Buenos Aires expects a 70% bondholder acceptance to its proposal of paying 30 cents on each dollar in default since January 2002
Argentina enters into a key week on its historic bid to swap its $102.6 billion debt, by paying 30 cents on each dollar in default since January 2002. Last Friday, Buenos Aires scored an early but expected victory as local pension funds holding 20 per cent of the total debt signed up for the exchange.
However, experts do not believe the process abroad would be as easy as with local holders. Foreign creditor groups vowed to resist the offer and began their own counter-offensive in a battle to win the support of undecided bondholders. After three years in default, President Nestor Kirchner is asking private creditors worldwide to sign up for an offer that amounts to the biggest loss to investors of sovereign debt in modern times. The so-called haircut could be as high as 70 per cent.
Even when the losses may sound heavy, it is clear that Argentina is not able to pay more money than offered, as the country is still badly recoverying from its worst-ever economical and social crisis sparked by a four year recession from 1998 to 2002.
Argentina will issue up to $41.8 billion in new bonds in exchange for the $102.6 billion in bad debt held in at least 10 countries. The main obstacle to success is the Global Committee of Argentina Bondholders, or GCAB, which says its represents $38 billion of the debt in default that won’t be swapped.
The GCAB is being holding a stiff campaign against Argentina's authorities to frustrate the deal. However, analysts consider its impact relatively, as large holders look ready to sign up. They say, Argentina's offer can be negotiated, even when South American authorities claimed tme after time that the swap is no longer to be sweetened.
The GCAB says Argentina is able to pay more, dismissing facts as the current 50% poverty rate in a country used to rates far below from that. Tough creditors do not consider the 20% unemployment rate stuck since 1998, as well, as other indicators that tell how deeep was the crisis in Argentina.
The Bank of New York is broking Argentina's new bonds in more than ten countries. The final result will not become clear until close to the Feb. 25 deadline approaches. The government will announce the outcome on March 18.
European bondholders resisting the offer will have one-to-one meetings next week with Finance Secretary Guillermo Nielsen, undersecretary of Finance Sebastian Palla and UBS bankers who manage the debt swap, investors said.Hours before the debt swap opened, Kirchner told a crowd of supporters in Buenos Aires the "whole world" should know the offer would never be sweetened.