of Argentina's Problems Unique
While several countries face challenging financing environments,
analysts are quick to point out that Argentina is unique in the depth of
its problems.
Jaime Valdivia, emerging markets fixed-income strategist at Morgan
Stanley in New York, cited the country's fixed exchange rate, high level
of dollar-denominated debt, low primary surpluses, and heavy refinancing
needs.
"You do not see these four things together in any other emerging
market," Valdivia said.
The performance of emerging market debt over the past week seems to
indicate that investors are increasingly isolating Argentina's
difficulties from the rest of the asset class.
"I think countries will attempt to really differentiate themselves from
those who are facing difficulties to meet payments," he added. "I don't
think this will be an opportunity for other countries to jump on the
bandwagon."
He added, however, that "Argentina may be yet another missed
opportunity to lead emerging markets into an orderly restructuring
process."
-By Stephen Wisnefski, Dow Jones Newswires; (201) 938-5692;
stephen.wisnefski@dowjones.com
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Subject: Argentine Debt Restructuring Raises Copy-Cat Concerns
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November 6, 2001
Dow Jones Newswires
Argentine Debt Restructuring Raises Copy-Cat Concerns
By Stephen Wisnefski
NEW YORK -- Argentina's upcoming debt restructuring is sparking
concerns in some corners that the deal could blaze a trail for other
emerging market countries with heavy financing needs and economic woes.
The Latin America country - deep into its fourth year of recession -
announced plans last week to lower the average cost of its $132 billion
public sector debt to 7% from around 11%-12%, by encouraging investors
to accept lower rates in exchange for better repayment guarantees.
The plans have received a chilly reception at home and abroad, with
market participants increasingly skeptical that the restructuring will
be voluntary for bondholders.
But looking beyond the transaction itself, there are rumblings that
Argentina may not be the only country in line for an overhaul of its
debt profile, particularly as the sharper slowdown in the wake of the
Sept. 11 terrorist attacks weighs on several already-vulnerable
countries.
"Here we're going into a recession... (and) a lot of these countries
are going to be hit," said Gary Clyde Hufbauer, senior fellow at the
Institute for International Economics in Washington D.C. and a former
U.S. Treasury official. "I would be surprised if we came out of this
recession without at least two or three defaults."
He cited Indonesia, the Philippines, Pakistan, Thailand, Turkey and
Bolivia among the handful of nations with troublesome debt profiles.
"I think these countries would have been more hesitant before (to
default), but the way the Argentina drama has played out is a seal of
approval. Argentina sets the new standard," Hufbauer said.
Sets Precedent For Future Restructurings
Argentina - which has traditionally accounted for about a quarter of
emerging market debt issuance - has been rumored to be on the verge of
default for more than a year, as a deteriorating economic scenario
marked by declining consumer confidence and rising unemployment took a
huge bite out of tax revenues.
The country seems to have worn out the welcome of multilateral lenders
and the world's leading industrialized nations, which have expressed
support for Argentina's most recent announcements without accompanying
promises of new financial aid.
"What has happened in Argentina is not even tolerance of default, it's
encouragement," Hufbauer said, referring to the role of the
International Monetary Fund and U.S. Treasury. "I think we will see
copycats."
While not as pessimistic, Edwin Ferrell, international markets analyst
at Carmel, IN-based Conseco Asset Management, agrees that Argentina will
set the pace for moves to restructure within the asset class.
"Given the level of debt, it's likely that Argentina will be a
precedent for further restructurings or discussions of what is a level
of sustainable debt," said Ferrell, who oversees around $800 million in
emerging markets investments.
He added, however, that it's difficult to gauge the potential impact of
an Argentine restructuring given that the details haven't yet been fully
announced.
Indonesia May Be Next In Line
Indonesia is one country that has already given indications that it
will seek debt relief in the coming months on its $125 billion debt
load.
Last week, President Megawati Sukarnoputri termed the country's debt
payments as "dangerous," while Economics Minister Dorodjatun
Kuntjoro-jakti was quoted Monday as saying that Indonesia may ask the
Paris Club of bilateral creditors to write off some of the country's
debt.
Later this week, Jakarta is expected to request about $4 billion in
project and program loans from the group of donors known as the
Consultive Group on Indonesia to help cover its 2002 financing gap.
Standard & Poor's last Friday cut its rating on Indonesian sovereign
debt to triple-CCC from triple CCC+, citing an "anticipated" debt
restructuring following an upcoming meeting of Indonesia's bilateral
creditors.
Analysts point out that Indonesia, which has very little commercial
bond debt relative to Argentina, can likely count on the support of the
IMF and other international creditors in the wake of Sept. 11 even if
the country's fiscal performance is subpar. Indonesia is the world's
most populous Muslim nation and any worsening of relations with the West
could, analysts say, radicalize the country's political leadership.
Turkey and Pakistan also fall into the category of countries likely to
receive steady support given their geopolitical importance in the fight
against terrorism.
In Latin America, some observers point to potential problems in Brazil,
which has seen its ratio of debt to gross domestic product balloon this
year and faces the uncertainty of a presidential election in 2002.
"There's possible political contagion in Brazil. A populist candidate
could grab the theme: `(Argentina) defaulted, why can't we?"' said
Nicholas Field, an asset manager of emerging market debt at WestAM in
London.
Depth Of Argentina's Problems Unique
While several countries face challenging financing environments,
analysts are quick to point out that Argentina is unique in the depth of
its problems.
Jaime Valdivia, emerging markets fixed-income strategist at Morgan
Stanley in New York, cited the country's fixed exchange rate, high level
of dollar-denominated debt, low primary surpluses, and heavy refinancing
needs.
"You do not see these four things together in any other emerging
market," Valdivia said.
The performance of emerging market debt over the past week seems to
indicate that investors are increasingly isolating Argentina's
difficulties from the rest of the asset class.
"I think countries will attempt to really differentiate themselves from
those who are facing difficulties to meet payments," he added. "I don't
think this will be an opportunity for other countries to jump on the
bandwagon."
He added, however, that "Argentina may be yet another missed
opportunity to lead emerging markets into an orderly restructuring
process."
-By Stephen Wisnefski, Dow Jones Newswires; (201) 938-5692;
stephen.wisnefski@dowjones.com
--
Marcia Carroll
Multinationals Resource Center
P.O. Box 19405, Washington, DC 20036 USA
Email: marcia@essential.org
Tel +1 202.387.8030; Fax +1 202.234.5176
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